China allocates resources to tackle battery swapping challenges

The Chinese government, state-owned enterprise Sinopec and leading private sector companies, such as battery giant CATL and electric vehicle maker Nio Inc., have recently allocated significant resources to the country's battery swapping industry to tackle critical challenges.

Battery swapping stations, unlike charging facilities, provide a more efficient way to power EVs and have the potential to lower EV costs, particularly for heavy-duty trucks. Additionally, these stations, equipped with large battery storage capacity and flexible demand, can more effectively coordinate with power grids and manage the demand-side volatility caused by EV charging and the intermittency of renewable energy sources.

However, the absence of a comprehensive policy framework, financial incentives and uniform battery standards across different EV models and brands has created obstacles to expanding the battery swapping network, according to market analysts. Notably, these challenges are faced not only by China's battery swapping industry but also by countries worldwide.

Recent developments in China indicate that both the public and private sectors are planning to tackle these challenges.

Analysts said China could gain a competitive edge in the intensely competitive global clean energy market if the resources dedicated to addressing these issues can be transformed into effective solutions.

Sinopec and CATL's pledge

On April 2, China's state-owned oil major Sinopec and battery giant CATL signed a framework agreement to build at least 500 battery swapping stations nationwide in 2025 and jointly construct 10,000 stations in the future.

The target is viewed as highly ambitious among industry stakeholders. As of 2024, China had 4,443 battery swapping stations, according to the Electric Vehicle Charging Infrastructure Promotion Alliance (EVCIPA). Guangdong province, which possesses the largest battery swapping capacity in the country, has constructed 531 stations to date.

The collaboration between Sinopec and CATL signifies that the battery swapping industry has entered a new phase and has the potential to revolutionize the ecosystem for EV services, state media China Securities Journal reported April 2.

The central government has also provided Yuan 30 billion ($4.13 billion) to support the development of battery swapping stations, according to the state media. The subsidy for a single project could cover up to 30% of the costs.

CATL-Nio collaboration

On March 18, CATL signed an agreement with Nio Inc. to collaborate on building a battery swapping network and to promote the harmonization of battery standards.

Market participants said the two companies have sent a positive signal regarding the industry's pain point -- the lack of unified battery standards. However, whether this issue can ultimately be resolved remains uncertain.

Policy analysts anticipate that the Ministry of Industry and Information Technology will soon release high-level guidance to support the harmonization of standards and the long-term development of the battery swapping industry.

Nio Inc. is widely considered a pioneer in the country for promoting battery swapping. However, based on its public financial disclosures, the company has encountered financial difficulties that, as market participants noted, have posed challenges to implementing its ambitions in this emerging field.

Market participants said building battery swapping stations remains capital-intensive and expressed hope that government subsidies will help address the financial viability issue.

For Nio Inc., the construction cost of the first-generation battery swapping stations for passenger cars was about Yuan 3 million ($412,000), while the cost for the second and third generations fell to about Yuan 2 million and Yuan 1.5 million, respectively, according to local media reports.

Battery metals outlook weak

The growth of the battery swapping market may boost the consumption of battery metals in the long term; however, it is currently making minimal impact on the domestic lithium market, which has been experiencing a downtrend due to a supply surplus, according to market sources.

The outlook for the Chinese lithium carbonate market remains depressed in the coming months. While domestic smelters have continued to ramp up production, downstream demand has not increased as much as anticipated, market sources said.

Platts, part of S&P Global Commodity Insight, assessed battery-grade lithium carbonate at Yuan 73,500/mt ($10,113/mt) on April 2 on a delivered, duty-paid China basis, down Yuan 500/mt week over week and month over month.

"For the domestic lithium market, I am not sure whether prices will rebound to above Yuan 75,000/mt but most people are very bearish," a Chinese trader said. "They believe that prices will drop to below Yuan 70,000/mt."