Zhejiang Geely Holding Group Co. will buy a 30-percent stake in rival automaker Nio Inc.’s battery-swapping unit, gaining access to China’s largest network of swapping stations in a deal that values the business at about $2.4 billion.
Geely will fold its commercial-vehicle battery swapping business into the deal and pay 640 million yuan ($95 million) in cash, Nio said in a statement Monday. The two companies are also in talks for Geely to adopt Nio’s battery-swapping technology for its cars and commercial vehicles.
The partnership gives Nio fresh funding and the prospect of greater use of its costly battery-swapping network by opening it to Geely vehicles. Geely, which sold 1.25 million vehicles in China in the first eight months of this year, gains access to Nio’s established swapping technology and network, allowing it to expand the service for its own vehicles without having to build a competing system from scratch.
‘For Nio, this is very impactful, it needs the money and greater usage. For Geely, this is a better way to develop a network, and its own Yiyi network struggled to grow,’ said Leonid Mironov, portfolio manager at Gavekal Capital Ltd. ‘It’s win-win really,’ he said, adding that consumers will also benefit as the industry edges closer to a national battery-swapping standard.
The deal is also a boon for Nio, valuing the Nio Power battery swapping and charging infrastructure unit at 16 billion yuan ($2.4 billion) – more than a quarter of Nio’s market value of around $9 billion. Contemporary Amperex Technology Co. Ltd. last year invested 2.5 billion yuan in Nio Power in a collaboration to build out a battery swapping network across China.
Nio’s shares rose as much as 3.2 percent in Hong Kong trading on Monday, while Geely’s Hong-Kong listed stock gained as much as 3 percent.
Still, the benefits of battery swapping – the ability to replace a depleted cell with a full-charged one in just minutes – is being undermined as EV makers roll out a new generation of fast-charging batteries. Geely last week introduced charging technology that can power a battery to 70 percent from 10 percent in under five minutes, while BYD Co. also boasts five-minute charging.
Nio CEO William Li said that better coordinating industry efforts, reducing repetitive investments and sharing innovative resources are some of the priorities for the next stage of the development of China’s automotive industry.
Nio and Geely’s cooperation is responding to the Chinese government’s ‘anti-involution’ call-or stamping out unhealthy competition-and will also improve the efficiency of resource allocation, Li said at an event Monday announcing the deal.
The tie-up ‘marks another milestone for the industry,’ said Vincent Sun, an analyst at Morningstar Inc. ‘Nio’s heavy capex on battery-swapping stations has been viewed by bear investors as a financial drain. By bringing in Geely, Nio successfully unlocks the intrinsic value of its previous investment. A unified swapping standard and increase in station utilization would reduce redundant capital outlays as a whole.’
Nio’s sales surged 58 percent to 262,893 vehicles in the first eight months of this year, driven by successful launches such as the flagship ES9 sport utility vehicle. One of China’s best-grossing cars, the ES9 and other luxury offerings helped improve Nio’s financial situation, with the decade-old company finally swinging into profit in the fourth quarter last year. However, it returned to losses in the first two quarters of this year.
Momentum is slowing after the company’s forecast third-quarter sales of 108,000 to 111,000 vehicles and revenue of 33.29 billion yuan to 34.05 billion yuan fell short of analyst estimates. China’s auto market, the world’s biggest, is shrinking as government subsidies are cut back and slower economic growth weighs on consumer confidence.