Captive demand: Besides batteries and inventory, battery swapping necessitates investment into real estate and equipment. The swapping stations need to be located at prime spots that are easily accessible to customers, attracting high rental costs. Being a Capex-intensive business, asset utilization becomes key for long-term sustainability. Hence, demand creation for BaaS is critical, which can be addressed by:
- Confirming minimum capacity utilization via captive demand (e.g., fleets, vertical integration)
- Forging upfront relationships with established vehicle manufacturers
Other challenges associated with battery swapping include:
- Faster charging rates (battery charged in less than 2 hrs) tend to generate higher amounts of heat, thereby requiring an Aircon system to maintain the battery temperatures at optimum level (~25DegC). The necessity for an Aircon is further fuelled by higher average ambient temperatures of ~35DegC in India.
- BaaS operators need to ensure a uniform range per swap for customers, irrespective of the age of the battery pack, which can be achieved through smart software features.
- Lithium batteries are highly flammable, and the recent events of vehicle battery fires have only aggravated this concern. The risk exacerbates when multiple battery packs are being handled in one place at the swap station, and in an unlikely event of a fire due to bad practices, an entire area in a dense urban setting will be exposed.
Is battery swapping a long-sighted decision?
While battery swapping is expected to remain attractive for the uptake of EVs in the medium term, its relevance will be evaluated in the long term.
When the battery technology improves, the energy density is likely to get better and more capacity can be packed into the battery, resulting in a longer range per charge. This, coupled with reduced charging times, will be a potential challenge for BaaS businesses. However, ultra-fast charging comes with challenges, including:
- Need for additional cooling arrangements in a vehicle, which should be a given in case of battery swapping
- Need for Grade A battery cells to enable fast charging. Currently, low-cost Grade B cells are popular among Indian manufacturers
- Infrastructural necessities like larger parking spaces as fast charging require parking the vehicles for at least 30 minutes, while battery swapping takes less than 5 minutes
Also, while battery swapping will enable the mass adoption of 2- and 3-wheeler EVs, it might not be the appropriate solution for passenger and commercial vehicles. The massive weight of the lithium-ion battery pack would make swapping harder, if not impossible. Furthermore, the infrastructure required to swap bigger, heavier battery packs, such as robotics arms, etc., will be much more complex and expensive. At EY-Parthenon, we currently believe that passenger vehicles will gravitate toward fast/ultra-fast charging. In contrast, heavy commercial vehicles, in the medium term, will likely go down the route of low carbon fuel options such as hydrogen.
The success of the BaaS will depend on devising efficient ways to address the issues mentioned above. As these issues are interrelated, finding the right balance through technology and disruptive business models is the need of the hour.
(This article is authored by Srihari Mulgund, Partner, EY Parthenon. It first appeared on ET Auto on 21 February 2022).