Shares of Chinese electric vehicle (EV) manufacturer Nio (NYSE:NIO) popped higher Thursday early morning before engaging in choppy trading. Earlier, management announced that it entered into strategic partnerships involving battery swaps with multiple enterprises. Fundamentally, the move bodes well for consumer convenience. However, such a directive also carries risks for NIO stock.
According to a Seeking Alpha report, Nio’s partnership agreement involves Wenergy Group, Anhui Transportation Holding Group, JAC Group and Chery Automobile. Under the terms of the deal, the companies will build a shared energy storage, charging and battery swap system. Looking out, Nio’s battery swap network will include both dedicated and shared networks.
The news aligns with prior developments utilizing the swapping technology. In late November, NIO stock also enjoyed bullish sentiment when the underlying firm announced an agreement with Geely Automobile (OTCKMTS:GELYY) to collaborate on standards, technology and model development for battery swapping.
Primarily, swapping out used batteries for a fresh set offers greater conveniences. Nio claims that the process can be accomplished in as little as three minutes. That’s significantly faster than “fast charging,” which can take between 15 minutes and an hour.
NIO Stock Walks a Bold Path
It’s no stretch to state that one of the major impediments to broader EV adoption centers on the time needed to recharge batteries. With a three-minute-swapping protocol, Nio may deliver conveniences and efficiencies on par with combustion-powered vehicles. In turn, that could reinvigorate sentiment for NIO stock. However, challenges also await the battery-swapping mechanism.
For one thing, building out swapping networks requires a significant investment in infrastructure. To be sure, Nio inking agreements with other companies helps spread out the risks. Still, it’s a major undertaking. In addition, running and maintaining such swapping stations may represent a highly expensive endeavor.
Plus, with Nio having international ambitions, the battery-swapping strategy may run into hiccups. Many jurisdictions have already made significant investments in charging stations. Therefore, the strategy may only be appropriate for the Chinese market.
Also, it’s tough not to notice that investors have been shying away from NIO stock. In the past 52 weeks, it dipped roughly 36%. That said, NIO’s short interest is elevated at 15.38% of its float. Also, Fintel’s options flow screener shows a heavy volume of sold calls.
Should a large number of traders decide to take the opposite side of the bet, a short-covering panic could ensue, potentially driving up NIO stock.
Why It Matters
Currently, analysts rate NIO stock as a consensus moderate buy. This assessment breaks down as six buys, four holds and zero sells. Also, the average price target lands at $10.86, implying a 47% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
