Charge it or charge it and swap it; do we have an option again?
In recent times, we saw an avid problem solver repeating the historical pattern of technology innovation, as he tried to disrupt the electric vehicle market with a superior technology and business model. As the industry mocked his world-shattering idea, he was already considering standardizing his technology. Think of how mobile phone screens shot down a 120-year old giant like Eastman Kodak and Google Android OS nearly zeroed the market for Nokia; his story presented a similar case for the EV industry.
In his version of the story, carmakers would agree to produce electric vehicles equipped with standard battery ports that accept a standard battery pack. His idea would help companies sell such cars cheaply—or even give them away—and earn its money off of the electricity, much as Reliance Jio would give away a handset and sell data in India. This story sounds very familiar, doesn’t it? Yes, it refers to Shai Agassi, the founder of Better Place and the man considered to be the Elon Musk of Battery Swapping for the EV industry in 2008. Everything about this idea appeared flawless and investors such as HSBC, Lazard, General Electric, Morgan Stanley and many others pumped in over $850 million. As soon as Agassi demonstrated swapping under four minutes, Renault came on board and it gave real hope to the market in Israel, European countries and the US. But hardly four years after the inception of the company, news broke that it had run out of cash. Agassi had to leave and Better Place never recovered after 2013.
Today in 2017, India, after Israel, US, EU, and China is attempting battery swapping with lesser preparation and investment than Better Place and that too at the national level. There was a reason why everyone was so confident about Better Place and invested millions in a company during financial crisis of 2008: the problem Agassi was trying to solve would have really changed the game for the EV industry as it was plagued with high Li-ion cell prices over $1200 per kWh and fast charging was hardly an option.
Interestingly, in 2017 Li-ion cell prices have plummeted $150 per kWh across technologies like NCA (Nickel Cobalt Aluminium), NMC (Nickel Manganese Cobalt) and LFP (Lithium Iron Phosphate). DC fast chargers are available for $15,000 (50 kW) across global markets and would also be part of the infrastructure of a swapping station. Range of EVs has certainly gone up with most of the makers promising at least 200 km per charge. Global EV market exploded in 2016 as China sold over 150,000 e-buses and over 3 million electric 2W. Based on climate change policies of countries and their EV targets of over 15-20% by 2020-2025, the market estimates these early trends as just the very beginning of a large disruption. EV sales penetration achieved in the US in 2016 was only 1.1% of total car sales. All this is expected to happen with or without swapping of battery. After the failure of swapping models by State Grid of China, Tesla, BYD and many other companies, the industry has quietly pulled the plug over the swapping model.
There is, however, a bright shining star, in an otherwise grim storyline of the battery swapping industry: Gogoro, the Taiwanese electric two-wheeler company. Gogoro has superbly demonstrated a commercially feasible swapping model in Taipei City, which is by far the best technology innovation of recent times which the EV industry has appreciated. In two years, the company has clinched 80% market share of electric two-wheeler sales in Taipei. The question now is how Gogoro succeeded in 2016 with battery swapping whereas Better Place and others did not. Was it the advent of fast chargers? Not exactly; the main issue was the business model. Better Place was a battery swapping company whereas Gogoro emerged as an electric two-wheeler maker which designed swappable battery packs for its vehicle and also instrumented fully automated do-it-yourself swapping stations. Better Place came up with a technology platform and a service without its own cars and Gogoro came up with swapping stations designed only for its own bikes. The scenario could be different if Gogoro emerges with a technology platform for swapping and tries to sell it to the industry and thinks of promoting it as a standardized solution. But why was that an issue with the Better Place model? Voelcker, the Green Car Reports editor, mentioned in a write up addressing the Better Place debacle that “carmakers regard their battery packs as core intellectual property, and hence will refuse to standardize. The main thing allowing them to persist in this stubborn posture is that their principal enabling technology—the batteries within those packs.”
It can again be debated that both charging infra companies and swapping syndicates have their own notions and they are lobbying for it. Hence it is very interesting to understand the usage patterns of an EV user and how they are charging their vehicles to go a step further in this discussion. The swapping model runs on the assumption that the car will be out of fuel more often than not and in that case, 30 minutes of charging time will not be acceptable. But the question is will cars run out of fuel or charge more often than not? The surveys done by Clean Technica on EV drivers in over 28 countries in 2016 have suggested that less than 4.0% of them charge at fast public chargers outside their home or office every day. As per the Charging Manifesto Survey of 2017, 42.0% of the users have never used a charger other than at home or office. On similar lines, a blog mentioned that the swapping model assumes that there is not possibly enough energy in the battery of the car to accommodate the driving needs of the owner. Statistics show that this is false for the vast majority (Source: National Travel Survey). People somehow always think they need to drive farther than they actually do. Also, cars are parked around 90% of the time (percentage for the commercial fleet would be close to 50%) which is when they can charge.
Apart from time to refuel (recharge), the second biggest benefit which makes the case for battery swapping is the reduction in the cost of the vehicle as users do not own battery. Our interactions with commercial fleet owners including the Indian grown Lithium cabs have suggested that their fleet vehicles are running over 100 km per day on average and they can recover the cost of battery quite early as they are running at least two charge-discharge cycles a day. To reduce their capital expenditure investments all they need is financing from banks and financial institutions which is currently difficult to get. They do not want to marry a particular technology or OEM and they would prefer EV vendors which are most aligned with their requirements. So if not commercial vehicle owners, would private car owners look for swapping? It is again unlikely for two reasons: private vehicle owners will have more time to charge the battery as their run time is limited and prices of electric vehicles are expected to hit parity without subsidies, with equivalent conventional fuel cars in 2024-2026 in the Indian market. In advanced EV markets like China and the US, parity will be reached much earlier as they have domestic production of both EVs and battery cells. So will a state or country invest in swapping for a cause of five to seven years till the new technology hits parity?
In such a scenario, it is laudable that India is re-evaluating the swapping puzzle. But as a nation, the focus and goals around EV should not only be wrapped with the development of its own swapping model. Technology standardization has always materialized after industry reaches a certain maturity which the EV industry has not, yet. Hence, taking swapping as the first step may delay India’s growth story on the global timelines. As one of the largest automobile markets, India is taking a turn towards EV and hence it has the opportunity to knock down two issues – low electricity demand growth and job creation, with the same solution. Indian power sector, despite significant growth in GDP, is awaiting loads that can justify its investments in RE generation and EV charging infrastructure (with or without swapping) can be that new load. Considering even BAU (business as usual) scenario of Niti Aayog’s report on EVs on road in India, the fast charger (30 minutes) connected load in 2030 can be as high as 15-20 GW of the load. For a transformative scenario, it can be 250-300 GW. The second opportunity which India has through the onset of the EV market is to build its own Li-ion cell manufacturing capacity as clearly the global Li-ion cell requirement for the global EV market is poised for over 400 GWh and planned production capacity is close to only 250 GWh. Hence it is time for India to refocus its strategic alignment with global trends and also lead from a technology leadership position like it has done in space technology.