The way forward

Challenges for BaaS

On the surface, the BaaS proposition seems straightforward and addresses many key EV issues such as cost, range anxiety, gaps in charging infrastructure, and charge times. However, there are many challenges that will need to be overcome for it to become more widely adopted.

The level of capital investment required to develop the BaaS technology itself and the swap station infrastructure at the scale required to cater for a mass market is a significant barrier to entry. Andy Turbefield, Head of Quality at Halfords Autocentres, noted that the running costs of battery swapping for the manufacturer are likely to be “huge” and it is only the big Chinese manufacturers that have the resources to do it.

Lack of standardisation in battery models as a barrier to entry

One of the main challenges for delivering the BaaS proposition is the lack of standardised battery products across manufacturers, which means that battery swap stations are only exclusively available to compatible EVs. Even batteries within a single car manufacturer’s vehicle range vary in design, and many manufacturers are reluctant to move to a standardised battery across models as this limits the design capacities and capabilities for their EVs. At present, batteries can play a differentiating factor between car manufacturers, and years of R&D investment have gone into the technological developments of such batteries. Without battery standardisation, if a car maker wanted to enter the BaaS market, they would need to install their own network of swap stations. Additionally, with parts manufactured across different countries and EV models available in numerous countries, battery standardisation would need to happen globally. Many car manufacturers are also moving to cell-to-pack or cell-to-chassis where the battery cells are integrated as a structural component of the vehicle to make it lighter and more efficient, which does not lend itself to swappable batteries and standardisation. Halfords’ Andy Turbefield suggested the only way battery standardisation can happen is when manufacturers join together to share data and technology, for example Peugeot and Vauxhall. However, several big brands (VW, Tesla, and Ford) are looking to verticalize themselves and bring battery manufacturing in-house. They would therefore not likely be willing participants of battery standardisation. If BaaS were to take off in the UK, it would more likely be the result of a new brand or a disruptor coming into the market with the service offering rather than a big brand already present in the market going down that route, which conjures memories of Tesla at the start of the 2010's. It may well be that NIO already has its sights set on the UK market in its goal to establish presence in over 25 countries and regions worldwide by 2025.

Residual value and battery ownership call into question long-term attractiveness of BaaS

Uncertainty around the ownership of the battery, particularly when it comes to resale of the EV, will impact on the residual value - the resale value of the vehicle at the end of a lease agreement. EVs generally tend to have stronger residual values than ICEs, and these form a large component of the vehicle leasing rate. ZipCharge’s Jonathan Carrier noted that “if you destroy the residual values, you will affect the total leasing rate which affects the total cost of ownership”, which reduces the attractiveness of the BaaS model. With most new cars being leased, EV ownership will become larger in the second-hand market. However, as BaaS vehicles enter the second-hand market without a battery this could create an opportunity for the BaaS model to be extended to the second-hand car market.

Consumer choice lock-in may weaken market entry for BaaS

There may also be some reluctance from consumers to engage with BaaS and move to different charging models if they are just getting used to the current EV charging infrastructure. An industry source said that “customer sentiment would be quite suspicious” of BaaS and there is uncertainty in how it would be received. They therefore highlighted the importance of being very targeted about where the technology is first trialled and the customers that are on-boarded. Additionally, with the majority of people not driving more than 20 miles or so a day, an industry source further questioned the uptake of the BaaS model. Halfords’ Andy Turbefield added that consumer “confidence can be misplaced and out of date” due to a lack of education from the automotive sector and the media around EV battery life, range, charging times and cost. However, BaaS could benefit from this “misplaced confidence” in addressing EV concerns.

There are a range of barriers to the initial success of BaaS, according to Felicity Latcham at OC&C Strategy Consultants, including the density of demand, variety of battery types and consumer trust around a brand. This is likely to drive a comparatively high price for a limited product in the short term. Latcham adds that while BaaS addresses a number of consumer concerns around EVs it is unlikely to become a mainstream solution in the UK over the next few years unless it also offers a significant saving to consumers. However, there are options through which these issues could be mitigated in the long-term and it is likely to be viable in the future.

The dominance of some EV car brands in specific countries could make it difficult for other companies to enter new markets or gain market share. Also, the unfamiliarity of a new brand may cause slow take up from customers. Particularly when it comes to technology, people tend to have more trust in a brand they know and are familiar with.
Like with many forms of technology, the industry will look to the East, and if NIO and others can prove it can work in as large a market as China, investors might demand European and North American contemporaries to do the same. However, an industry source noted that they would be “personally disappointed to see a lot of investment go into infrastructure for one brand” if that is how battery swapping was to develop and be rolled out in the UK.

Reductions in the range and charging speed advantage of BaaS over EV charging

Rapid charging technology is improving with some fast-charging stations providing 80% charge in 30 minutes and a Tesla supercharging station providing up to 200 miles in 15 minutes. With faster charging likely to improve further in the coming years, the time saving on swapping a battery compared to charging will be reduced. While a battery swap, which takes three to five minutes currently, is more time efficient than fast and standard charging stations, this efficiency is likely to decline as both battery technology and charging technology improves. However, it is worth noting that any improvements to faster charging could put constraints on the grid, which is where a BaaS model could prove more advantageous.

The make-up of urban environments and infrastructure influences the potentials for BaaS in markets across the world

Chinese infrastructure and housing stock supports the BaaS model well, with apartments being the most common housing stock, particularly in urban areas. This limits accessibility of home charging for EV users, meaning that battery swapping can be speedier and more convenient than using charging stations. However, in the UK, 80% of households live in houses, making home chargers more accessible for EV users. The ‘successes’ of battery swapping will be very much determined by the type of housing stock in a particular area, or indeed country, and therefore the access to EV home charging, as well as the potential for other charging solutions e.g., local charging hubs.

Long-term exclusivity of contracts, for example between charge point operators and motorway service areas, could limit the potential for installation of battery swap stations at such sites. At present, this issue is on the government’s radar in the UK. In March 2021, the government said it would act to increase competition in EV charging options at motorway services stations. A year later, in March 2022 the Competition and Markets Authority (CMA) stepped in actively on this matter as it closed its investigation into Electric Highway’s long-term exclusive contracts with commitments from Gridserve to not enforce exclusive rights in contracts with Extra, Moto, or Roadchef after November 2026, reducing exclusive contracts with Moto and Roadchef by two and four years, respectively. The CMA also published an open letter to chargepoint operators and motorway service area operators, stating that closure of the investigation does not prevent it from taking further action where it suspects infringements of competition law.

Grid constraints are an additional challenge with regard to the location of battery swap stations, particularly those at a local level with stability problems on power networks. This means the system would be unable to cope with the intense amount of energy required at the swap station and therefore may limit the sites available for battery swap stations. Government commitment to fund grid upgrades will be important to ensure battery swap stations can be located strategically. Even currently, many ‘critical’ motorway services require expensive increases in grid capacity prior to the installation of additional chargepoints. The government’s £950mn Rapid Charging Fund will go some way to fund these grid upgrades, but questions remain whether these upgrades would also meet the needs of battery swap stations. 

Threats to resource accessibility could undermine the market for batteries in the short- to medium-term

Geo-political issues could make accessibility of resources difficult, particularly for battery components, with the lithium and nickel supply chains strained by international tensions. Increased battery recycling should help mitigate this risk; however, it will not be a short-term solution as battery recycling facilities need to ramp up. Elon Musk recently, at a Financial Times Future of the Car Event, speculated that Tesla’s supplies of raw battery materials may become strained beyond 2025. Similarly, EV battery manufacturing capabilities will need to become less reliant on other countries, with UK capabilities specifically needing to increase.

Questions around the sustainability of battery swapping risks undermining the case for BaaS with corporate customers focused on ESG factors

With corporates becoming more environmental, social and corporate governance (ESG) focused, another issue for BaaS is how corporates see the environmental footprint of battery swapping and its efficiency, particularly in terms of the surplus number of batteries that need to be held to meet demand and the under-utilisation of the batteries.

More favourable engagement from the UK Government is required at this stage

Previous successful BaaS model roll outs have involved engagement from national government (see section 3.1). In the UK, the scale-up required to introduce the technology will need significant investment which is unlikely to be unlocked without government intervention, such as through partnerships or subsidy support. The current UK Government stance is that battery swapping poses various technological challenges, including the need to standardise battery size and in-car position between different vehicle makes and models and to produce more batteries than vehicles. It believes the commercial case for battery swapping is yet to be proven, especially as EV range and charging speeds improve. However, it says it watches developments across all EV technologies with interest.

Feasibility for BaaS in the UK

The model fulfils key consumer concerns around EVs such as upfront cost and range anxiety

According to Jonathan Smart at Shoosmiths, “there is real promise for BaaS on the basis that it fulfils a clear consumer need”. The perceived difficulties are effectively the same as those that many thought would not be overcome for chargepoint operators. Now there are significant resources being poured into network expansion by established players and market newcomers alike. With this in mind, Smart said he does not think the obstacles to BaaS are “insurmountable” and can see BaaS “becoming more mainstream before the decade is out” especially as traditional forecourts have to change their business model anyway with more chargepoints.

Smart added there could be a future for BaaS in the UK, but for this to happen, the issues of lack of standardisation of batteries and achieving scalability across the country in both urban and rural areas would need to be addressed. It is also crucial that a common standard and licensing process for a project of this scale is decided upon.

The model can function as complimentary to, as opposed to a challenger for, other EV and chargepoint types

It is feasible, if not necessary, for the BaaS model to co-exist with chargepoint infrastructure and, as with the NIO model for EVs, to have the capability to use both battery swap stations and chargepoints. An industry source said the technology is “additive” and won’t “take away from what’s already out there and what’s already being put in the ground”. In order for this to happen in the UK, BaaS would need to have a strategic and focused rollout. The risk of a national roll out is that BaaS EV sales are spread unevenly across the UK meaning that greater investment would be needed to build swap stations across the UK to accommodate the dispersed use of the service. If 100 BaaS EVs were sold but in 100 different locations around the UK, that is not going to work as a start-up model, according to an industry source. BaaS EV sales would need to be focused on specific areas of the UK allowing for battery swap locations to be more targeted and efficiently used. Pilot projects of the technology in specific areas would also help to gauge what the customer engagement might be with the technology as it is difficult to get a perception of this at the moment with it being so nascent. With the Action Net Zero project in Bristol, an industry source suggested this could be a good place to launch the BaaS model as the city is already engaged with accelerating the transition to EVs and making charging more accessible.

A key approach for the BaaS model in the UK could be to enter the fleet charging market

Even if BaaS is not seen to be a viable option in the UK for domestic EVs, it could provide a charging solution for EV fleet cars, such as a taxi company, as a B2B BaaS proposition would have a “slightly different set of economics” according to Felicity Latcham at OC&C Strategy Consultants. This would negate the need for widespread battery swapping infrastructure as fleet vehicles tend to operate in specific areas or on specific routes with a controlled density of vehicles. Jonathan Carrier (ZipCharge) noted that the BaaS model could work for car rental firms where there is a large density of vehicles in a very close location and there is a quick turnaround time on the vehicles. There is often ample parking for swap station facilities and the sites can have full overview and management of the batteries and how that sits within the economic framework of the car rental business. However, Andy Turbefield (Halfords) noted that BaaS for fleets would only be a “huge benefit” if it significantly reduced the cost of the vehicle to the lease company.