Can NIO succeed where rivals have failed? So far, so good.

NO (NO -1.05%)a major Chinese electric vehicle (EV) maker, puts a smile on investors’ faces as the company hits two birds with one stone. The company is succeeding where rivals have failed while creating a valuable competitive advantage in the world’s largest electric vehicle market, China. Let’s dive into NIO’s recent battery turnaround and why it’s so important to investors.

Over 50 million served

There’s no doubt that NIO leads the EV industry in battery swapping technology and execution, but the question is how valuable is this now, and more importantly, how valuable can this differentiator become? NIO’s battery swapping technology continues to gain traction in China and has seen 50 million cumulative battery swaps, while also providing evidence that consumers prefer the standard charging option.

To better understand the momentum the NIO battery change is gaining, consider the following statistics. It took NIO four years to reach 10 million swaps and only nine additional months to double that amount. In October 2023, NIO surpassed 30 million total exchanges, and less than 10 months later, the automaker is celebrating more than 50 million exchanges.

That’s an impressive feat, considering EV cars like it adze they explored the technology and have since abandoned it. Here’s the takeaway, and a critical one: NIO sees evidence that its EV consumers prefer battery swapping to traditional charging. NIO announced that nearly 60% of the energy sent to NIO vehicles comes from battery swaps. In addition, NIO estimates that its battery-swapping technology has saved electric vehicle drivers a total of $2.85 billion compared to similar gasoline models, about $5,050 per NIO owner.

I can’t beat them, join me

From the end of 2023, at least five automakers — Changan, GeelyChery, JAC and Lotus — collaborated with NIO to develop battery exchange standards to expand the network in China. This is a huge step for NIO as its battery swapping technology would greatly benefit from a standardized battery.

Even better for NIO investors is that there are some potential catalysts for the business. First, NIO pointed out that the increase in new energy vehicles means that around 20 million batteries will reach the end of their eight-year warranty period between 2025 and 2032, which would come with a high battery price that could convince consumers to rent batteries. with battery change technology.

Second, NIO believes its battery swap stations are about two years ahead of market demand, with only about a fifth of battery swap stations breaking even. However, with another 1,000 battery swapping installations planned this year, adding to the current total of around 2,400, it could become more of a common option in China, especially as more partnerships and standards are developed in time.

What does it all mean?

NIO’s ambitious battery swap strategy could end up paying huge dividends for long-term investors. The industry is currently in a frantic race to drive down the cost of electric vehicles to help spur demand, but NIO is one of the few electric vehicle manufacturers that could develop a serious competitive advantage with its battery swap locations and battery service as a subscription. While NIO does not disclose specific battery exchange revenue, in the first quarter of 2024, “other sales,” not including vehicle sales, generated more than 15 percent of total revenue.

This could be the start of NIO’s competitive edge, which is currently limited in the EV industry, and investors should take note.