NIO Introduces 'Battery as a Service' Option; Adds Flexibility, Reduces Uncertainty

NIO has never been afraid of thinking outside the box. The Shanghai-based premium electric vehicle automaker has already proven that with its highly successful battery swap business model. However, with today's announcement, we learn that NIO will begin offering another service that's unique to the industry: Battery as a Service, or "BaaS."

Soon, the automaker will allow its customers the choice of buying the vehicle with the battery as they have all along, or, if the customer prefers, they can purchase the vehicle without a battery, and lease the battery separately.

Why is NIO different?
Both battery swap and battery leasing programs have been attempted and neither has been successful, so why would NIO choose to go down these roads? Especially when you consider that Tesla also set its sights on battery swapping, only to later abandon that venture.

However, NIO is a different case. To date, NIO has built 143 battery swap stations in China. It has completed more than 750,000 battery swaps and is currently swapping roughly 4,000 every day.

NIO designs its cars around their battery packs and uses the same physical battery tray for the company's 70 kWh battery option as it does for the 100 kWh battery. The battery swap model it's using absolutely works, and its customers love it.

Since NIO designs and builds cars around battery packs and offers multiple models (three) that use the same battery packs, it has a distinct advantage over Better Place's battery swap model that failed. Plus, NIO knows where its customers live, and can simply increase the number of battery swap stations in areas where it sells more cars. Its battery swap stations aren't permanent structures and can be moved and relocated as demand increases or wanes.

I know because I visited China last year to drive the NIO ES6 and used its battery swap stations twice. They worked perfectly. In about eight minutes, I pulled in, had my battery swapped, and pulled out of the parking lot. I also had the opportunity to speak to about a dozen NIO customers, and every one of them explained to me that having the ability to use the battery swap stations was instrumental in their decision to buy an EV.

There's a couple of reasons why that's true. First, many Chinese residents live in apartment buildings and do not have the ability to charge an EV overnight at their home. Therefore, their reliance on public charging infrastructure is paramount. NIO's battery swap stations deliver a fully-charged battery faster than any DC fast charger can.

This convenience relieves the stress of waiting for the vehicle to recharge, which is a concern for many first-time electric vehicle owners. Plus, with NIO it's free.

Battery as a Service (BaaS)
With today's news, NIO is taking "battery security" to another level. NIO's new Battery as a Service (BaaS) program does a couple of things customers will appreciate.

First, it lowers the price of the vehicle by roughly 20%. The ES6 starts at RMB 358,000 (~$52,000 US) when you purchase it with the 70 kWh battery. With BaaS, the vehicle costs RMB 287,000 (~$42,000 US). The customer then leases the battery separately from a newly formed company that is a joint venture between NIO and its battery supplier, CATL. The monthly lease for the 70 kWh battery pack is $140 per month. Pricing for the 100 kWh battery pack will be slightly higher and will be announced in November.

Secondly, it offers the security of never having to be concerned about battery capacity loss and offers the customer the ability to lease a larger battery pack whenever they want one - it's NIO's flexible upgrade offering. If a customer has the 70 kWh pack and wants to rent the 100 kWh battery for a long trip, they can do so. They just pay the 100 kWh pack lease cost for that month and swap it back when the month is over. If they like the added range, they can just keep the larger battery pack and continue paying the higher monthly lease fee.

Additionally, if and when NIO has larger battery packs available in the future, their customers will have the option to lease the larger pack for a single month, or they can keep it and pay the lease cost on that pack moving forward if they prefer.

Didn't Renault try battery leasing with the Zoe?
Yes, and for the first few years, customers had no choice; they had to lease the battery because Renault wouldn't sell it with the car. However, later on, Renault began offering the option to purchase or lease the battery. The overwhelming percentage of customers still chose to lease the battery. Renault says it only leased the battery to reduce the cost of the vehicle so it would be competitive, but since battery prices have dropped, it no longer needs to do so.

While that may be one reason to offer battery leasing, it's not the only one as NIO is demonstrating. Zoe customers couldn't exchange their battery for a larger one and didn't have battery swap services as NIO does, which allows the customer to get a new battery whenever they want.

NIO's complete ecosystem of developing its own cars with interchangeable battery packs, offering different size packs, and upgrading them as battery technology advances, combined with an ever-expanding network of battery swap stations, is definitely working.

Now with BaaS, NIO's customers have the flexibility to upgrade, temporarily or permanently, the size of the battery, and they have a guarantee that they will never have to be concerned with capacity loss and range degradation. In doing so, NIO says it will be the first automaker to offer performance parity, meaning your EV will perform years later as well as it did when it was new.

NIO's competitive advantage
Battery swap and now BaaS makes the case for NIO's vehicles even more appealing. NIO is a premium brand in China and competes with the likes of Mercedes, BMW, and Audi. The ES6 is a luxury SUV like the BMW X3, the Mercedes GLC, and the Audi Q5. All of those vehicles are comparably priced to the NIO ES6 when sold with the battery.

However, separate the cost of the battery with BaaS and the ES6 costs about $10,000 less. It's true, the customer then has to pay the $140 per month battery lease but they also get free battery swapping so their transportation fuel costs them nothing. And guess how much the average person in China would pay per month to buy gas for an X3, a GLC or a Q5. Yep, about $140.

Those savings, along with the security of knowing you won't ever have to worry about battery degradation or having to replace a dead battery pack should move even more people off the gas pump and into a NIO.

How can NIO assume all of the battery responsibility?
It doesn't. It's true the customer doesn't ever have to worry about the cost of battery replacements or reduced range as the battery ages, but neither does NIO - not directly at least.

We mentioned above that NIO and its battery supplier, CATL, formed a partnership to lease the battery packs. This new company will also be responsible for repairing and replacing battery packs, as well as recycling the cells. Once the battery packs no longer meet NIO's standards, they can still be used for stationary energy storage, and even for electric bikes and scooters.

These second and possibly even third-life uses help drive down the cost of the batteries and also provides sustainable solutions once the battery is no longer viable for automotive use.