Case problem

SMU108

This case was written by Professor Shantanu Bhattacharya and Lipika Bhattacharya at the Singapore Management University. The case was prepared solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Copyright © 2021, Singapore Management University Version: 2021-12-12

NIO: BATTLING TESLA WITH BATTERY AS A SERVICE

“Buying is a profound pleasure” were the wise words of Simone de Beauvoir, the noted existentialist

author, on the salutary effects of material acquisitions on the human psyche.1 While they were

spoken more than half a century ago, the impact of acquisitions on consumer utility remained relevant,

but with a caveat. A research report had found that while consumers had the same adrenaline rush

from material acquisitions, the methods of acquisition had changed.2 Over the last two decades,

consumers had been reducing their purchase of physical goods as a percentage of their total

household expenditure, and instead, spending more on services and experiences. They preferred to

access physical goods on a needs basis, in a shorter timeframe. There was a similar trend in the B2B

sector as well; businesses had been lowering the share of illiquid assets like property, plants, and

equipment as a fraction of their assets, and outsourcing more activities. 3 Was this change in

consumer preferences permanent or transient? Could firms offer their products using alternative

means (for instance, as a service) to take advantage of this change? NIO’s CEO and founder, William

Li, was likely betting that the change in consumer preferences was indeed permanent.

On August 9, 2021, NIO shares rebounded 3.1% to reclaim the 50-day and 200-day moving average

indicators after a 16% fall in stock price the previous month. 4 NIO was one of the strongest

competitors of Tesla in the electric vehicle (EV) market in China. While 100% of the firm’s sales

came from China, it had plans to expand globally in the near future.5 Many investors and stock

analysts in the market were closely watching NIO to see if it could mirror the path Tesla had taken

to become a strong global competitor. While Tesla was the clear leader across all markets in the EV

sector, the competition was intense, and NIO had launched battery-as-a-service (BaaS) as its unique

selling point to attract consumers and compete against rivals. In a press release, William Li had stated,

“We believe products and technology must change along with the way people use them and their

entire ownership experience. We want consumers to feel optimistic about owning a car.”6

NIO had launched BaaS in 2020 to offer battery charging and swapping services to EV owners for a

small monthly subscription fee. BaaS users could buy a NIO car without the battery, resulting in

savings of more than US$10,834 (CNY 70,000)7 on all NIO models.8 This brought the EV to a

similar price bracket as fuel-run cars, making it attractive to a wider range of consumers. It also

improved NIO’s price competitiveness against larger EV manufacturers like Tesla in the cutthroat

market.9 Moreover, it allowed the firm to enjoy the subsidies that had been extended by the Chinese

authorities in April 2020 to EVs priced below US$46,400 (CNY 300,000) if they supported battery

swapping. 10 The Chinese government had offered these subsidies with the stated intention of

accelerating the move from fossil fuel vehicles to EVs.

EVs were an important element of the strategy in the transportation sector to act on climate change

and contribute towards a circular economy. They offered a more environment friendly and

sustainable way of life to consumers, and NIO and Tesla were leading the way in producing next

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generation EVs. There was also an increasing push from environmental agencies to allow used

batteries from EVs to be reused for other projects (like home solar) to extend their shelf life, and only

discarding them once their full usage capabilities had been extracted.11 Hence, the BaaS service was

seen as an effective solution to combat the environmental impact of batteries. Individual car owners

did not own and dispose the batteries; instead, the vehicle manufacturer would retain the batteries for

reuse and disposal. Managing the usage of batteries at an organisational level ensured that batteries

could be reused in a more environment friendly manner. BaaS was also useful to the consumers living

in smaller houses/apartments where they did not have the infrastructure to charge their cars.12

However, setting up the infrastructure to support BaaS (i.e. charging and swapping stations at various

locations) was an expensive affair.13 Moreover, these stations could be used for charging only NIO

cars and not other EVs. Besides, the technology for batteries had improved to the extent that they

could last longer in terms of miles travelled based on a single charge, reducing the need for frequent

recharge/swaps at charging/swapping stations. Given the scenario, was NIO’s BaaS venture a

sustainable business model? Could it provide the company with a strong competitive advantage?

Climate Change, Electric Vehicles and the Circular Economy

EVs had seen growth primarily because of the climate change agenda, which had been a topic of

international discussions for the last two decades. A global panel on climate change had forecasted a

temperature rise of 2.5 to 10 degrees Fahrenheit over the next century due to global carbon emissions

with transport accounting for around one-fifth of the total emissions.14 Road transport accounted for

three-quarters of those emissions, i.e., 15% of the total carbon dioxide (CO2) emissions globally.15

EVs were perceived as a reliable solution towards reducing road transport emissions, as they did not

directly use fossil fuels and other carbon emitting sources of energy.16

While EVs had been around for decades, it was only in the early 2000s that governments and

automakers started promoting them as a key technology to curb oil use and fight climate change.17

Subsequently, demand for EVs started to grow, and in 2010, the first modern, all electric, five-door

family hatchback EV (Nissan Leaf) was launched by Nissan for the mass market.18

Over the next decade, many start-ups that specialised in manufacturing EVs emerged, and Tesla soon

became the market leader for the growing EV market. Many large auto manufacturers also entered

the EV market and launched new all-electric models in several consumer categories.19

EV sales increased from 17,000 in 2010 to 2.1 million by 2019, with China accounting for 47% of

the global sales.20 The global EV market was expected to grow to 125 million vehicles by 2030

(refer to Exhibit 1 for Global EV Growth).21 Many traditional auto manufacturers had started to

focus purely on EV models and halt traditional car manufacturing for the future. For example,

General Motors had set targets to stop selling new gasoline-powered cars and light trucks by 2035;

Volvo had decided to pivot to a hybrid and all-electric line-up by 2030.22 23

However, while EVs were expected to reduce the climate impact and pollution problems of transport,

many of the materials used in the batteries were toxic and rare.24 In fact, by 2025, 250,000 metric

tons of EV lithium-ion batteries were expected to reach end-of-life for vehicles.25 However, despite

being non-usable for vehicles, these batteries could still retain 70–80% capacity and could potentially

be used for other purposes.26 Finding a second life for disposed batteries was essential for making

EVs sustainable.27 Reusing batteries from EVs could slow down the resource cycle by extending

their life through recycling.28 Extending the battery life cycle was therefore a crucial aspect in

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improving EVs contribution to overall sustainable development and circular economy. Notably,

capturing the value left in a product after use was the cornerstone of a circular economy.

However, EV consumers were mostly individuals and taxi companies that had little incentive to

recycle the batteries. Besides, conducting such recycling activities for end consumers was a headache

for manufacturing companies and entailed cumbersome tracking and collaborations with multiple

collection, servicing and recycling agencies. In 2020, it was estimated that only 5% of EV batteries

were recycled globally.29 Governments had taken note of this problem, and regulated manufacturing

companies to ensure the sustainability of their products.30

Many EV companies had come up with different strategies to tackle the battery problem. Nissan, for

example, was reusing old batteries from its Leaf cars in automated guided vehicles used to deliver

parts to workers in its factories.31 Volkswagen had a similar approach; it opened a recycling plant in

Salzgitter, Germany, to recycle up to 3,600 battery systems per year. 32 A research study

had concluded that lithium-ion batteries could have a profitable second life as backup storage for

grid-scale solar photovoltaic installations, where they could operate for a decade or more in a less-

demanding role.33

Nissan and Renault had also started reusing batteries to serve the household energy storage market,

with solar panels in the UK as their core customer segment.34 Many third-party entrepreneurs had

established second life battery businesses; for example, energy control solution company Relectrify

in Australia had introduced battery management systems to squeeze more value out of used batteries

and facilitate the transition of batteries into a second life in residential solar storage.35

However, while technology solutions for battery reuse were advancing, economic and regulatory

aspects did not yet provide sufficient infrastructure, framework and incentives for efficient battery

cycles (refer to Exhibit 2 for further details on the Circular EV Value Chain).36 As of 2021, the

global capacity of recycling EV batteries stood at 180,000 metric tonnes while in comparison, just

the number of EV’s introduced on the road in 2019 could generate 500,000 metric tonnes of battery

waste. Thus, it was evident that battery waste posed a significant climate risk, which could dampen

the circular economy benefits of EVs in the long run.37

The EV market in China

China was the world’s largest EV market by demand and sales volume in 2020, constituting 41% of

all EVs sold worldwide.38 The country had tried to promote EVs to consumers in small and large

cities, with the aim of reaching its carbon emission peak before 2030 and achieving carbon neutrality

by 2060.39 EV sales in China were mostly concentrated in large cities with over five million residents,

like Shanghai and Beijing.40

The Chinese government had tried to promote EVs since 2009 by offering subsidies, tax waivers,

and charging points to encourage manufacturers and consumers. It had also implemented other

measures like licensing policies to limit the number of petrol cars on roads using a car plate lottery

system, with winning rates as low as 1% or below, thereby forcing consumers to switch to EVs.41

However, consumers (especially in smaller cities) were still not keen, primarily because of EV’s

higher costs compared to traditional vehicles.42 The price of a standard five seater fuel based top-

tier car was about US$ 34,150 (Nissan Altima)43; whereas the price of an EV was more than double

that amount (Tesla Model X for example was around US$ 89,900)44.

Demand for cars in China was on the rise and analysts had predicted that over 70% of new car sales

(including EVs) globally would come from China by 2030.45 Chinese buyers were big fans of SUVs,

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especially of models from global luxury brands like Mercedes, BMW, and Audi. Tesla was the

undisputed market leader of the EV market in China, focusing on mass market and luxury cars, and

accounted for about 51% of the EV sales in early 2020.46 NIO accounted for 16% of market sales in

the same period and focused on luxury cars. The bestseller in the market, however, was Hongguang

Mini EV (a micro car built by a local manufacturer), which sold about 270,000 units in 2020.47

The EV market in China had mainly flourished because of government subsidies that enabled local

original export manufacturers (OEMs) to sell EVs at affordable prices. However, EV sales had

plunged after the Chinese government cut subsidies by up to 50% in June 2020. The overall sales of

new energy vehicles (including EVs) in China had dropped by 7% year-on-year after these subsidy

cuts, marking the first fall in this market after more than two years.48

However, despite the pullback of subsidies, the China EV market had managed to regain its surge by

early 2021. Analysts predicted that the country would continue to maintain its leading market

position for the next decade.49 EV sales in the country were driven by government policy and

increased consumer demand, as EV prices continued to decline while its quality continued to improve.

Analysts believed that Chinese producers would start to target international buyers in the coming

years, given that they already had a head start on manufacturing at scale over the West and that

government subsidies to the industry were starting to decline.50

NIO

NIO was founded by Chinese entrepreneur William Li in Shanghai, in November 2014. Hailing from

a low-income family in a rural province in eastern China, Li had humble beginnings.51 He grew up

in the mountains with his grandparents and herded cattle as a child. After graduating with a computer

science degree from Peking University, Li took on several part-time jobs to support himself, before

venturing out as an entrepreneur. In 2000, he launched auto information website Bitauto, which listed

its IPO in 2010 and raised US$127 million on the New York Stock Exchange (NYSE).52

Li then went on to establish NIO in 2014, as he believed that there was a growing opportunity for

new entrants in the EV sector. The company’s Chinese name Wei Lai meant “Blue Sky Coming”,

and originated from a vision of a future filled with blue skies. The company believed that improved

smart electric car technologies, coupled with better experience of car ownership, could drive

increased appreciation and adoption of smart electric cars, leading to a more sustainable future for

the planet. 53 NIO attracted many top-grade investors, including Tencent, Temasek Holdings,

Sequoia, Lenovo and TPG.54

Li was often dubbed as the Elon Musk (Tesla’s founder) of China. His company’s first EV product

was a sports car named EP9, which boasted of an attractive design, high driving performance,

powerful acceleration, and state of the art technology.55 The EP9 quickly gained popularity as a

premium car and motivated NIO to launch its first mass manufactured model, ES8, in 2017. The ES8

was a 7-seater SUV aimed at the luxury automobile market. As NIO did not have its own

manufacturing plant, it collaborated with state-owned auto manufacturer Jianghuai Automobile

Group Co (JAC) to build the vehicles. By 2018, NIO had captured 19% of the market in China.56

In September 2018, NIO went public and raised US$1.8 billion from its IPO on NYSE.57 It then

launched another SUV model, the ES6, a five-seater high-performance premium electric SUV. Soon

after, in December 2018, NIO launched a five-door, five-seater crossover SUV ES9 with a sloping

rear section and the largest panoramic sunroof ‘in its class’ (refer to Exhibit 3 for NIO EV models).

User experience was key to NIO, as Li had shared,

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The user experience is not only about the functional experience of the car - like acceleration,

speed, and power, but also about the emotional experience. If you want to redefine the industry

and the product, you must redefine the youth experience of the industry. In all industries in the

future, user experience of a car brand should include four parts: car parts, service, digital

touchpoint, and beyond its life, what the car will bring to you.58

After a few successful years, NIO faced troubled times, in 2019, when the Chinese government

started to pull back subsidies for EV manufacturers. Withdrawal of subsidies, along with the

departure of a few key executive and vehicle recalls, hurt NIO’s business dramatically, plummeting

investor confidence in the company. Shares dropped from an IPO high of US$6.26 in 2018 to a low

of US$2 in 2019.59 Notably, NIO recalled nearly 5,000 of its ES8 high-performance electric SUVs

after a series of battery fires in China, followed by a subsequent investigation that revealed a

vulnerability in the car model that posed a safety risk.60

To cope with the difficulties, NIO sought additional funding, and found a new lifeline when the local

government of Hefei agreed to invest US$1.08 billion (CNY 7 billion) in the company. Li

subsequently set up a joint venture manufacturing unit (with state-controlled automaker JAC Motors)

at Hefei, the capital of Anhui province in China, in 2020. The deal also involved the building of an

EV industry park, called NeoPark, in collaboration with the Hefei government to produce one million

cars annually.61

Following its deal at Hefei, NIO gained renewed momentum and quickly recovered from its business

slump in 2019. In the first quarter of 2021, vehicle sales at NIO accounted for revenues of US$1.1

billion (CNY 7.4 billion), representing an increase of 490% from the first quarter of 2020 and an

increase of 20% from the fourth quarter of 2020. 62 The company also introduced strategies to

expand outside China to gain global market share and established teams in the U.S. and Europe.63 Li

shared,

We are a global company. We have offices in Shanghai, Munich, London, and Silicon Valley. We

targeted the China market first, but we intend to target other global markets also. We have more

than 1,000 people outside China.64

In May 2021, NIO entered Norway, its first expansion overseas since its inception. Norway was the

first country in the world to have higher sales of EVs compared to traditionally powered vehicles. In

2020, EVs accounted for nearly 55% of all car sales in the country.65 NIO’s strategy was to use

Norway as a springboard for its expansion into Europe – which was the second largest market for

EVs globally following China. By 2022, NIO aimed to enter five more European countries, to cater

to an estimated demand of 95,000 vehicles yearly. EVs were supported by subsidies in the European

market to drive the region’s commitment to climate change and NIO was hoping to tap on this support

to expand in the market. Establishing battery swapping stations and offering BaaS services formed a

key part of NIO’s strategy in Europe, just as in China.66

Battery Swapping and BaaS

Battery swapping in the EV industry was not a new concept. The industry had tried and tested several

ways of designing an effective solution for battery swapping to overcome the high costs of charging

and replacing batteries. The first approach was introduced in 2007 by an Israeli start-up called Better

Place that allowed its customers to switch their batteries in a fully automated station using a

membership card.67 In 2013, Tesla had introduced a swapping station, where consumers could drive

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in to get their batteries replaced.68 However, consumers in the U.S. (Tesla’s biggest market) were

not impressed with this solution and preferred to use home and public chargers, given their lifestyle

and the conveniently available infrastructure of public charging stations. Both Tesla and Better Place

dropped their swapping approaches eventually, as it did not make business sense to build stations

when consumer demand was minimal.

In China, battery swap technology had already been tested for personal and commercial vehicles in

five cities before it was launched by NIO.69 However, although swap stations tried to replicate the

experience of existing gas stations, there were still issues that prevented their wide-scale

implementation.70 Most swapping stations were concentrated in larger cities like Beijing and the cost

of installing a charging station was huge – approximately US$500,000. Moreover, swapping stations

were not standardised, which meant that EV owners could only swap batteries at their own brand’s

stations.71

However, despite the constraints, battery swapping had several benefits. It could reduce the peak

consumption of electricity by centralised charging and avoided grid overloading due to mass EV

charging. Empty batteries could be charged when electricity was cheap and demand was low. Battery

swapping was also quick to execute and typically took a couple of minutes. Additionally, providing

swapping services as a BaaS to consumers helped reduce the risks related to inefficient battery

disposal.72

NIO BaaS

NIO had realised early in its business that batteries could add significant costs to EVs, which were

competing against traditional fuel-run cars in the market. Removing the cost of the battery from the

product could reduce its price significantly and potentially increase its attractiveness to consumers.73

Making batteries more affordable, accessible and reusable was also necessary from the circular

economy perspective and for realising the Chinese government’s ambition of having one in five

vehicles driven by non-fossil/non-fuels by 2025.74

NIO batteries were manufactured using cell-to-pack technology, to achieve an energy density that

was higher than a conventional battery pack by about 37%.75 The batteries were also lighter and used

40% fewer components than standard batteries.76 All batteries were monitored by a cloud-based

battery management system, which included features like thermal propagation prevention and smart

parameter adjustments for environment conditions to improve battery performance.77 Consumers

who brought a NIO EV with the battery could enjoy lifetime free battery swap services and out-of-

town free power services of up to six times per month.78 Battery charging and swapping services

were offered to consumers using an integrated power solution.

The NIO power solution consisted of four comprehensive battery services: a home charging solution

(Power Home), a battery exchange (Power Swap) service at swapping stations, a mobile charging

service provided through on-call service trucks (Power Mobile), and a 24-hour on-demand pick-up

and drop-off charging service (Power Express). NIO vehicles were also compatible with publicly

accessible charging network in China of over 214,000 charging piles, 59.6% of which were

superchargers (fast chargers).79

Although NIO had home charging solutions for its batteries, very few homes in China had the

infrastructure to support installation of home charging points, as a majority of its EV consumers were

from large cities and lived in high-rise condominiums.80 Hence, NIO realised that to attract more

customers, it would have to focus more on the option of charging the EV batteries in a swapping

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station. The government had also launched a support scheme in 2020 to promote the setting-up of

swapping stations to lure more consumers to buy EVs, in a bid to control pollution from fuel-based

vehicles.81 These reasons further motivated NIO to expand its swapping station network and offer

BaaS services to its consumers.82

In early 2020, NIO started offering subscription plans for its battery services, which would allow

consumers to buy its vehicles without the battery. Removing the battery reduced the purchase price

of the NIO vehicles by over US$10,834.83 In the subscription plan, buyers would pay a monthly fee

of US$152 (CNY 980) to lease a battery and could use free charging and swapping services as part

of the BaaS subscription.84 The services were offered through a mobile internet-based solution that

managed an extensive network of battery charging and swap facilities.

NIO had opened its first battery swapping station in 2018; however, it took a few years for its battery

swapping services to accelerate interest amongst consumers. By October 2020, NIO had completed

one million swaps and by May 2021, it had completed two million swaps.85 By June 2020, NIO had

built 135 swap stations across 59 cities in China.86 However, the number of swapping stations were

far below NIO’s original plans of setting up 1,100 units by 2020. This slow growth was attributed to

NIO’s cash flow crisis in 2019, which was alleviated through its subsequent deal with the local

government of Hefei.87

The power swap locations were connected through its automated power solution across numerous

cities in China to provide improved battery supply and services at its swapping locations. The

automated solution also inspected every battery pack removed from a vehicle for electrical

performance before recharging it for the next user. If a fault was identified, the battery was taken out

of circulation and sent for repairs.

In terms of footprint, NIO swapping stations were as large as three parking spaces. The changing

process was fully automatic; the car was driven into the station where it was serviced by a car lift-

battery replace system that replaced the batteries automatically.88

Key features of NIO BaaS NIO’s bet on BaaS hinged on several key factors. Firstly, the battery swaps at the swapping station

were fast; on average, it took three to five minutes for a battery swap – replacing the existing battery

in the vehicle with a fully charged battery, compared to 75 minutes for a full charge at a

supercharger.89

Secondly, the battery swaps were also slightly cheaper than other battery alternatives for EVs. NIO’s

service offered six swaps a month in its monthly subscription price, which provided about 1,500

miles of range. The math for the subscription amounted to US$0.10 per mile, which was slightly

lower than the estimated US$0.104 per mile cost for using Tesla superchargers.90

Thirdly, swapping batteries also motivated NIO customers to opt for battery upgrades when a more

advanced battery pack was available, which helped preserve the car’s performance and resale value

and mitigate broader concerns of battery degradation.91 In order to ensure that new batteries could

fit with old cars, NIO had standardised its battery sizes, thereby also enabling its batteries to become

a replaceable module in the broader construction of the vehicle (refer to Exhibit 4 for more details

on NIO EV Price details with BaaS).

Fourthly, batteries were an important consideration in the EV market; market dominance of an EV

producer was highly correlated with who could build the best battery technology. NIO’s BaaS had

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helped in this aspect by allowing the company to invest in battery technology without worrying about

replacing older batteries.

BaaS also created two sources of revenue - a monthly recurring revenue from battery service

subscriptions and the other from upgrade requests for newly launched batteries. By early 2021,

approximately 40% of NIO owners had already opted for battery subscriptions. 92 With

approximately 75,500 NIO EVs on the road, analysts estimated that the subscription service

generated about US$4.5 million in monthly recurring revenue, or US$54 million in annual revenue.93

This revenue was expected to increase further as NIO expanded production, increased subscription

penetration among existing consumers, and grew its network of swap stations.94 In July 2021, NIO

unveiled its ‘NIO Power 2025’ plan to further expand its BaaS initiative and completed 301 battery-

swapping stations across the country, with plans to reach the 3000 mark by 2025.95

Competition with Tesla

While NIO was a much smaller company than Tesla in terms of market capitalisation, market share,

global presence, and production capacity,96 its stock had garnered considerable media coverage and

attracted the attention of analysts worldwide.97 NIO’s stock had seen as much volatility as Tesla’s

since its IPO, and had soared from US$3.27 in May 2020 to US$61.95 in January 2021.98 In

comparison, Tesla had seen a steeper jump advancing from US$49.58 in October 2019 to US$439.67

in October 2020, and US$880.02 by January 2021.99 Tesla’s market capitalisation was at US$715.35

billion, while NIO’s was at US$67.88 billion as of August 2021. But despite being one-ninth the size

of Tesla and overcoming a near brush with bankruptcy in 2019, NIO had posted a 190% year over

year delivery growth in quarter two, 154% growth in quarter three, and 111% growth in quarter four

of 2020.100

Tesla possessed a much larger manufacturing capacity than NIO, and owned four operational

factories in Fremont, Nevada, New York, and Shanghai (with Fremont and Shanghai producing

vehicles and the other two producing solar/battery technology). Tesla’s global production had

increased by 39.6% year-over-year to 509,737 units by 2020.101 The automaker’s success was

mainly driven by an increase in EV demand in China (where the economy had recovered quickly

from the impact of the Covid-19 pandemic) and an expansion of demand in the US.

Tesla started manufacturing in China at its Shanghai Plant in 2019 to promote local vehicle

production, reduce costs, and expand its profit in China. Notably, the company had delivered 137,000

EVs in China and posted an increase of 28.3% on its revenues year-over-year, hitting US$31.5 billion

in 2020.102 In comparison, NIO operated only one factory, with an annual capacity of around 90,000

vehicles, and had delivered 36,721 vehicles in 2020. The company had plans to increase its

manufacturing capacity to 240,000 vehicles per year by 2021.103

Tesla’s supercharger network had also helped strengthen its competitive moat. Setting up a

supercharger station was less expensive than a swapping station and could cost between US$100,000

to US$ 175,000.104 The company had installed 6,000 supercharging stations in China and more than

20,000 superchargers globally. However, analysts had argued that these numbers were not enough

for its customers, as there were over 1.2 million Tesla vehicles on the road worldwide.105 Owners in

high density areas were often plagued with long lines as demand for the Tesla chargers exceeded

supply. Besides, each charging session could take on average 45-50 minutes leading to long wait

times and congestion at the stations.106

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In contrast to Tesla’s charging stations, many industry analysts perceived NIO’s BaaS as a powerful

competitive strategy. Battery swaps were not only more time efficient than battery recharging, but

also easy to provide as a subscription offer, enabling the manufacturer to sell the vehicle at a cheaper

price by removing the price of the battery and offering it as a service. Swaps also provided fully

charged batteries that could last for a longer range (about 380 miles) than a recharge (a 45-minute

recharge provided about 228 miles) at a supercharger.

Both Tesla and NIO provided battery packs of 100 kWh, and while Tesla intended to continue

providing similar weightage batteries in the future, NIO had plans to start delivering 150 kWh battery

packs in 2022107, which could further reduce charging costs.108 However, Tesla was also trying to

implement battery cost reduction measures, albeit with a different strategy, and this posed a threat to

NIO’s BaaS. Tesla had plans to produce lithium-ion batteries in-house at half the cost of its existing

batteries with an annual production capacity of 100 GWh batteries (for 1.4 million EVs) by 2022.109

Tesla was also trying to enhance its partnerships with battery suppliers and directly source materials

for the batteries to bring down battery costs.110

Additionally, Tesla was planning to launch fully autonomous cars in the near future, as it felt that

this was the ensuing fate of the automobile industry.111 NIO had similar predictions for the future,

and had announced a partnership with artificial intelligence (AI) chipmaker Nvidia, to accelerate

progress towards building autonomous cars.112

Despite Tesla’s large lead, analysts believed that regulators were unlikely to favour a monopoly in

the EV market, and smaller competing companies like NIO could benefit from regulatory controls

and remain in the run.113 In markets like China, government strategies to build internal competition

and bring down prices of EVs significantly could further curb Tesla’s growth in the future.114 Overall,

analysts predicted that market competition in the EV sector would continue to be cutthroat, with new

emerging players having ample opportunities to capture market share.115 This posed a promising

market for existing players like NIO, as well as new incumbents planning to enter the EV market.116

Battery Technology: A Possible Game Changer?

In addition to its niche BaaS strategy, NIO had also used a diversification strategy to remain

competitive in the market, and stand up against Tesla. Beyond EVs, NIO had diversified its business

in 2018 and added two new businesses under its belt – NIO House and NIO Life. NIO House was a

concept store with home design products that gelled with NIO cars to provide owners an opportunity

to become connoisseurs of NIO designs.117 Similarly, NIO life was an e-commerce mobile app

selling NIO lifestyle products to consumers, aimed at expanding NIO’s brand philosophy. Since its

launch, NIO’s online store had roped in over 500 designers around the world, developed 813 new

products, and sold these products to over 2.8 million customers in China (refer to Exhibit 5 for NIO

House store).118

It was NIO’s BaaS, however, that had managed to garner the maximum media attention, and was

lauded as an innovative concept and the firm’s unique selling point in the competitive EV market.

Nonetheless, many analysts had opined that while NIO’s BaaS and large-scale implementation of

swapping stations could provide the company with an immediate advantage in the market, it was

unlikely to provide much competitive sustenance over the long run.119 This was primarily because

battery technology was evolving rapidly and charging times were predicted to reduce dramatically

in the near future.120

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EV’s with lithium-ion batteries were expected to give way to vehicles with lithium-iron phosphate

and other technologies that could cut costs, extend vehicle ranges to 400 miles or more between

charges, and enable batteries to last as long as a million miles.121 EVs were expected to become more

useful as their ranges increased, and provide a better value proposition because the batteries could

have resale value and last longer than the cars they were sold with. This was also in line with the

goals of governments and industries to move towards a circular economy.

Additionally, new EV technology could make electric vehicles as cheap as those powered by petrol,

and the EV price would no longer pose a cost barrier.122 On a separate note, analysts had raised

concerns over NIO’s battery swapping strategies, arguing that setting up battery swapping

infrastructure and swapping stations was expensive, and hence needed to fulfil long-term needs of

consumers to make business sense.123 However, with the battery technology advancing so quickly,

it seemed unlikely that swapping stations would remain relevant over the long time horizon.124

Amidst such strategic concerns, would it make more sense for NIO to halt its battery-swapping

infrastructure and focus on the battery technology itself? Alternatively, could NIO continue to benefit

from its BaaS services, and make it its winning strategy? How could it explore opportunities with

BaaS to make its EVs more sustainable in the future? What other strategies could NIO explore to

compete with the EV giant Tesla? Would the battery-swapping model continue to be relevant in the

future? In which other industries could battery swapping prove to be a plausible business model?

Could the as-a-service model help propagate a circular economy?

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EXHIBIT 1: GLOBAL EV GROWTH (SALES)

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Source: Roland Irle, “Global EV Sales for 2021, EV-Volumes”, EV-volumes.com, https://www.ev-volumes.com/,

accessed September 2021

EXHIBIT 2: CIRCULAR ECONOMY EV BATTERY VALUE CHAIN

Source: Adapted form Cai Wenlong et.al., “A Review on Energy Chemistry of Fast-charging Anodes”, Chemical

Society Reviews 49(12), June 2020, A_review_on_energy_chemistry_of_fast-charging_anodes/figures?lo=1,

accessed September 2021.

EXHIBIT 3: NIO EV MODELS

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NIO ES8 SUV

NIO ES6 SUV

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NIO EC6

NIO ET7

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NIO EP9

Source: Flickr Commons, https://www.flickr.com/commons/usage/, accessed September 2021.

EXHIBIT 4: NIO EV PRICE WITH BAAS

Price Benefits ES8 EC6 ES6

70-100kWh 70-100kWh 70-100kWh

MSRP US$ 73,389 to US$ 82,484

US$ 57,736 to US$ 66,836

US$ 56,167 to US$ 65,267

Post-Subsidy Price US$ 70,884 to US$ 79,701

US$ 55,194 to US$ 64,012

US$ 53,626 to US$ 62,443

Price with BaaS US$ 59,901 to US$ 59,619

US$ 44,212 to US$ 43,930

US$ 42,643 to US$ 42,361

Source: NIO, “Battery as a Service”, https://www.nio.com/baas, accessed September 2021.

NIO Battery Swap Station

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Source: Flickr Commons, https://www.flickr.com/commons/usage/, accessed September 2021.

EXHIBIT 5: NIO HOUSE STORE

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Source: Flickr Commons, https://www.flickr.com/commons/usage/, accessed September 2021.

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3 Ibid.

4 “NIO Stock”, Yahoo Finance, https://finance.yahoo.com/quote/NIO/history/, accessed May 2021.

5 NIO, “Annual Report 2020”, April 6, 2021, https://ir.nio.com/static-files/cb42cc7f-6069-45a2-bbe4-21d4808609b8, accessed

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6 NIO, “Hello Norway from William Li & Marius Hayler”, May 5, 2021, https://www.NIO.com/news/hello-norway-william-li-marius- hayler, accessed May 2021.

7 US$1 = 0.15 CNY as of September 2, 2021.

8 Aman Madhok, “NIO’s Battery-as-a-Service (BaaS) Strategy: A Smart Move”, Counterpoint, August 29, 2020, https://www.counterpointresearch.com/NIOs-battery-service-strategy-smart-move/, accessed May 2021.

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13 Ibid.

14 NASA, “The Effects of Climate Change”, Global Climate Change, https://climate.nasa.gov/effects/, accessed September 2021. 15 Hannah Ritchie, “Cars, Planes, Trains: Where Do CO2 Emissions from Transport Come From?”, Our World in Data, Oct 6, 2020,

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16 Ibid. 17 Ibid.

18 Nissan, “Nissan Leaf”, https://online.nissan.com.sg/newLEAF/, accessed September 2021.

19 Ibid.

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20 IEA, “Global EV Outlook 2020, Entering the Decade of Electric Drive?”, June 2020, https://www.iea.org/reports/global-ev-outlook-

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24 Golden Odey, Bashir Adelodun, Sang-Hyun Kim and Kyung-Sook Choi, “Status of Environmental Life Cycle Assessment (LCA): A Case Study of South Korea”, MDPI, Sustainability, vol 13, 2021, https://www.mdpi.com/2071-1050/13/11/6234/pdf, accessed

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25 Ibid. 26 Ibid.

27 “The Circular Economy in Detail”, Ellen MacArthur Foundation, https://archive.ellenmacarthurfoundation.org/explore/the-circular-

economy-in-detail, accessed September 2021. 28 Nathan Niese, Cornelius Pieper, Aakash Arora and Alex Xie, “The Case for a Circular Economy in Electric Vehicle Batteries”,

BCG, September 14, 2020, https://www.bcg.com/publications/2020/case-for-circular-economy-in-electric-vehicle-batteries, accessed

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30 Ibid. 31 Ibid.

32 Ibid.

33 Ibid. 34 Linda Olsson, Sara Fallahi , Maria Schnurr, Derek Diener and Patricia van Loon, “Circular Business Models for Extended EV

Battery Life”, MDPI, Batteries, November 2, 2018, https://www.mdpi.com/2313-0105/4/4/57/pdf, accessed September 2021.

35 FreeWire, “FreeWire Raises $15 Million to Expand Portable Charging Technology for Electric Vehicles”, December 4, 2018, https://freewiretech.com/news/freewire-raises-15-million-to-expand-portable-charging-technology-for-electric-vehicles/, accessed

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36 Ibid.

37 Madeleine Stone, “As Electric Vehicles Take Off, We'll Need to Recycle Their Batteries”, National Geographic, May 29, 2021,

https://www.nationalgeographic.com/environment/article/electric-vehicles-take-off-recycling-ev-batteries, accessed September 2021.

38 IEA, “Global EV Outlook 2020, Entering the decade of electric drive?”, June 2020, https://www.iea.org/reports/global-ev-outlook- 2020, accessed September 2021.

39 Youlin Huang, David Tyfield, Didier Soopramanien and Lixian Qian, “What Electric Vehicle Manufacturers Can Learn from China

– Their Biggest Market”, The Conversation, August 3, 2021, https://theconversation.com/what-electric-vehicle-manufacturers-can-learn- from-china-their-biggest-market-161536 , accessed September 2021.

40 Ibid. 41 Bloomberg, “In Beijing, You Have to Win a License Lottery to Buy a New Car”, February 27, 2019,

https://www.bloomberg.com/news/articles/2019-02-27/in-beijing-you-have-to-win-a-license-lottery-to-buy-a-new-car, accessed

September 2021. 42 Youlin Huang, David Tyfield, Didier Soopramanien and Lixian Qian, “What Electric Vehicle Manufacturers Can Learn from China

– Their Biggest Market”, The Conversation, August 3, 2021, https://theconversation.com/what-electric-vehicle-manufacturers-can-learn-

from-china-their-biggest-market-161536, accessed September 2021. 43 2021 Nissan Altima, U.S.News, Midsize Cars, https://cars.usnews.com/cars-trucks/nissan/altima , accessed September 2021. 44 2021 Tesla Model X, Luxury Hybrid and Electric SUVs, U.S.News, https://cars.usnews.com/cars-trucks/tesla/model-x , accessed

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46 NIO market strategy: The “golden child” in the Chinese EV industry challenging Tesla, Daxue Consulting, Feb 25, 2021, https://daxueconsulting.com/nio-case-study/, accessed September 2021.

47 Youlin Huang, David Tyfield, Didier Soopramanien and Lixian Qian, “What Electric Vehicle Manufacturers Can Learn from China

– Their Biggest Market”, The Conversation, August 3, 2021, https://theconversation.com/what-electric-vehicle-manufacturers-can-learn- from-china-their-biggest-market-161536, accessed September 2021.

48 Chris Udemans and Jill Shen, “Insights, NIO Lives”, Tech Node, March 23, 2020, https://technode.com/2020/03/23/insights-nio-

lives/, accessed September 2021. 49 Ibid.

50 Yahoo News, “China’s Global EV Expansion Has Tremendous Consequences for Metals”, May 16, 2021,

https://sg.news.yahoo.com/china-global-ev-expansion-tremendous-190000961.html, accessed September 2021. 51 Yue Wang, “EV Billionaire William Li’s NIO Speeding Up Plans To Expand Via Norway”, Forbes, June 4, 2021,

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54 HBS, “Nio – A Chinese Tesla Disrupting The World’s Supercar Industry”, November 15, 2017, https://digital.hbs.edu/platform-

rctom/submission/nio-a-chinese-tesla-disrupting-the-worlds-supercar-industry/, accessed September 2021. 55 NIO, https://www.nio.com/, accessed September 2021.

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56 Ibid.

57 Steven Millward, Nio raises $1b from IPO, TECHINASIA, https://www.techinasia.com/china-electric-car-startup-nio-ipo-launch, accessed September 2021.

58 Slush, “Electric Cars of China: Founder Story of NIO” (video), December 9, 2018, https://www.youtube.com/watch?v=4nJ7-

s8IZPc&t=140s, accessed September 2021. 59 NIO, Stock Chart, Yahoo Finance, https://finance.yahoo.com/quote/NIO/, accessed September 2021.

60 Kirsten Korosec, “Nio Recalls Nearly 5,000 ES8 Electric SUVs Over Fire Risk”, TechCrunch, June 28, 2019,

https://techcrunch.com/2019/06/27/nio-recalls-nearly-5000-es8-electric-suvs-over-fire-risk/, accessed September 2021. 61 Shanthi Rexaline, “Nio's Smart EV Industrial Park Partnership With Hefei Government: What You Need To Know”, Yahoo Finance,

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62 NIO, “NIO Inc. Reports Unaudited First Quarter 2021 Financial Results”, April 29, 2021, https://ir.nio.com/news-events/news- releases/news-release-details/nio-inc-reports-unaudited-first-quarter-2021, accessed September 2021.

63 Yue Wang, “EV Billionaire William Li’s NIO Speeding Up Plans To Expand Via Norway”, Forbes, June 4, 2021,

https://www.forbes.com/sites/ywang/2021/06/03/ev-billionaire-william-li-is-chasing-growth-overseas/?sh=202fdde61a80, accessed September 2021.

64 Slush, “Electric Cars of China: Founder Story of NIO” (video), December 9, 2018, https://www.youtube.com/watch?v=4nJ7-

s8IZPc&t=140s, accessed September 2021. 65 IEA, “Global EV Outlook 2020, Entering the Decade of Electric Drive?”, June 2020, https://www.iea.org/reports/global-ev-outlook-

2020, accessed September 2021.

66 Shanthi Rexaline, “How Nio's Norway Market Entry Is Unfolding”, Yahoo Finance, September 1, 2021, https://finance.yahoo.com/news/nios-norway-market-entry-unfolding-161938736.html , accessed September 2021.

67 Better Place unveils Europe’s first battery switch station in Denmark, Green Car Congress, June 28, 2011,

https://www.greencarcongress.com/2011/06/bp-20110628.html, accessed September 2021. 68 Benjamin Zhang, Tesla's battery-swapping plan has a mere shadow of the promise it once showed, Business Insider, June 28, 2015,

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69 Wang Tianyu, “EV Battery-Swapping Finds New Life in China”, CGTN, August 16, 2020, https://news.cgtn.com/news/2020-08- 16/EV-battery-swapping-finds-new-life-in-China-SWZQhFZoEE/index.html, accessed September 2021.

70 World Economic Forum, “Raising Ambitions: A New Roadmap for the Automotive Circular Economy”, 2020,

http://www3.weforum.org/docs/WEF_Raising_Ambitions_2020.pdf, accessed September 2021.

71 Ibid.

72 Ibid.

73 NIO, “Battery as a Service”, https://www.nio.com/baas, accessed September 2021. 74 Pearl Lui and Daniel Ren, “NIO Teams Up with China’s State Grid to Build Battery Charging, Swapping Stations across Country to

Compete with Tesla”, South China Morning Post, December 25, 2020, https://www.scmp.com/business/china-

business/article/3115365/nio-teams-chinas-state-grid-build-battery-charging-swapping, accessed September 2021. 75 Nora Manthey, “Nio Launches 100 kWh Battery, also as Battery-as-a-Service”, Electrive, November 6, 2020,

https://www.electrive.com/2020/11/06/nio-launches-100-kwh-battery-also-as-battery-as-a-service/, accessed September 2021. 76 Ibid.

77 Ibid.

78 NIO, NIO Power, https://www.nio.com/nio-power, accessed September 2021. 79 Wang Tianyu, “EV Battery-Swapping Finds New Life in China”, CGTN, August 17, 2020, https://news.cgtn.com/news/2020-08-

16/EV-battery-swapping-finds-new-life-in-China-SWZQhFZoEE/index.html, accessed September 2021.

80 Ibid. 81 Ibid.

82 Monika, Chinese automakers strive to develop battery swapping business, Gasgoo, May 6, 2021,

https://autonews.gasgoo.com/m/Detail/70018208.html, accessed September 2021. 83 NIO, “Battery as a Service”, https://www.nio.com/baas, accessed September 2021.

84 Ibid.

85 Mark Kane, China: NIO Reports 4 Millionth EV Battery Swap, NIO, News, 02 Oct, 2021, https://insideevs.com/news/537644/nio-4- million-battery-swaps/, accessed October 2021.

86 “NIO, Battery Swapping”, NIO Blog, June 29, 2020, https://www.nio.com/blog/brief-history-battery-swapping, accessed September

2021. 87 Shanthi Rexaline, “Nio's Smart EV Industrial Park Partnership With Hefei Government: What You Need To Know”, Yahoo Finance,

February 5, 2021, https://finance.yahoo.com/news/nios-smart-ev-industrial-park-163820809.html, accessed September 2021.

88 Ibid. 89 Ibid.

90 Alana Levin, “Understanding Nio’s Battery-as-a-Service”, Data Driven Investor, February 10, 2021,

https://medium.datadriveninvestor.com/understanding-NIOs-battery-as-a-service-dc1a38ec2375, accessed September 2021. 91 Ibid.

92 Ibid.

93 Ibid.

94 Ibid. 95 NIO Announces NIO Power 2025 Battery Swap Station Deployment Plan, NIO, Newsroom, Jul 9, 2021,

https://www.nio.com/news/nio-announces-nio-power-2025-battery-swap-station-deployment-plan, accessed September 2021. 96 Yahoo Finance, “Tesla Stock”, https://finance.yahoo.com/quote/TSLA?p=TSLA&.tsrc=fin-srch, accessed September 2021.

97 Yahoo Finance, “NIO Stock”, https://finance.yahoo.com/quote/NIO/, accessed September 2021.

98 Ibid. 99 Ibid.

100 Ibid.

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101 Tesla, “Tesla Q4 2020 Vehicle Production & Deliveries”, January 2, 2021, https://ir.tesla.com/press-release/tesla-q4-2020-vehicle-

production-deliveries, accessed September 2021. 102 “Tesla: Aiming for Annual Production and Sales of 1 Million Vehicles in 2022”, MarkLines, May 10, 2021,

https://www.marklines.com/en/report/rep2151_202104, accessed September 2021.

103 John Rosevear, “NIO Announces Deal to Double Its Production”, The Motley Fool, May 24, 2021, https://www.fool.com/investing/2021/05/24/NIO-announces-deal-to-double-production-capacity/, accessed September 2021. 104 Darrell Etherington, Inside Tesla’s Supercharger Partner Program: The Costs And Commitments Of Electrifying Road Transport,

TechCrunch, Jul 27, 2013, https://techcrunch.com/2013/07/26/inside-teslas-supercharger-partner-program-the-costs-and-commitments-

of-electrifying-road-transport/, accessed September 2021. 105 Johnna Crider, “Tesla China Reaches Another Milestone: 6,000 Supercharger Installations”, CleanTechnica, March 7, 2021,

https://cleantechnica.com/2021/03/07/tesla-china-reaches-another-milestone-6000-supercharger-installations/, accessed September 2021. 106 Alana Levin, “Can Nio Compete with Tesla?”, Data Driven Investor, January 18, 2021,

https://medium.datadriveninvestor.com/can-nio-compete-with-tesla-45ac8e36401c, accessed September 2021.

107 Mark Kane, “NIO Announces 150 kWh Solid-State Batteries For 2022”, Insideevs, News, https://insideevs.com/news/465188/nio- 150-kwh-solid-state-batteries-2022/, accessed September 2021.

108 Alana Levin, “Can Nio Compete with Tesla?”, Data Driven Investor, January 18, 2021,

https://medium.datadriveninvestor.com/can-nio-compete-with-tesla-45ac8e36401c, accessed September 2021. 109 “Tesla: Aiming for Annual Production and Sales of 1 Million Vehicles in 2022”, MarkLines, May 10, 2021,

https://www.marklines.com/en/report/rep2151_202104, accessed September 2021.

110 Ibid. 111 “Elon Musk Says Full Self-Driving Tesla Tech 'Very Close', https://www.bbc.com/news/technology-53349313, accessed

September 2021.

112 “NIO Partners with NVIDIA to Develop a New Generation of Automated Driving Electric Vehicles”, Bloomberg, Business, January 9, 2021, https://www.bloomberg.com/press-releases/2021-01-09/nio-partners-with-nvidia-to-develop-a-new-generation-of-

automated-driving-electric-vehicles, accessed September 2021.

113 Ibid. 114 Ibid.

115 Ibid.

116 Ibid.

117 “NIO Website”, https://www.nio.com/, accessed September 2021.

118 NIO, “ NIO Life is Three Years Old”, February 25, 2021, https://www.nio.com/blog/nio-life-three-years-old, accessed September

2021. 119 Ibid.

120 Pippa Stevens, “The Battery Decade: How Energy Storage Could Revolutionize Industries in the Next 10 Years”, CNBC,

December 30, 2019, https://www.cnbc.com/2019/12/30/battery-developments-in-the-last-decade-created-a-seismic-shift-that-will-play- out-in-the-next-10-years.html, accessed September 2021.

121 Tim Mullaney, “Tesla and the Science Behind the Next-Generation, Lower-Cost, ‘Million-Mile’ Electric-Car Battery”, CNBC,

June 30, 2020, https://www.cnbc.com/2020/06/30/tesla-and-the-science-of-low-cost-next-gen-ev-million-mile-battery.html, accessed September 2021.

122 Ibid.

123 Lawrence Ulrich, How is this a good idea?: EV Battery Swapping, IEEE Spectrum, May 13, 2021, https://spectrum.ieee.org/ev- battery-swapping-how-is-this-a-good-idea, accessed September 2021.

124 Ibid.

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