Author: Feng Jingang
On May 16th, NIO delivered its 200,000th production vehicle to a customer. This car is NIO’s flagship sedan, the ET7, with a guide price of RMB 458,000-536,000. With cumulative sales of 200,000 high-end electric vehicles, NIO is one of only two brands globally, alongside Tesla, to achieve this, highlighting the immensely challenging nature of this feat.
If Tesla relied on over a decade of hard work as well as the less expensive Model 3/Y, what is the secret to NIO’s success in staking out the high-end pure electric vehicle market with an average price exceeding RMB 430,000? According to widespread feedback from NIO users, NIO has a moat that other competitors would find difficult to cross – battery swapping.
We have previously provided a detailed analysis of battery swapping in our article “Ningde Times Opens Up the Battery Swapping Battlefield”. In the era of constantly evolving battery technologies, battery swapping is an important supplement to the product power of electric vehicles and its development trend is becoming clearer, despite the obvious weaknesses of electric vehicle range and residual value.
Wuhan-based CATL New Energy Investment Co., Ltd. (CATLNE), a subsidiary of China’s Contemporary Amperex Technology Co. Ltd. (CATL), holds battery assets supporting battery-as-a-service (BaaS) and provides battery rental services in partnership with NIO. While it appears to be closely related to NIO, it is, in fact, an independently operated company whose shareholders include NIO, Ningde Times, and Hubei Provincial Science and Technology Investment Group Co. Ltd., among others.
Lu Ronghua is CEO of CATLNE, and he likens the relationship between CATLNE and NIO to Tencent Cloud’s relationship to Tencent. Last month, I had a video conversation with Lu Ronghua during which he told me some stories behind CATLNE and its future vision. My first impression of Lu Ronghua was that he was young and ambitious, with a trillion-dollar market in his eyes.
The following is a QA section for reference:
1. What is the current financial situation and financing status of CATLNE?
Lu Ronghua: We will soon release an asset securitization product, which will make some financial information public. Overall, it should exceed expectations and exceed even my most optimistic expectations. When we founded the company in 2020, we didn’t expect it to develop so quickly. As of now, the total battery capacity we manage and operate has exceeded 6 GWh.
At the end of March this year, the growth rate of our operational assets far exceeded our own imagination. It should grow three to four times more this year. We are in the business of asset retention, not asset increment. For example, an automaker or battery manufacturer’s revenue may primarily come from selling cars or adding new batteries. There is a bit of a difference here because existing users will continue to create value for us.The company will continue to collaborate with financial institutions and industry capital to carry out fund business, and has successfully opened up financing channels in the capital market this year, issuing asset securitization products in the interbank market and the Shanghai Stock Exchange. The overall market size is very large. We did some calculations ourselves and the entire market is expected to reach a scale of 1 trillion yuan in battery assets in the future. The follow-up financing rhythm and financing methods will continue to be carried out according to the different needs of enterprises at different stages of development.
2. Apart from NIO, do you have BaaS cooperation with other brands? What are the difficulties in promoting?
Lu Ronghua: We currently manage and operate a battery asset scale of 6GWh, including some non-NIO brands, but NIO accounts for the majority. Other brands such as helping Huayou Energy manage tiered batteries will also be available to industry upstream and downstream customers in the future, but the proportion is still relatively low at present. Because we have only been established for less than two years, there are indeed some difficulties in the process, including complex business negotiations and the protection and fight for the interests of users and asset companies. For example, if I negotiate with another OEM, it may also involve 4S stores, and their cars all go to 4S stores first, and then negotiate with us. The entire pricing business model and cycle is quite long.
To give another example, now these companies that provide some basic cloud services, such as Microsoft Cloud, Amazon Cloud, Tencent Cloud, Ali Cloud, are all hatched by giants, and these giants themselves need massive servers, such as Amazon, Microsoft, Tencent, Ali, which must have massive servers to incubate these businesses. So I think the battery asset company business is the same.
3. If other brands promote battery swapping, would it be easier to promote cooperation?
Lu Ronghua: The more people doing it, the better. Currently, there are fewer C-end brands and more ride-hailing companies. I feel that the C-end is a more comprehensive engineering than the ride-hailing system. Ride-hailing or heavy-duty truck scenarios are fixed and closed, while C-end is not a closed scenario and requires deployment nationwide. Therefore, how many cars can be sold and whether the accounts can be counted are actually much more complicated than ride-hailing, and I think it will be much harder to make this decision. Of course, with the sales volume of electric vehicles becoming larger and larger, for example, there are more and more brands with an annual sales volume of over 100,000 vehicles, I believe that more and more people will do battery swapping.
4. What do you think of Ningde Times’ launch of the battery swapping brand EVOGO?
Lu Ronghua: It will definitely greatly contribute to the promotion of battery swapping and the standardization of batteries. Battery swapping station operators are our potential partners, and battery standardization is also the direction we expect and strive to promote. We hope that more people will enter this field and expand the market together. We will also grow together with the industry through our own efforts.To fully challenge fuel vehicles, electric vehicles need to continue to sink, and during the sinking process, battery costs are so high. I think that separating the car and the battery will be of great help to the sinking. In my opinion, this field is a tough battle, because of the rise in battery raw material prices this year, the pressure on low-priced models will be greater, but I think it will eventually be overcome.
5. Has the strategic focus of CATL shifted from WENergy to lithium extraction?
Lu Ronghua: I think it’s two levels. The first level is our rental business, and there has been no change. Our main business is still battery rental. It is certain that the volume will increase in the next three to five years.
The other level is lithium extraction. We have always been doing full-cycle management of batteries because we have to manage the “life, old, sick, and dead” of battery assets, including extending to the back-end of battery utilization: ladder utilization and recycling directions. After all, looking at the battery as an asset, the higher the value of the battery and the longer its life, the better. We have been doing the full cycle of battery all the time. It’s just that the original solution was built on our own back end and used by ourselves. Now, it is pushed to the front and given to partners to use together, so everyone may feel like the direction has changed, but it hasn’t.
The initial user of lithium extraction is ourselves. As products have a marginal cost, it is relatively cheap to push lithium extraction to the market, and it is also good for us and our partners. So why not do it? In fact, we did it based on a simple motivation, which is to cooperate with automakers.
6. What is the positioning of lithium extraction in CATL’s strategic framework?
Lu Ronghua: I think the positioning of lithium extraction is based on data from power batteries, various power battery data, and extended data. The granularity of data extends to physical parameter data of single battery management, such as battery voltage and temperature transmission data, and extends to macroscopic data in the industry related to batteries, such as data on nickel-cobalt-manganese-aluminum mines, sales data of related enterprises and industries, shipping data, etc. Thus, multidimensional value judgment and observation of power batteries can be made.
The lithium extraction mobile version is provided to C-end users, which is more convenient to use. Users can check various upstream and downstream data information of batteries, and even find more industry practitioners and upstream and downstream partners, similar to such a platform function.
The Lithium Extraction Professional version is different. It provides professional data management and operation services to B-end enterprises. Its value mainly lies in helping the other party reduce management costs. Although the entire industry is just starting out, the scale of assets will definitely become larger and larger.### English Version
If a company manages 100 billion battery assets and uses lithium management to improve efficiency by 1%, or 1‰, the benefits can be significant. However, the cost for the company to do this may be 10 million, 5 million, or 1 million? This is where the lithium analysis professional version comes in, helping companies manage and operate their batteries to reduce management costs.
7. What is the cooperation relationship with Huayou Energy?
Lu Ronghua: I think it is a cooperative relationship, basically at three levels. The first level is data governance because a lot of management actions are needed for the underlying data, which cannot be directly used. The second level is algorithms. With so much data, what do you want to do? Is your algorithm for battery health, lifespan, prediction, or safety? The third level is application. For your management actions and daily business behavior, you need this platform to give you direct instructions or closed-loop management.
However, at these three levels, the two sides cooperate, rather than separate outputs on our own. The two platforms are also somewhat connected, and cooperation and collaboration between platforms are important. Therefore, a huge amount of data requires a management platform, which some companies may build themselves, while others may seek third-party cooperation. There are advantages and disadvantages to both.
For us, as we manage such large assets and have a lot of upstream and downstream customers who also have the need to manage assets, sharing our experience can help partners directly use our platform, which is our original intention.
8. On March 1, Lithium Analysis Institute started construction in Wuhan. This is an important offline layout for Leshi Holdings. Why create such an institute? What is the purpose, and what is the vision?
Lu Ronghua: The Lithium Analysis Institute oversees the entire life cycle management of batteries. After batteries are manufactured, how long they can be used, how long their lifespan is, whether they can be used for staggered utilization after retirement, and whether the recycling cost can be lowered, all these are important issues that we need to consider, as this is also an important part of increasing the value of batteries. Therefore, can concentrated recycling be finely dismantled? During the recovery process, can there be some new technologies? For example, can the positive electrode material be directly regenerated? We are actually focusing on this type of application technology because, for us, these technologies are a step that must be considered.The responsibilities of Lithium Solution Research Institute are as follows:
Firstly, we are responsible for assessing the lifespan of these assets, especially their lifespan, and constantly considering how long they can be used. This is highly relevant to their economic viability. During usage, we also investigate methods, using offline test results and online big data, to prolong their lifespan. For batteries, this research can bring significant economic benefits. Therefore, the study of battery performance and lifespan cannot depend solely on big data, and requires experimentation to validate findings. This is one of the jobs of the Lithium Solution Research Institute.
Secondly, after batteries retire, companies like Huayou and GEM focus on recycling for the entire industry. However, most of the batteries we deal with are standardized, with the same or a few specifications. Therefore, we must conduct research on these standardized batteries to determine if a lower-cost recycling method is available that differs from the current recycling process. Can it be broken down more finely? Can it be regenerated directly? The purpose of this path is twofold: to reduce the pollution in the entire process and to increase the recycling rate of materials, while decreasing the cost of recycling.
This is what the Lithium Solution Research Institute has to continue to do to achieve maximum economic benefits for us.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.