Nio's Battery Swap - Will It Supercharge Investor Interest?

Just swap the batteries like you would in a flashlight - and shave $10K from the vehicle price.

Anna Vodopyanova
    Aug 24, 2020 2:40 PM  PT
Nio's Battery Swap - Will It Supercharge Investor Interest?
author: Anna Vodopyanova   

Nio Inc. (NYSE: NIO) announced last week its novel "Battery as a Service" subscription model. Will it lure more EV buyers to its ES8, ES6 and EC6 – and investors to its stock?

A battery is an electric vehicle's priciest part, FutureCar's Eric Walz writes in his coverage of Nio's announcement. For a Nio vehicle, that would mean a discount of 70,000 yuan ($10,114) in exchange for a monthly subscription fee of 980 yuan ($142) for the 70 kWh battery pack. Buyers will also continue to enjoy the purchase tax exemption and government subsidies for EVs, according to the company's statement.

The model, deceptively simple yet decidedly genius, is the first in the world, and it will no doubt be picked up by other EV makers, if found to be profitable. Shaving $10,000 off a vehicle like NIO's seven-seater ES8, which is normally sold at about $68,000 in China, is quite a big deal. Compare that to Tesla's (Nasdaq: TSLA) Model X, sold at twice that price, and you see a much larger target consumer base for Nio.

Supercharging Shares?

So, what can investors expect from this move? Nio's stock ended up 6% on Monday, at $14.97 per American depositary share – this was after various media, like Green Car Reports and InvestorPlace, which missed the news last week, reported on the company's BaaS.

NIO's level today is actually higher than it peaked last week on the announcement of the subscription plan and the establishment of Wuhan Weineng Battery Asset Co. to be in charge of the battery assets, in which it owns a 25% stake. Moreover, that's nearly four times its level of early January and 10 times above its value of $1.50 per share in October 2019. Investors who bought in at the time are reaping gains now.

Merrill Lynch's Ming-Hsun Lee maintained an $18 price target on Nio on Friday. Meanwhile, some 13 highly optimistic analysts surveyed by CNN Business give Nio a 12-month price forecast of $97.32 per share, at the range from $7.03 to $125.13 per share.

Head of NIO, William Li, is quoted in the media as saying, "Our goal is to make charging more handy than refueling."

Now, the founder of the Tesla rival in China has gone further in facilitating the charging process. Just swap the batteries like you would in a flashlight at one of the stations – a simple solution to the issue that other carmakers have tried to solve by offering free recharging.

As of last week, Nio has carried out over 800,000 battery swaps through its 143 swap stations throughout China, the company said.

The Year of the Electric Vehicle

Separately, newly-listed Chinese EV maker Li Auto (Nasdaq: LI) got a "buy" from Goldman Sachs and Bernstein on Monday, which sent its shares up 14% to $17.09 per ADS. On Thursday, Aug. 27, Li Auto's rival, Alibaba-backed XPeng Inc., is scheduled to debut on the New York Stock Exchange under the ticker "XPEV" in a $1.1 billion IPO. 

Will these new Chinese EV company listings – as well as NIO's new BaaS service – help attract investors to this unsettled stock?

While battery swap tech was unpopular with Tesla's consumers (Tesla all but gave up on it after 2016 to focus on its network of superchargers) NIO's battery swap should give a boost to its sales, particularly in China, and likewise to its stock price. Why? Because, for one, NIO has the backing of the Chinese government. Regarding battery swaps, Miao Wei, minister of industry and information technology, said this at the annual PRC conference: 

"The ministry will encourage battery-swap technologies to alleviate mileage anxieties and introduce more new energy vehicles into public-service sectors including buses, street sweepers and logistics vehicles."

Smart investors should have already bought the dip after it fell on earnings for Q2. At the current levels, we think it is a stock to buy in what has been the year of the electric vehicle. Will NIO be Tesla? No. But NIO will rise. China, and cost-sensitive consumers electrified with battery swap generating savings, will make sure of it.