Nio's Battery Swap Network Just Delivered 16% of All EV Energy in China in 5 Days. Is the Market Sleeping on This?

There's a lot going on with the Chinese electric vehicle (EV) industry these days, and the noise hasn't done wonders for Nio (NYSE: NIO) stock lately, despite the company's recent analyst estimate-trouncing first-quarter results. Yet the carmaker's potential is enhanced by its position as the leader in one particularly promising EV market innovation -- battery swapping.

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A quick switch

Nio has built and operates a network of EV battery swapping stations. Much like the drive-in oil change services in this country, Nio owners can pull into one of these facilities to exchange a depleting battery for a fully charged one.

Cleverly, the company provides two financial options. The first is a one-time payment for drivers who have chosen to own their batteries, while the second -- a battery-as-a-subscription (BaaS) tier -- grants four free swaps every month (at least in China; elsewhere, the limit is two).

The automated system makes the switch in only a few minutes. That compares very favorably with the optimal "fill times" of even the most advanced EV charging stations.

Industry website Inside EVs, citing Nio data, reported that the amount of power delivered through the China stations' swaps in the first five days of May alone totaled 15.4 gigawatt hours. That was an impressive 16% of the total delivered to all EVs in the massive country.

The segment leader

Nio clearly believes in battery swapping, as it's built a network of over 3,800 stations, all but 60 located in China. Those 60 international locations are scattered throughout Europe. Nio founder and CEO William Li recently stated that the EV maker aims to add 1,000 stations both next year and in 2028.

There are a few caveats here. The first is that Nio is not the only game in town. Most notably, Chinese auto battery giant Contemporary Amperex Technology (OTC: CYATY) followed Nio into the segment and has built a network of its Evogo swap stations that is now more than 1,800 strong. Second, building out such physical infrastructure is capital-intensive, a particular challenge for the only recently profitable Nio.

Happily, Nio is taking care of both challenges with one approach. It and CATL are strategic partners, with CATL investing in the Nio subsidiary that operates that company's stations. Also, the two have agreed that the carmaker's upcoming Firefly compact vehicles will use batteries that can be swapped at CATL's facilities.

Finally, together the two companies are lobbying the Chinese government for a single, unifying standard for battery swapping in the country.

Wave of the future?

I view Nio's efforts with CATL as smart moves to conserve precious capital and advance toward a national standard that could greatly benefit its business.

I also feel that battery swapping could take off abroad, as it has in China. Saving time and money is a universal goal for consumers, especially those who have anxiously checked their watches while waiting for a traditional charger to finish its work.

That, coupled with the impressive first-quarter results published recently, makes the company a potential global giant well worth watching. I'd go so far as to flag its American depositary shares as a buy for those with some appetite for higher-than-average country and industry risk.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Contemporary Amperex Technology,. The Motley Fool has a disclosure policy.