When it comes to business Chinese companies typically have a winner-takes-all attitude. This can clearly be seen in the current race to the bottom when it comes to EV pricing, largely being instigated by market leader BYD. And this ethos may go some way to explaining the current situation with Nio and its branding strategy and why Firefly has incompatible battery swapping.

Although Nio has been beset by various problems over the years, the root cause has always rested with sales. What Nio needs to do more than anything is increase its volumes. Nio’s sales of 21,209 in June, a monthly record, is obviously an encouraging sign. However, Nio keeps giving encouraging signs but unlike Li Auto has never been able to follow up on them with concerted growth.

Nio seemed to realize early on that the Nio brand alone would be insufficient which is likely the reason that it initially formed joint ventures with both GAC and Changan. These due to Nio’s financial problems came to nothing. Onvo is the latest attempt at going more mass market and William Li, Nio’s CEO and founder, has high hopes for the brand’s first car, the L60. This has battery swapping and is compatible with Nio’s fourth-generation swap stations and modified third-generation stations. If Onvo is successful this will then give Nio another brand of cars using the swap stations.

For Nio battery swapping is one of the main differentiators between it and the competition. From a user’s perspective, it is a lot quicker to swap a battery than charge one and it also means that the purchaser doesn’t need to worry about battery attenuation. Furthermore, it gets away from the fear factor of being hit with a huge bill for battery replacement.

However the network comes at a huge cost, China Daily quotes Nio as putting a price tag of 3 million yuan (412,650 USD) on each third-generation station and says that between 2018 and mid 2023 Nio accumulated 76.4 billion yuan (10.5 billion USD) in debts partly because of the swap stations. Previously William Li has said each station needs to do about 60 swaps a day to breakeven. Nio charges for each swap and can also potentially earn money from managing surge demand for electricity via storage for the grid, although it is not clear if Nio currently does this. It should also be noted that the cost of a swap station in Europe is likely higher.

Figures from June show that 54.14% of ‘charging’  by Nio drivers was done using swap stations versus the next highest figure of 23.79% from home charging. The remainder was made up of 18% at third-party public chargers and 4.07% from Nio public charging piles.

When it comes to battery swapping Nio is by far the leader in China. The only other real usage tends to be restricted to taxi fleets. In 2022 battery giant CATL set up its own battery swapping service EVOGO but this is reportedly still restricted to Xiamen, Quanzhou, Hefei, Guiyang, and Fuzhou.  

Nio has tried hard to attract other producers to use its battery-swapping system and Nio’s battery swap alliance now counts GAC, Geely, Chery, FAW, Changan, and JAC as members. The problem is not one of them yet seems to have produced a car compatible with Nio’s swapping system. If they do so Nio’s swap stations have a real chance of switching from a money drain to a revenue source.

The logic of launching a third brand almost simultaneously with a second brand is highly questionable. Firefly, as the brand is codenamed, is meant to be aimed at the European market and will concentrate on smaller cars. But was it really necessary to create a whole new brand to do this, could Onvo not have done this if it is meant to be more a mass-market brand?

Causing the answer to be ‘no’ more than anything else is the wheelbase restriction on Nio’s battery swap stations. The wheelbase restriction on Nio’s second and third- and third-generation swap stations is 2800 mm. Although we currently do not know the restriction for the fourth-generation swap station, we can assume that it is probably the same. It is very difficult to make a small car with a wheelbase of 2800 mm.

As we now know the Firefly brand will have battery swapping but it will not be compatible with Nio’s existing swap stations. William Li, Nio CEO and founder, has said that the Firefly swap stations will be about the size of a container and sell coffee. Building a network of these will be very expensive. Currently, Nio only has around 50 swap stations in Europe and given Nio’s poor sales so far in Europe it would seem prohibitive to create another swap station network. Equally making a car compatible with battery swapping adds to the costs and complexity of the car. Given the low-cost aims of the Firefly brand, it would have been better just to stick with charging.

One justification for the situation is that Nio envisions selling the smaller battery-swapping size to one of its battery-swapping partners for one of its brands. The current size restrictions on using the Nio swap station network must also be a constricting factor for other brands who wish to use the battery-swapping standards set out by Nio. By having another standard which is suitable for smaller cars it may be a way of persuading some of the partners to use the Nio standard. There is though still a big question mark over whether any of the partners will actually adopt Nio’s battery-swapping standards or not. It is very common in China for big announcements to be made but nothing done to follow them up.

This brings us back to the winner-takes-all all business attitude. By having the two battery swap size standards one for medium to large cars and the other for smaller cars Nio can effectively control the market for all battery swapping i.e. winner-takes-all. Of course, the big question is whether the winner really will take all in when it comes to battery swapping. With ever-decreasing battery charging times using fast charging the need for battery swapping is diminishing. For how long battery swapping can remain a competitive advantage for Nio is difficult to say, particularly given the cost of having two different battery swapping networks.

Sources: China Daily, Autohome, China Daily, Cleantechnica