Routes to market

Roles for partnerships

Vertical collaboration in the supply chain is almost a necessity to bring BaaS to market, according to Robin Webb, Partner and Automotive Lead at Shoosmiths.

It will require end-to-end partnerships between battery manufacturers, original equipment manufacturers (OEMs) and distributors. Among many other considerations, the cost, capital investment, and technological capabilities required to bring BaaS to market at the scale required to make it financially viable is an enormous task for even the largest of companies to face independently. For such a service model to succeed, it will need someone with sufficient capital and infrastructure engagement from manufacturers, as well as concentration of demand, to make it work economically. External investment, technological partnerships and government support and backing will also be key to success.

Partnerships with government

Part of the success thus far for NIO in rolling out battery swapping technology and the BaaS model in China is the support and backing from the Chinese Government. The Chinese Government’s 2020 policy of national NEV subsidies, which has recognised the vehicle-battery separation based on battery swapping technology and its recognition of battery swap stations as new types of infrastructure construction, helps to pave the way for BaaS rollout with limited resistance. The government has also actively encouraged companies to develop and test vehicles with replacement batteries.

In South Korea, the Ministry of Trade Industry and Energy is a signatory of a MoU between Hyundai, KST Mobility and LG Energy Solutions, creating a partnership between government, an OEM, a taxi operator, a battery lease company, and a company purchasing end-of-life batteries. This partnership provides a battery storage solution for the taxi operator as well as being a global use case for OEMs.

As highlighted, there has been little attention from the UK Government on the BaaS model. Clearer engagement from the government, whether through subsidies or direct intervention, would allow the market to take off.

Partnership with fleet companies

Aside from NIO, whose focus is on privately owned EVs, most entrants into the global BaaS arena have been focused on a BaaS business model for fleets, particularly taxi fleets. In South Korea, KST Mobility, a taxi operator, sells the ownership of the batteries in its newly purchased EV fleet to a battery lessor and pays a monthly fee for battery usage. This reduces KST Mobility’s initial capital investment in its EV purchases.

One of the advantages of using such nascent battery swapping technology for fleets, particularly taxis, is that they often have a limited range or ‘service patch’ in which they travel, so the location of battery swap stations would not need to be as widely spread as for privately owned EVs. There would also be more predictability as to the required frequency of battery swaps. With fewer swap stations and a limited number of batteries required compared to a private EV battery swap model there would be less upfront investment needed. This business model also helps taxi companies to go greener, while reducing their outlay on an EV fleet, by removing the cost of the batteries from that initial investment. Battery swapping is also faster than slow, or even rapid, EV charging and would therefore reduce vehicle downtime for fleets.

Partnership with car manufacturers

For the BaaS business model to work, car manufacturers need to be onboard unless, like Chinese car manufacturers NIO and Geely, a car manufacturer is looking to enter the BaaS market themselves by designing and manufacturing EVs with swappable batteries and setting up their own battery swap station network.

Ample’s ambition is to get car manufacturers to make versions of their EVs that have an adapter plate instead of a full battery pack, into which Ample can plug battery modules. It is reported to have partnerships with five OEMs, of which nine EV models are to use, or be adapted for, its modular battery packs. Among the EV models which support its battery swapping technology are the Nissan Leaf – the main EV used by Uber drivers – and some KIA EVs.

To make BaaS fully scalable, all car manufacturers would need to be fully involved and enable the EV batteries in their vehicles to be standardised so that battery swapping stations can provide swapping services regardless of the EV make or model. An important variable would be the adoption of a universal battery standard across the industry, much like 5G in mobile phones. This begs the question as to who would reap the benefit of the underlying patent(s). This is not just a question of who has the ‘best battery design or technology’, but rather a geo-political one. It is hard to see a world in which the G7 member states would be comfortable with the reliance on a Chinese standard for its OEMs, particularly where they form an integral part of the economy, in the case of Germany. This is before we even consider the billions in license fees that would be transferred from the West to China.

Aside from the potential geo-political issues of a standardised battery, some car manufacturers might be reluctant to consider the idea of a standardised battery, as for some, like US car manufacturer Lucid Motors, the design and shape of the battery pack is specifically an aero-dynamic component of the vehicle and a standardised battery would therefore have "huge implications" for vehicle redesign, according to an industry source.

While we are not aware of any OEMs pursuing BaaS in the next couple of years, an industry source noted a shift in thinking towards service and clean energy provisions. For example, Renault announced that it is becoming a tech, service, and clean energy brand.

Partnerships with technology companies

Unless the BaaS market entrant is also a battery manufacturer, they will require the technical expertise of technology companies. NIO, BAIC and Hyundai have all partnered with technology companies to further their battery technology propositions and business models. NIO partnered with Contemporary Amperex Technology Co. Limited (CATL), a lithium-ion battery development and manufacturing company, BAIC partnered with Blue Valley Smart (Beijing) Energy Technology Co., Ltd to provide battery swap station technology, and Hyundai partnered with LG Energy Solution, which develops EV batteries and ESSs.

Collaborating with technology companies providing battery storage systems, and installing these at battery swap stations, takes the BaaS model a step further. It allows for the batteries at a swap station to be charged at off-peak times when the electricity price is lower and then provide the power source for charging the swappable EV batteries which reduces the cost of battery charging. It also offers a second-life use application for end-of-life swappable batteries. The Hyundai MoU uses this business model.

Partnership with distributors

For BaaS to succeed on a widespread scale, a great deal of investment in a battery swapping network will be needed. However, partnerships with distributors, such as NIO partnering with Shell, can open up the swap station network further by allowing swap stations to be built on existing forecourts. NIO’s agreement with Shell sees the two companies planning to install 100 battery swapping stations in China by 2025 and start to construct and operate pilot stations in Europe from 2022. Shell’s charging network in Europe will also become available to NIO users. These sites will generally be located in prime areas for battery swapping such as at major road networks. Additionally, the partnership between NIO and Shell allows their customers to have access to both companies’ EV fast charging networks.

Internal capabilities in engaging with BaaS activities

BaaS could be a viable option to explore for companies already working in the EV sector, providing an opportunity to diversify product offerings and income streams in this way. However, this would require “significant R&D investment and capital expenditure” as would “any meaningful roll out of BaaS” says Shoosmiths’ Robin Webb. Notably NIO has a large R&D department for developing next generation technologies in connectivity, autonomous driving and artificial intelligence (AI). How feasible it would be for these companies to invest so much into BaaS without government backing and subsidies available from the Chinese Government is questionable. The investment signals provided by the Chinese Government support were crucial in making NIO and Geely R&D investments feasible.

While Tesla had the internal capability to test out BaaS at the start of the 2010s, the market was not ready to receive it. EV uptake was much lower, and at-home chargers were easier to install, with the higher proportion of detached properties in the US compared to China. This meant the demand was not there for the technology at the time.

In the UK context, the recently announced ban on the sale of new petrol and diesel cars from 2030, combined with the global move to net zero has meant that many car manufacturers are focusing on developing their EV range. While some are still in the nascent stages of product development, it could prove a good time to begin engaging and developing swappable battery and BaaS business models. Jacob Briggs, Consultant at Cornwall Insight, believes that the BaaS model could conceptually work in the UK, with investments from other international markets beginning to grow elsewhere, but questions whether there is an appetite for it at present.