The financial media has spent a great deal of time focusing its attention on electric-vehicle manufacturers like Tesla (NASDAQ:TSLA) and Nikola (NASDAQ:NKLA). Less attention and respect, it seems, have been given to Chinese electric-vehicle company Nio (NYSE:NIO). Still, Nio stock holders have made significant gains in 2020.

For Nikola stock to get to the next level, market participants will want to see a catalyst. They’ll need to see Nio innovate and differentiate itself from its rivals. After all, Nio struggled earlier this year and investors don’t want to see the company fall behind again.

Thankfully, Nikola stock holders just received encouraging news from the company. Actually there are multiple events, but one developments should assuage Nio’s shareholders and bring more investors into the fold.

A Closer Look at NIO Stock

As previously alluded to, Nio’s investors seem to be waiting for something to get the stock to the next level. The move in Nikola stock from May to early June was substantial. However, it appears that the stock price wasn’t able to push higher after that.

Perhaps the bulls were just taking a breather after a hard push to the upside. That’s perfectly normal after a steep move, so Nikola stock holders shouldn’t be too discouraged. Just because the stock was rejected at $15 in July, this doesn’t necessarily mean that the bulls can’t resume their momentum in the coming weeks.

It might be tempting for long-term investors to consider taking profits at this point. After a powerful price fun from $2 and change to $14, some traders may choose to sell some shares. However, I would suggest that the company has recently given market participants a reason to hang on for more potential profits.

Battery Subscription Service

On Aug. 20, Nio announced an optional service that could be a real game changer not only for the company, but for the electric vehicle market as a whole.

Nio calls it the Battery as a Service or BaaS subscription model. To roll out this project, Nio even went so far as to establish an offshoot company, known as Wuhan Weineng Battery Asset Co., Ltd.

In China, the practice of battery switching is generally more commonplace than it is in the United States. Therefore, leasing electric vehicle batteries instead of buying them is a business model that should be workable in China now, and maybe even in the U.S. someday.

What’s great about the BaaS model is that it enables people to purchase an electric vehicles from Nio and then subscribe to rent battery packs separately. For example, someone might buy the Nio ES8, ES6 or EC6 model vehicle and then sign up to use Wuhan Weinberg Battery Asset Co.’s 70 kWh battery pack.

Cost Savings

If a customer were to do this, he or she could save 70,000 RMB compared to the vehicle’s original price. Any tax exemptions and/or Chinese government subsidies for electric vehicles would still apply to the vehicle.

Under the BaaS model, the subscription service is already available to all customers who purchase a Nio vehicle. Nio founder and CEO William Bin Li provides more details regarding how users can benefit from BaaS:

“The successful launch of the BaaS model will enable NIO users to benefit from the lower initial purchase prices of our products, flexible battery upgrade options and assurance of battery performance.”

Nio has already completed more than 800,000 battery swaps for the company’s customers. It’s a natural fit, then, for Nio to offer a subscription service for drivers who plan to swap out the batteries in their vehicles.

The Bottom Line

Clearly, Nio is getting an upgrade as it diversifies into the battery swapping subscription service niche. Nikola stock needed to take a breather, but now the bulls have a great reason to take the share price up to the next level.

As of this writing, David Moadel did not hold a position in any of the aforementioned securities.