Chinese EV maker Nio (NYSE:NIO) has been in a strong position over the past year. Its current stock price — down roughly 45% from a February all-time high — may not reflect that, but Nio is humming. The company is churning out EVs at a record pace, it has expanded beyond SUVs and crossovers with a new sedan and its Battery as a Service (BaaS) is making waves. That brings us to an interesting issue. The Chinese government has just announced the country’s first national battery swap safety standard. What does this news mean for NIO stock?
With a national standard in place, that suggests the possibility that other EV makers are moving toward the idea of battery swapping. If they did, Nio would lose its BaaS advantage.
Does that mean more pain in store for slumping NIO stock? While there may indeed end up being more players, I think the new regulations will have the opposite effect.
What Is BaaS?
Nio isn’t the first EV company to introduce the idea of battery swapping. Israel’s Better Place was an EV maker that used the same strategy. The company built dozens of robotic battery swapping stations in roadside service centers. They could replace the battery in a Better Place car in under five minutes. However, in this case the EV market was just too new, and the technology too costly. Those battery swapping stations that were projected to cost $500,000 each ended up costing $2 million a pop. Better Place went belly up in 2013.
Nio has correctly surmised that battery swapping will be more popular in China. In comparison to countries like the U.S., where single-family zoning “is practically gospel,” huge residential buildings dominate China’s megacities. Adding a charge station to a single-family home is no big deal. Adding enough charge stations to a massive residential tower to support all the EV owners who live there? That’s a big challenge. Battery swapping stations make sense in this situation.
Nio’s version of battery swapping is a more developed version of what Better Place attempted. At the time it launched BaaS in August 2020, Nio owned over 1,200 patents related to battery swapping. It had already built a network of 143 battery swap stations across China. In addition, the company positioned BaaS as a strong incentive for customers. They can save thousands of dollars off the purchase price of their Nio EV by instead paying a monthly battery fee. This also gives them the flexibility to opt for batteries of a different capacity if their needs change.
As of March, Nio had reportedly completed over 1.1 million battery exchanges and was on track to have 500 battery swap stations online by the end of this year. There is no doubt that BaaS has been a big part of the growth in NIO stock, which accelerated last fall.
The New Battery Swap Safety Standard
This takes us to the recent announcement that the Chinese government has approved the National Standard for Battery Swap Safety Requirements for Electric Vehicles, which will go into effect on Nov. 1. A national standard comes with the implication that other EV companies are making the move to battery swapping.
If it were to lose its advantage as the only mainstream Chinese EV maker to offer BaaS, does that spell trouble for Nio?
Far from it. Nio was actually part of the drafting of these regulations. The rules are specific to issues like safety, design and environmental issues. For example, EVs using snap-on batteries must be able to support at least 5,000 battery swaps.
If anything, having the safety standard in place is going to make Chinese consumers more likely to choose Nio and BaaS over a traditional, plug-in to charge EVs. Safety standards lead to consumer confidence.
Bottom Line on NIO Stock
NIO stock has an ‘A’ rating in Portfolio Grader. This is a leading player in the Chinese EV market that has had its issues in the past, but is now humming.
Having the Chinese government issue regulations that add even more legitimacy to its BaaS is only good news. I’ve said before that its current slump makes NIO stock a great opportunity to pick up an EV stock with long-term growth written all over it. That still stands.
Now trading around $34, NIO shares are more tempting than ever.
On the date of publication, Louis Navellier had a long position in NIO. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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