BEIJING, February 21 (TMTPOST)—The world is witnessing an unprecedented revolution in electric mobility, with electric cars and the nimble motor-bikes playing crucial roles. According to data from the China Bicycle Association, by the end of 2022, there were approximately 350 million motor-bikes in China, surpassing the overall number of electric vehicles (EVs) by more than 30 times. This number is expected to exceed 400 million as of now.

However, both EVs and motor-bikes face the difficulty of charging. From residential areas to highways, owners often complain about the scarcity of charging stations and inefficient charging processes. In light of this, the "battery swap mode" has emerged as a potential solution.

In 2021, a heated debate between NIO and Tesla on the feasibility of battery swapping for electric cars drew widespread attention. While electric car enthusiasts debated the merits of swapping versus charging, an interesting consensus emerged among users of two-wheeled electric vehicles—a unanimous optimism toward battery swapping.

Despite the initial optimism and rapid growth in 2021, the industry appears to be drifting away from the lofty expectations. The proliferation of battery swap stations faced challenges, and the market dynamics shifted. In 2022, the overall growth rate of the two-wheeled electric vehicle battery swap market slowed significantly, according to data from the Starting Point Research Institute. 

Even the leading companies in the sector, such as Tower Energy, experienced a significant decrease in revenue growth from 239.6% to 44.8%. The once touted "billion-dollar blue ocean" seemed to lose its momentum.

Despite a partial recovery in market growth in 2023, the sector's expectations and enthusiasm remain far from the peak in 2021. Some well-known brands like Hello Bike and EJOY Sport have ceased operations, and Didi's electric vehicle swap service, Qing Ju Battery Swapping, has closed one after another. Even active companies have adopted a more low-profile approach, shifting away from the high-profile marketing strategies seen in 2021.

Industry observers attribute the decline to the inherent limitations of motor-bike battery swap business model, which emerged as an ancillary service to instant delivery. The demand ceiling for this service is relatively low, and the initial influx of capital may have been driven by hype rather than a sustainable market opportunity.

As of January 2024, the number of active companies in the motor-bike battery swap business has decreased significantly, with many having less than two employees. The active mobile applications related to battery swapping have also dropped to less than 30.

Despite the crowded market, the operational challenges persist. The costs associated with setting up and running a battery swap station, including cabinets, batteries, location fees, electricity costs, customer acquisition costs, and depreciation, exceed 100,000 yuan (approximately $15,800). Profitability relies heavily on the monthly rental fees of around 300 yuan per rider.

Amid the new trend of two-wheeler battery swapping, the C-end market, particularly the home user battery swapping market, is considered the most crucial growth market in this sector.

In terms of scale, even with a significant number of delivery vehicles, the market space is still limited. In contrast, as the world's largest producer and consumer of electric two-wheelers, China's civilian electric two-wheeler market is in the billions. From a business perspective, the C-end market cannot be ignored.

Moreover, recent policy trends have favored promoting the "swapping instead of charging" model in the home-use C-end market.

The safety of charging electric two-wheelers has long been a concern. Fires and safety hazards caused by electric vehicles entering buildings, charging at home, and tangled wires have become hot topics, said Wang Xianjin, a member of the National Committee of the Chinese People's Political Consultative Conference and Vice President of the Institute of Transportation Research at the Ministry of Transport.

In recent years, both national and local policies have paid considerable attention to this issue. The "swapping instead of charging" model aligns with policy guidance, is easier to manage when operated by professional companies, and is considered a safer way to replenish energy, making it practically meaningful for promotion.

Moreover, the transitional period for the new national standard for electric bicycles in many cities will end by the end of 2024. The replacement and purchase wave for lithium batteries is accelerating, as all regions rigorously enforce safety regulations and formulate related policies. Centralized charging has become a compliant and mainstream way of replenishing energy. However, the number of centralized charging facilities falls far short of the demands of vehicle owners.

The security supervisor of a property in Beijing's Dongcheng District told TMTPost that the property covers an area of 110,000 square meters, currently has three centralized charging sheds for two-wheelers with a total of more than 60 charging ports. However, this is far from meeting the needs of residents. Although a new charging shed will be put into use after the Spring Festival, it is expected to still not completely solve the problem of charging difficulties. Although there is no longer a situation where electric vehi are taken upstairs, some residents bring the battery home to charge because they cannot find charging ports downstairs. The property can only advise against it, as the "community space is limited, and the problem cannot be fundamentally solved."

According to a report by the China City Daily, by the end of 2023, Beijing had built a total of 950,000 electric bicycle charging facility interfaces, with a ratio of about 1:3.5 to charging piles. An additional 200,000 charging facility interfaces will be built in 2024. However, residential charging facility construction is still affected by power conditions, site selection, and other reasons, leading to issues such as unbalanced layout, inadequate operation, and inability to meet demand.

When asked if they would consider introducing battery swapping cabinets, the property security supervisor mentioned earlier stated that they would not consider it. Even without considering management and approval issues, these battery swapping cabinets are not suitable for residential areas. The property has commercial apartments with a set of lithium-ion battery swapping cabinets, but the users are all delivery riders, and there is no interest from residents.

Research from Frost & Sullivan previously showed that in China's electric two-wheeler market, models priced between 1,500 yuan and 3,500 yuan often account for nearly 80% of total annual sales. In terms of usage scenarios, the elderly mainly use them to pick up and drop off grandchildren, while young people use them as commuting tools, covering about four to five kilometers a day.

TMTPost found, through various sources, that pricing, frequency of use, usage habits, ownership issues, and vehicle compatibility issues are all reasons why battery swapping has been challenging to enter the home-use market. Although the industry has always claimed that a 10% conversion rate in the C-end can sustain a large market, the penetration rate of the two-wheeler battery swapping model among C-end users has not even broken through 3% so far.

Even battery swapping companies themselves seem to be lowering their expectations for the C-end market. Customer service personnel from LINUS stated that the products are used by delivery riders, and individual use is not cost-effective. The vehicles and batteries may not match. Wang Zheng, Vice President of Hello Battery Swapping, also mentioned that most existing C-end household vehicles are not battery swapping vehicles. To swap batteries, they need modification and additional adapter parts. Currently, network coverage does not meet the needs of residents, and the cost-effectiveness is low, leading to low consumer acceptance.

Among the top companies, although Tower Power has never given up on the C-end market, its Tower Charging (charging cabinets rather than battery swapping cabinets) for residents is more popular. According to a report by 21st Century Business Review, the company previously promoted battery swapping services for real estate intermediaries, but strictly speaking, this cannot be considered a home-use market, and the scale is also small. LINUS explicitly responded that its main users are delivery riders and has not considered providing public battery swapping services for ordinary citizens. Another company that has been committed to the C-end market, DuDu Battery Swapping, refined its target users to college students, offering packages that allow unlimited usage within a specified amount of electricity.

Previously proposed various C-end market solutions and business models by battery swapping companies, whether it is scaling down costs or integrating the entire chain, have not yet achieved substantial breakthroughs. The heavy asset nature of battery swapping cabinets and the ubiquitous operating costs (electricity prices, rent, maintenance personnel, customer service personnel, etc.) have forced many companies intending to "burn cash" to rethink their strategies.

However, there are still some new players attempting to focus on the C-end market.

Established in June 2022, Beijing Electric Investment Green Pass Technology Co., Ltd., is a typical example. According to data from Qichacha, the company's largest shareholder is Beijing Feima Yun Technology Co., Ltd. (a small and micro-enterprise) with a 33.3% stake, and the second-largest shareholder with a 21.1% stake is China National Power Investment Group's wholly-owned subsidiary, China Power Investment Smart Green Pass (Beijing) Technology Co., Ltd.

According to the company, it belongs to the China Power Investment system, focusing on "energy Internet" + "consumer Internet" energy service scenarios. It is a professional operating organization for battery swapping solutions and a perfect scene for the landing of China Power Investment's three-network integration strategy. Starting in 2023, with the signing of strategic cooperation agreements with China Power Investment Smart Energy and districts and cities such as Xicheng District in Beijing, Shenyang in Liaoning Province, Wuhan in Hubei Province, and Shijiazhuang in Hebei Province, the company is accelerating its layout in the above-mentioned areas for battery swapping business. According to public information, C-end users are the focus of its business development.

At the end of January 2024, TMTPost visited several battery swapping cabinets that the company had deployed in Beijing. From the map distribution, these swapping points are all arranged within the contracted range of Xicheng District in Beijing. Most of them have notices saying "the equipment has not been put into use." Even if there is no relevant notice, and the app shows available batteries in the swapping cabinet, it cannot be used normally. The customer service informed Titanium Media app that all devices would only be put into use after the Spring Festival, and a notice would be issued at that time. The current display on the app does not reflect the actual situation. Regarding fees, those with Sesame Credit scores greater than or equal to 550 can waive the deposit; otherwise, they need to pay a deposit of 600 yuan. Currently, the product only has a "resident single battery package," with monthly rents varying by no more than 50 yuan in different cities. In Beijing, it is currently 299 yuan per month, allowing for 10 battery swaps per month.

TMTPost randomly interviewed over ten residents with electric vehicle usage habits in Fangtingyuan, Xijiaomin Lane, and Yuetan Street, where the company has conducted centralized promotion. Most of them expressed that they did not understand or had not noticed the battery swapping cabinets. Some residents thought the monthly rent was too high after hearing the introduction, and they had no intention of using it. One vehicle owner living near Xijiaomin Lane even mentioned that they had used Tower Power's charging and felt it was acceptable. Still, with only one battery, renting a battery and swapping seemed unnecessary.

Additionally, TMTPost asked customer service about the compatibility of electric vehicles. The representat mentioned that the swapping cabinet uses a 20Ah lithium iron phosphate battery, and it is not entirely clear whether it is suitable for vehicles. Before purchasing a package, customers can inquire at physical stores.

From the research perspective, it is not easy to open the C-end home-use market with a monthly rent close to 300 yuan, and it may be challenging to cultivate user consumption habits in a short time. Whether the new entrants with the background of a central enterprise can find a new path will only be revealed as their business unfolds.