Battery Swapping: A Pain or Panacea for Electric Vehicles?

Yesterday, the Japanese automaker Honda announced that it will offer battery swapping services for three-wheeler Electric Vehicles (EVs) in Bengaluru soon.

In November 2021, Hero MotoCorp (in partnership with Gogoro) and Sun Mobility joined hands to establish a battery swapping network in India.

Prior to that, in October, Reliance BP Mobility signed an agreement with Mahindra & Mahindra, which will “explore” battery swapping, among other things.

These are some examples of how the electric mobility industry in India (and elsewhere, as we will explore later) is gradually making inroads into battery swapping technology and related investments.

Today, we dive deeper into this subject to understand the nuances of battery swapping as an option vis-a-vis charging. We also take a closer look at the economics involved in both options.

Back to the Basics

Battery swapping is the method in which a depleted battery is replaced with one that is fully-charged.

Battery charging, on the other hand, involves essentially plugging batteries into charging stations to recharge the EV.

Both the processes have their advantages and disadvantages. Allow us to summarise.

At the heart of adopting electric vehicles lies the conundrum of inadequate charging infrastructure in countries. Building charging stations is a massive capex exercise and a time-consuming process. And even after they are built, their feasibility can be called into question in a country like India where vehicles lining up at filling stations is commonplace and most inconvenient. Also, remember that fuelling up at petrol/gas stations takes minutes whereas charging up an EV takes hours.

And this is where battery swapping seems like a viable alternative. Instead of focusing on charging infrastructure solely, it could be a good idea to create vast networks of swappable battery packs — which can be stored, kept charged and maintained — for EV owners to just grab, swap and go.

In fact, if one were to opt for swapping, they could even choose not to buy batteries along with vehicles. Think about it this way. A battery accounts for 40–45% of the cost of an EV and therefore, delinking it from the vehicle could save the purchaser a lot of money upfront. Yes, there is a leasing fee for the battery but the purchase cost plus the leasing fee is still less than financing the combined purchase.

Guess what, now it makes some sense why the Government of India announced EV sales without factory-fitted batteries in August 2021. Seems like the policymakers had a meaningful swapping play envisaged within the larger EV rollout!

So, at the core of swapping lies the adoption of the Battery-as-a-Service (BaaS) model where customers can lease batteries as a separate component of the car. It would help the owner save purchase costs, address shorter range issues, improve last-mile travel, consume less time and thrive on minimal infrastructure because swapping services would be available on a retail basis (in convenience stores etc.) and not require dedicated ports/stations.

Don’t Break a Swap

Currently, at least 50 startups in India are working on improving battery swapping techniques on different levels. Gogoro, the Taiwan-based company, which is the world leader in owning and operating battery swapping stations, recently partnered with Hero MotoCorp (the world’s largest two-wheeler maker) to build next-gen EVs equipped with the swapping technology in India.

Customers who switch to EVs are largely necessitated to do so with climate considerations. However, a majority of them are people who have never driven an EV before and therefore they imagine it to be somewhat like driving a legacy vehicle (fuel- or gas-powered) with periodic stops at public stations to refuel quickly.

But with the dearth of public charging stations (as of now) and the time delays, battery charging often becomes a redundant option, especially in public stations. And there is only so often and so long that one can charge at one’s own home before running out.

Countries where EV use has matured (like Sweden, Norway, Netherlands, China etc.) remain major markets for the BaaS models. China currently leads the world in battery swapping with policy incentives making them more cost-effective than charging alternatives. A recent study found the estimated cost of fast charging to be over $1m compared to battery swapping which costs $800,000 to support a fleet of 100 electric taxis in China.

Swapping Limitations

Ideas in automation never really take flight until they have a successful and wide-scale application. Battery swapping, as a concept, sure sounds promising. But it isn’t a new one. The concept has been tried and tested before and somehow phased out of practice due to reasons complicated, to say the least.

The technology dates back to 2007 (when electric mobility wasn’t commonplace) to a company called Better Place which will go down in history as a Theranos-equivalent of battery swapping. The Israeli startup, after promising the world robotic service stations which would pluck batteries from cars and pop fresh ones within minutes, soon went bankrupt due to challenges in utility and market response.

The next pioneer that decided to explore the technology was Tesla which built a number of pilot swap stations in California but soon abandoned the concept citing “lack of interest” from customers.

It was only in the next wave of swapping renaissance which arrived with Chinese enterprise that the swapping technology and the BaaS model were finally embraced as viable concepts. NIO, the popular China-based EV maker, claims that it has performed a total of 2 million swaps at its stations so far.

Having said that, a major downside to swapping is that since batteries are so expensive, bulky and resource-intensive, storing, charging and maintaining them requires additional energy and thus expands carbon footprint, which literally defies the premise of electric mobility.

But the biggest challenge to their adoption lies in the lack of standardisation. Without a global consensus on design and architecture, each automaker would develop its own proprietary network which would create compatibility issues. Commonising vehicles and battery packs would require sharing designs, controls and chemistries of batteries. One can hardly imagine the Fords and GMs of today compromising their core competencies and handing over intellectual property rights just like that!

Swapping Rights of the Future

Currently, India has 934 public charging stations installed under the FAME II (Faster Adoption and Manufacturing of Hybrid and EV) scheme. But the total number of registered EVs in the country is 7,59,182.

That is a large gap in the fulfilment of energy needs of a country, especially in a sector like EV which is rising at a rapid pace. That being said, EV operators (like Ather and Ola Electric) are largely favouring charging over swapping techniques.

Plus, innovations are upscale and aplenty in the race to reduce charging times from hours to a matter of minutes. Add to the mix the tax discrepancies in the purchase of battery-less EVs (GST on batteries=18%, GST on EVs=5%), and one can see why the takers of chargeable batteries on the rise as opposed to swappable ones.

But with big players like RIL, Hero and M&M moving into the swapping business, some form of standardisation may soon be on the cards, at least in India. There is also a fair amount of state support through incentives and subsidies to set up battery swapping stations (particularly in Kerala, Karnataka and Maharashtra).

Overall, it will be interesting to see whether India’s EV growth story moves in the direction of battery swapping or charging or a blend of both models as it continues to receive massive investment upticks and grows at a phenomenal CAGR of 90% to reach $150bn-valuation by the year 2030!

(Originally published January 15th 2021 in transfin.in)