Beijing’s battery swapping bet could isolate China’s electric car industry

Trialed and rejected elsewhere, swapping instead of charging batteries is gaining traction in China. Gregor Sebastian says Chinese EV makers could profit at home – and lose out abroad.

Beijing is betting big on an electric-vehicle (EV) technology that European and American carmakers tested and discarded over a decade ago, given a number of problems starting with infrastructure and compatibility. Beijing believes battery swapping could boost EV adoption by tackling range anxiety, allowing empty batteries to be swapped for charged ones in minutes. Through top-down standardization and infrastructure investment, it aims to turn battery swapping from a niche into mainstream technology that is available in parallel to charging.

This poses the question of whether foreign carmakers active in China will be able to simply ignore battery swapping. The technology requires substantial changes to vehicle architecture, which foreign carmakers have for years now designed around charging alone. Should battery swapping catch on in China, it would raise a fundamental compatibility issue. Foreign carmakers might have to develop “China” model variants with battery-swapping features to protect their market share, while Chinese EV makers could see their export chances diminish.

Beijing intends to use battery swapping to fast-track EV adoption in China. Keeping EV demand high is key, because in 2023 China will become the first country to phase out EV purchasing subsidies. Battery swapping could entice consumers even beyond that date. Because EV owners would only lease the battery, which accounts for up to 50 percent of a vehicle’s price, it could slash the purchasing cost – and enhance the “re-charging experience.” Swapping would also place a new emphasis on batteries, which are dominated by Chinese producers.

Beijing’s support is strong, obstacles are substantial

China’s leadership has yet to present a battery swapping strategy, but it is already encouraging provinces and companies to roll out the technology. The Ministry of Finance in 2020 exempted battery-swap EV models from the vehicle-price cap for purchasing subsidies (a carveout to make NIO’s premium swap models eligible). And the government in 2021 started a pilot project to get more than 1,000 battery-swapping stations and 100,000 battery-swap EVs on the roads in 11 cities (reminiscent of its legendary ten cities, thousand vehicles pilot from 2009).

But the benefits of swapping are diminishing as charging times fall and EV ranges increase. And the 2013 bankruptcy of the Israeli battery-swapping pioneer Better Place shows that commercializing the technology faces significant hurdles. Surplus batteries are needed so that there are always enough fully-charged ones on hand in swapping stations. That would entail huge capital investment and create the risk of new strains on global supply chains for minerals including lithium, nickel and cobalt – at a time when raw-material costs are skyrocketing.  

Most pressingly, to enable sufficient scale and interoperability, the technology requires the standardization of battery packs and vehicle models. This is the main reason foreign carmakers cite for their resistance to swapping. In the EV era, advances in battery technology have become a key selling point to set themselves apart from their competitors. All of these reasons make it unlikely that battery swapping will ever replace charging in any country, including China. So, Beijing’s push will probably at best result in the technologies existing in tandem.

Chinese EV heavyweights and provinces are on board

The Chinese leadership’s determination should not be underestimated. It threw itself behind new automotive technologies, providing huge subsidies and industrial-policy support so that China could become the first country to commercialize EVs on a large scale. Chinese consumers in 2021 bought 3.3 million EV passenger vehicles, a record and more than the totals for the EU and the USA put together.  As part of China’s new infrastructure stimulus plan, both battery-swapping and battery-charging stations could see a boost in the coming years.

But standardization will decide whether battery swapping can succeed in China. Beijing can force the industry to consolidate and agree on standards that will make the technology interoperable. Unlike Europe and the USA’s industry-led standardization processes, China’s is state-driven, steered top-down by ministries like the Ministry for Industry and Information Technology (MIIT). In 2020, the MIIT named battery swapping a key area for automotive standardization – and in 2021 Chinese EV makers agreed a first national standard for it.

Even then, battery swapping still seemed a niche interest. But in January 2022 China’s CATL, the world’s biggest battery maker, announced the launch of a battery-swapping solution, EVOGO. Thanks to its huge home market, CATL in 2021 it produced 32.6 percent of all EV batteries made globally. It is a heavyweight that commands the scale to make battery-swapping a success in China – and it has the backing of Beijing to do so. Since then, EV producers and energy companies – including foreign ones like BP and Shell – are also coming on board.

EV maker and swap-station operator NIO is publishing daily updates about its network – it was operating 860 swap stations in March and aiming for 4,000 by 2025, a quarter if these outside China (battery swap specialist Aulton, which has a joint venture with BP, is even eying 10,000 stations by 2025). Provincial authorities are also joining the fray – Henan is offering subsidies worth 15 percent of swap-station costs (of around CNY 2 million, or EUR 290.000), which can be topped up by local governments; Chongqing is even offering CNY 500,000 per station.

But swapping could isolate China’s EV sector globally

Giving lack of traction battery swapping has seen outside China, foreign carmakers have rightly geared their EVs for charging and range-efficiency. As battery charging times and ranges keep improving further, battery swapping could fail in China as it did elsewhere. That would leave foreign carmakers better off than Chinese rivals which are pouring capital into the technology. But if Chinese companies (and Beijing) succeed in commercializing swapping, foreign players could lose market share and/or be forced to develop battery-swap variants for China.  

But swapping would also impact Chinese producers, especially those with export ambitions. Despite NIO’s efforts to push the technology in Europe, widespread commercialization there seems unlikely as no European carmakers inclined to follow suit. That means Chinese EV producers will either have to set up expensive infrastructure themselves or offer battery-charging model variants for Europe (and other regions, too), thereby reducing economies of scale. Beijing’s swapping ambitions could derail the globalization of the Chinese EV industry.