CATL plans to take a controlling stake in NIO Energy, will the battery swap market dominate?

Reuters broke the heavy news: Chinese battery giant CATL is in talks with electric vehicle manufacturer Nio to acquire a controlling stake in Nio Power.

Previously, CATL announced an investment of no more than 2.5 billion yuan in Nio Power and reached a strategic cooperation with Nio to jointly build the world's largest battery swapping network. Domestic media reported that CATL would also increase its investment in Wuhan Weineng, a battery asset management company under Nio, further penetrating the battery swapping industry chain.

The series of actions by CATL shows us that after a penetration rate of over 50%, CATL has ambitions to transform from battery manufacturing to energy services, intending to build a complete ecological closed loop covering production, sales, operation, and recycling through the construction of a battery swapping network and battery asset management.

We will explore CATL's layout from two dimensions: its strategic layout and the business logic of the battery swapping model.

Part 1 CATL's Battery Swapping Layout: From Manufacturing Leader to Energy Dominator

As the world's largest power battery manufacturer, CATL secured its position as the industry leader with a profit of 50.745 billion yuan in 2024. As the price war in the new energy vehicle market intensifies, the profit margin in battery manufacturing is continuously compressed, making it difficult to rely solely on "selling batteries" for long-term growth.

In recent years, CATL has accelerated its expansion into the energy storage and refueling sectors, attempting to lock in more value chain segments through technological innovation and service model upgrades.

The battery swapping business has become a key part of CATL's strategic transformation. By the end of 2024, CATL plans to launch the "Chocolate Battery Swapping" service, releasing standardized 20# and 25# battery swapping blocks, and announced plans to build 1,000 battery swapping stations, with a long-term goal of constructing 30,000 in collaboration with social forces. This serves as a supplement to traditional charging models and is a deep exploration of battery lifecycle management.

From research and development, production to operation and recycling, CATL aims to create a closed-loop ecosystem that fundamentally changes the traditional perception of batteries as "heavy assets."

The pursuit of a controlling stake in Nio Power can be seen as CATL's desire to unify battery swapping standards and accelerate the implementation of its battery swapping strategy.

Nio Power operates over 3,182 battery swapping stations. By controlling Nio Power, CATL can quickly acquire a mature battery swapping network and operational experience, covering Nio's ecosystem batteries beyond the "Chocolate Battery Swapping" standard, thereby promoting industry standardization. The introduction of Nio's third brand "Firefly" new vehicles into CATL's battery swapping solution has already shown signs of progress.

CATL's investment layout presents a clear dual-track strategy. By controlling Nio Power, CATL locks in the construction and operation of the battery swapping network CATL will also increase its investment in Wuhan WeNeng - NIO's "Battery Bank." Wuhan WeNeng is jointly funded by NIO, CATL, and other parties, with CATL currently holding a 10.6794% stake.

As the core of NIO's BaaS (Battery as a Service) model, Wuhan WeNeng is responsible for battery asset management, with an operational battery scale exceeding 20GWh.

If CATL further increases its stake in Wuhan WeNeng, it will directly engage in high value-added areas such as battery leasing, data management, and recycling, enhancing its layout in the battery swapping industry chain.

Through the integration of NIO Energy and Wuhan WeNeng, CATL can replicate this model and achieve long-term returns through battery asset management, transitioning from "selling batteries" to "selling services."

As distributed energy storage nodes, battery swapping stations have inherent advantages. CATL's goal of achieving 30,000 battery swapping stations will form a vast energy storage network, capable of absorbing its own battery production capacity while opening up new profit growth points.

CATL is also promoting the standardization of battery swapping. Following the launch of 10 battery swapping models in collaboration with automakers such as Changan and GAC, its partnership with NIO further strengthens this trend. A unified battery standard not only reduces the construction costs of the battery swapping network but also attracts more automakers to join the CATL ecosystem, forming an energy service dominance similar to "PetroChina and Sinopec."

Part 2 Gaining Greater Influence in the Passenger Vehicle Sector through the Battery Swapping Model

NIO is a pioneer of the battery swapping model in China. Its "separation of vehicle and battery" concept significantly lowers the threshold for purchasing vehicles through the BaaS model while providing users with a unique experience of rapid energy replenishment. NIO has built over 3,000 battery swapping stations, but this success comes with high costs and operational pressures. The "heavy asset" model places significant pressure on NIO, and CATL's involvement can support NIO's sustainable development.

The battery swapping model has significant advantages when battery technology and fast charging are underdeveloped, but with the rise of technologies like BYD's megawatt fast charging (charging in 5 minutes), its competitiveness is being weakened. For many, battery swapping for passenger vehicles may gradually become marginalized, serving as a supplement to fast charging, while commercial vehicles (such as logistics vehicles and taxis) are more suited to the battery swapping model due to high-frequency use and fixed routes.

CATL's challenge lies in the need to engage with the consumer end, making consumers recognize that CATL is not just a supplier in the era of electric vehicles but also provides a complete set of services. The battery swapping model indeed serves as a significant bargaining chip!

Through NIO Energy, CATL can more directly collaborate with Sinopec, gaining greater influence. Partnering with a giant like Sinopec, CATL can rapidly expand the number and service range of battery swapping stations by leveraging its extensive network of gas stations across the country as the foundation for battery swapping stations.

By opening up this route, it can reduce the usage costs of high-frequency electric vehicles and alleviate users' "range anxiety." Compared to supercharging technology, battery swapping can provide a faster energy replenishment solution, theoretically closer to the speed and convenience of refueling traditional gasoline vehicles.

Once gaining a voice in the industry, standardizing battery specifications and interfaces will be a breeze, reducing costs and improving the efficiency and convenience of battery swapping services. The entire narrative becomes coherent, building an open and shared battery swapping ecosystem that allows electric vehicles of different brands and models to conveniently and quickly replace batteries, thereby further promoting the increase in the adoption rate of electric vehicles.

Summary

CATL's attempts in Nio Energy are a microcosm of the transformation of China's new energy vehicle industry from "manufacturing-driven" to "service-driven," accelerating the expansion of the battery swapping network and extending its reach into battery asset management and energy storage. The ambition of the battery leader to transform into an energy powerhouse is resolute.

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