A new twist on battery swapping

Johan · Apr 11, 2015

Last night before I went to sleep I was thinking about battery swapping from a different perspective, an investor's perspective, and when I woke up I had apperently reached some insights during my sleep. So I thought I'd post it here and see if it makes any sense.

First off, I don't think the real reason for automed battery swapping coming in to existence is to facilitate long distance travel. Let me explain:

In 2020 Tesla will make 500.000 cars. Since the start then, with a gradual ramp-up they will have built not far from 1 million cars. Some of the first cars, from 2013, will have batteries with sometimes quite som mileage on them which will have lead to some degradation. Furthermore the battery technology available in 2020 my make for substantial improvments in energy density and cost, making it possible to either make a very much lighter 100 kWh pack the same size as the current 60/70/85 pack (for the S/X line) or a pack as large and heavy but with let's say 200kWh.

People are going to want to upgrade their batteries. They are not going to want to upgrade only when their own pack has become either too degraded or in some other aspect obsolete (for example a newer pack will give better performance) but a lot of people are going to want to upgrade as soon as a new pack becomes available just to have the latest and best.

Tesla will likely have a monopoly on both production and sales of new packs as well as the swapping market. One could imagine a system where you drive in to an automated swap center and have your car report the status of your battery to the station, perhaps even some testing being done by the station to determine the condition of your pack. The station will then give you a "trade-in" value for your current pack. Then you can pick from packs available to switch to, both pre-owned and new packs, and you pay the price difference to swap.

Tesla can then take the old pack and either condemn/recycle it, perhaps repair/refurbish it or, if it's in good condition, just sell it again as a certified pre-owned pack.

In every step of the process Tesla is taking a percentage and making money. On new batteries of course they are taking margin, but also on the used/pre-owned packs. This will be like a whole eco system or a sort of battery free market. Only it's not free but entirely in Teslas control.

Assuming (ball-park figures) 1 million Teslas on the road in 2021 and the average owner swapping pack every two years that's 500.000 swaps in 2021. 500.000 swaps in 350 days is 1400 swaps per day every day. You can imagine that Tesla would need quite a few swapping stations worldwide just to handle this. And this is assuming swapping is not being used for long distance travel, only for "permanent" swapping (where you pay the full difference on the trade every time).

This could be a very nice way of making money for Tesla, that would come in addition to the CPO car market.

Also, naturally the reason why Elon and Tesla are not talking about this now is that at the current point in time in Teslas's development - still an early stage where a lot of people are on the fence regarding EVs - you don't want to put focus on the unevitable effects of battery degradation and the rapid pace of development and change (like the S85 or even S85D becoming if not obsolete than at least "a generation older" in a few short months with the intro of the 70D). In a couple of years time though, as the market has matured and people are more comfortable with the concepts of EVs and the concept of continual rapid developments (no model years, new models, batteries and techs being introduced in a continous fashion) this won't be an issue.

Jim MacInnes · Apr 11, 2015

Johan said:
Last night before I went to sleep I was thinking about battery swapping from a different perspective, an investor's perspective, and when I woke up I had apperently reached some insights during my sleep. So I thought I'd post it here and see if it makes any sense.

First off, I don't think the real reason for automed battery swapping coming in to existence is to facilitate long distance travel. Let me explain:

In 2020 Tesla will make 500.000 cars. Since the start then, with a gradual ramp-up they will have built not far from 1 million cars. Some of the first cars, from 2013, will have batteries with sometimes quite som mileage on them which will have lead to some degradation. Furthermore the battery technology available in 2020 my make for substantial improvments in energy density and cost, making it possible to either make a very much lighter 100 kWh pack the same size as the current 60/70/85 pack (for the S/X line) or a pack as large and heavy but with let's say 200kWh.

People are going to want to upgrade their batteries. They are not going to want to upgrade only when their own pack has become either too degraded or in some other aspect obsolete (for example a newer pack will give better performance) but a lot of people are going to want to upgrade as soon as a new pack becomes available just to have the latest and best.

Tesla will likely have a monopoly on both production and sales of new packs as well as the swapping market. One could imagine a system where you drive in to an automated swap center and have your car report the status of your battery to the station, perhaps even some testing being done by the station to determine the condition of your pack. The station will then give you a "trade-in" value for your current pack. Then you can pick from packs available to switch to, both pre-owned and new packs, and you pay the price difference to swap.

Tesla can then take the old pack and either condemn/recycle it, perhaps repair/refurbish it or, if it's in good condition, just sell it again as a certified pre-owned pack.

In every step of the process Tesla is taking a percentage and making money. On new batteries of course they are taking margin, but also on the used/pre-owned packs. This will be like a whole eco system or a sort of battery free market. Only it's not free but entirely in Teslas control.

Assuming (ball-park figures) 1 million Teslas on the road in 2021 and the average owner swapping pack every two years that's 500.000 swaps in 2021. 500.000 swaps in 350 days is 1400 swaps per day every day. You can imagine that Tesla would need quite a few swapping stations worldwide just to handle this. And this is assuming swapping is not being used for long distance travel, only for "permanent" swapping (where you pay the full difference on the trade every time).

This could be a very nice way of making money for Tesla, that would come in addition to the CPO car market.

Also, naturally the reason why Elon and Tesla are not talking about this now is that at the current point in time in Teslas's development - still an early stage where a lot of people are on the fence regarding EVs - you don't want to put focus on the unevitable effects of battery degradation and the rapid pace of development and change (like the S85 or even S85D becoming if not obsolete than at least "a generation older" in a few short months with the intro of the 70D). In a couple of years time though, as the market has matured and people are more comfortable with the concepts of EVs and the concept of continual rapid developments (no model years, new models, batteries and techs being introduced in a continous fashion) this won't be an issue.

This makes a lot of sense and is in line with Tesla's strategy to improve the performance and capabilities of their cars over time. Part of my decision to purchase a Model S was in consideration of that possibility. The older batteries could be aggregated and used for grid level storage which is already being studied. Recycled EV batteries to be used in power grid : Tyrepress Given Musk's serious concern for the environment there is little doubt in my mind that Tesla plans to be part of the solution to repurpose partially depleted batteries.

eloder · Apr 11, 2015

I think another possibility is that longer-range packs could be swapped in or rented on a temporary basis. For example, a 70D could "rent" and 85D pack for a small fee for a trip, or perhaps even specialty, heavier packs could be rented for 400+ mile ranges.

Personally, I'm not sure that battery swapping will really take off except for dedicated heavy-duty trucks, such as semis that regularly run the same 1000 mile route. Supercharging is already pretty darn good and free (prepaid), and supercharging has more potential to reach for faster charging.

Johan · Apr 11, 2015

eloder said:
I think another possibility is that longer-range packs could be swapped in or rented on a temporary basis. For example, a 70D could "rent" and 85D pack for a small fee for a trip, or perhaps even specialty, heavier packs could be rented for 400+ mile ranges.

Personally, I'm not sure that battery swapping will really take off except for dedicated heavy-duty trucks, such as semis that regularly run the same 1000 mile route. Supercharging is already pretty darn good and free (prepaid), and supercharging has more potential to reach for faster charging.

Of course your first paragraph is the "classic case" for swapping but like you I'm sceptical with regards to that. That's why I suggested a possible ulterior motive for Tesla to pursue automated swapping anyway.

mershaw2001 · Apr 11, 2015

I thought that one reason the swapping is so important is to capture the final 2 regulatory zev credits. This article from over a year ago suggests that a change in the credit structure requires an adoption of battery swapping at a sufficient level in order to capture full zev's.
Tesla's Battery Swap Stations Will Help It Requalify For ZEV Credits In California - Forbes

Danal · Apr 11, 2015

Periodic "upgrade" does NOT fit all that well with the automated battery swap capability. For an upgrade, a visit to a service center for a couple of hours is no big deal. After all, I only upgrade every few years.

Automated swap took TREMENDOUS forethought and engineering. Bolts, shields, wiring, HV wiring, LV wiring, did I mention wiring? plumbing for cooling, and more... all that had to be arranged to be quick swapped, reliably, from below, via robotics. Of all the engineering feats in this car, the auto-battery-swap is in my personal top 10 list.

Your comments on the business model? And why they are not talking about it right now? 100% with you. In fact, it is one of the reasons I bought the car. I'm assuming I will have a P100D or P110D, or something, in a few years via swapping only the pack + dollars.

Of course, I look forward to the TMC threads complaining about the price.

ItsNotAboutTheMoney · Apr 11, 2015

mershaw2001 said:
I thought that one reason the swapping is so important is to capture the final 2 regulatory zev credits. This article from over a year ago suggests that a change in the credit structure requires an adoption of battery swapping at a sufficient level in order to capture full zev's.
Tesla's Battery Swap Stations Will Help It Requalify For ZEV Credits In California - Forbes

Swapping is important _now_ because of the credits, but they'd likely still like the ability to swap batteries quickly and cheaply.

beeeerock · Apr 11, 2015

The ability to swap batteries is one thing, the ability to swap them in an automated way, quickly, is something else.

Thinking about the failed Better Place concept, the idea that I found interesting was that car buyers did NOT buy the batteries. That mades the purchase price significantly lower. If you wanted to sell a car priced for the masses, selling them battery miles like Better Place did would be one way to avoid front end loading the cost of the batteries in the car purchase.

The ability to swap batteries might be part of a long-term plan, or it might be something they are testing because they think it could find a use at some point. Or it could be for the credits... but I think they play their own game.

rickgt · Apr 11, 2015

I like your thinking on this... certainly battery density will improve over time... upgrades are always a great business.

hobbes · Apr 12, 2015

I think that battery swapping is more valuable than people realize. I am kind of disappointed that even Tesla is not very enthusiastic about it. Actually, I posted about it in the long term thread a while ago:

hobbes said:
I find battery swapping a really fascinating idea - it makes EVs better than ICEs in yet another aspect (refueling quicker) and would give Tesla yet another edge over its competitors if implemented on a large scale. But even with the beta test at Harris Ranch now underways, from his recent comments it sounds as if Elon is not quite convinced about the future of this technology.

I see the one central problem (assuming it works reliably from a technical point of view) with battery swapping in having to return the same battery to its owner or otherwise set up a complicated payment system taking into account the different age/fitness of battery pack turned in and picked up which makes everything unflexible (having to go back the same way to pick up your battery or having to pay a differing price every time). But is that really necessary?

My idea is that Tesla could set up the service such that they guarantee everyone using it that they always get a pack as good or better as the one they turned in. The average increase in battery value over all those exchanged would be part of the fixed service charge. In the beginning, when only a few people are using it and there are not so many packs in store at every swap station, the age/fitness differences of the packs going in and out would be statistically relatively large, but as soon as it is widely adopted and more packs of different fitness are available at the station, you could more and more closely match the pack coming in. So the financial risk from statistical fluctuations in the matching would be larger per pack in the beginning, but not cause a problem because of only a few ones exchanged. Later, you can be pretty sure to have the right pack for everyone and calculate the fees quite exactly. Shouldn´t be too hard to model that if you have the distribution of the battery fitness of all packs (which I am sure Tesla does).

In addition, this way Tesla could keep the fitness level of its customer´s cars up which would add to the long-term value of the product. People might not have to be afraid of having to spend a big chunk of money on a new battery if they own the car for a really long time.

Caveat: on the long run, you have to store quite a few batteries at every swapping station - I guess that store would have to be handled by a robot, too, to make it efficient (kind of like a tape robot which was used for retrieving magnetic backup tapes in IT).

Auzie · Apr 12, 2015

hobbes said:
I think that battery swapping is more valuable than people realize. I am kind of disappointed that even Tesla is not very enthusiastic about it. Actually, I posted about it in the long term thread a while ago:

Battery swap could be further developed in a business stream along the lines you suggested.

My take on Tesla not being 'very enthusiastic about it' is that perhaps they are already swamped with too much work and too many great ideas that they are already converting from imaginary concept to physical and financial reality.

All these great ideas are competing for limited resources and capital to take them up and develop into viable business. Perhaps battery swap is on their list, but maybe not very high in priority.

hobbes · Apr 13, 2015

Auzie said:
My take on Tesla not being 'very enthusiastic about it' is that perhaps they are already swamped with too much work and too many great ideas that they are already converting from imaginary concept to physical and financial reality.

All these great ideas are competing for limited resources and capital to take them up and develop into viable business. Perhaps battery swap is on their list, but maybe not very high in priority.

That makes sense. I just hope they don´t give it up in the long term. Right now superchargers have priority, and Tesla is doing an amazing job there!

Buddyroe · Apr 13, 2015

hobbes said:
I think that battery swapping is more valuable than people realize. I am kind of disappointed that even Tesla is not very enthusiastic about it. Actually, I posted about it in the long term thread a while ago:

Yea, 99.5% of people don't have a BEV. And the 2 most cited reasons for that is range and charge time. I hear it constantly from people. Even the lesser range is acceptable as long as the battery can be charged or swapped in less than 5 minutes.

The guy that now works for Fisker that developed the Volt gets it. He is totally in tune with people's thinking about BEVs and range. Tesla will never sell 500k cars in a year as long as it takes 40-50 minutes to fully recharge. Either the range needs to get into the neighborhood of 500 miles (which I drove yesterday), or the re-fuel time needs to be reduced to under 10 minutes. That's just a real-world perspective.

Robert.Boston · Apr 13, 2015

Buddyroe said:
The guy that now works for Fisker that developed the Volt gets it. He is totally in tune with people's thinking about BEVs and range. Tesla will never sell 500k cars in a year as long as it takes 40-50 minutes to fully recharge. Either the range needs to get into the neighborhood of 500 miles (which I drove yesterday), or the re-fuel time needs to be reduced to under 10 minutes. That's just a real-world perspective.

There will be a use-case for ICE vehicles until there is super-rapid charging or ubiquitous swapping, but I disagree about whether 500k BEV/year is achievable without them. There are over 10 MM new passenger vehicles sold in the U.S. every year. People who need to road-trip are not 95% of the market, especially when you consider that most U.S. households have more than one car. The odds of needing two road-trip cars at the same time is even smaller. Nissan and Smart (Daimler) are definitely pursuing a strategy of "BEV as second vehicle for errands."

Having driven my Model S from Portland, Maine to Durham NC (and back)—800 miles each way—I simply disagree with you about whether the current Model S and Superchargers works. Did it take longer than driving my wife's BMW? Yes, but the time wasn't wasted, as I need to eat, pee, stretch and check emails, so stopping every two hours or so for a short break isn't a big deal for me. When I was a teenager road-tripping from Ohio to Florida for spring break, not so much. I can attest that I arrived at my destinations much more relaxed and refreshed than when I have pushed through without breaks.

The key point is that Tesla doesn't need to make a suite of vehicles that satisfies everyone. It only has to satisfy 500k people a year, and I think a $40k Model 3 + ubiquitous supercharging will easily top that number.

austinEV · Apr 13, 2015

At this point I am almost ready to be a battery-swap denier. My gut feel, and tons of anecdotal evidence from service centers, suggests that swapping is not a 5 minute project even with wonder robots. I think the Model S is "battery swap capable" because Elon demanded it and it made it into the design as the 17th priority or something. So it sort of is in the sense that the various bolts can be undone from the bottom. (I had a battery swapped out and it took hours to do, as an anecdote).

This is my unsubstantiated, grumpy theory. There was no way to design the battery to be easily swappable without major design compromises. So the engineers put in a compromised solution. It was sort of designed for modestly easy swapping, in the sense that it could be done in a short-ish service visit, faster with some automation to move the battery. At the time, the CARB rules were vague about quick charging, and he held the swap event. The audience of that was the CARB board only. This allowed them to keep the 7 credits. Then they clarified that it needs to be a real thing that customers can actually get. So they got busy making one "test" station. This was just meant to continue the board's interpretation of the existing rules. Then they changed the rules so that the credits are awarded based on the actual number of swaps done, essentially closing the loophole. Now I think TM has a headache. They were never serious about swapping and they don't have an exit strategy. They don't want to go full out, and it will be hard to back down now without it being clear what they were doing.

Even if you accept that a swapping robot works, the economic model is really hard to wrap your head around as others have said. The sheer number of batteries you would have to stock (and store) is massive for such a thing to approach consumer scale. It makes more sense if you shift to a "leasing" model so you don't have to store the "owned" batteries but we haven't seen any indication they are going that way.

As a Model S owner, would you be comfortable having a robot rip the guts out of your car and swap in some new thing? Not if you gave me $500 would I do this... I get nervous putting it in a touchless car wash.

Johan the location is really poor for fleet changeovers. They would want to be close to service centers optimally.

beeeerock · Apr 13, 2015

austinEV said:
Even if you accept that a swapping robot works, the economic model is really hard to wrap your head around as others have said. The sheer number of batteries you would have to stock (and store) is massive for such a thing to approach consumer scale. It makes more sense if you shift to a "leasing" model so you don't have to store the "owned" batteries but we haven't seen any indication they are going that way.

Considering the SolarCity model, where homeowners essentially lease the panels and inverters, would batteries really be that big of a stretch? As I noted in an earlier post, if you want to dramatically drop the purchase price of a car, don't make them buy the batteries. If your cell phone was going to cost the price of the phone, AND a good chunk of the usage through the life of the phone, at purchase, would we be using cell phones as commonly as we do today?

When you consider how accurately the robots work to build a car, I don't think it's a big stretch to have one swap the battery module. Frankly, I'd probably prefer to have it done in an automated fashion that have some dropout working for minimum wage messing with the bottom of my car. That's not to minimize the complexity of the task, just that I think it's possible. :biggrin:

Robert.Boston · Apr 13, 2015

austinEV said:
At this point I am almost ready to be a battery-swap denier. My gut feel, and tons of anecdotal evidence from service centers, suggests that swapping is not a 5 minute project even with wonder robots. I think the Model S is "battery swap capable" because Elon demanded it and it made it into the design as the 17th priority or something. So it sort of is in the sense that the various bolts can be undone from the bottom. (I had a battery swapped out and it took hours to do, as an anecdote).

Just ask Shai Agassi and his investors in Better Place about how tough making battery swapping economics is. I think you've got the truth of the matter here, @austinEV.

Drucifer · Apr 13, 2015

Johan said:
Assuming (ball-park figures) 1 million Teslas on the road in 2021 and the average owner swapping pack every two years that's 500.000 swaps in 2021. 500.000 swaps in 350 days is 1400 swaps per day every day.

Agree conceptually, but I think the median Tesla owner would be likely to keep their battery for 4-8 years, not only 2.

Johan · Apr 13, 2015

austinEV said:
At this point I am almost ready to be a battery-swap denier. My gut feel, and tons of anecdotal evidence from service centers, suggests that swapping is not a 5 minute project even with wonder robots. I think the Model S is "battery swap capable" because Elon demanded it and it made it into the design as the 17th priority or something. So it sort of is in the sense that the various bolts can be undone from the bottom. (I had a battery swapped out and it took hours to do, as an anecdote).

Johan the location is really poor for fleet changeovers. They would want to be close to service centers optimally.

I see your points, and I agree there are some real challanges. Maybe the swap just has to be semi-automated, the fully automated technology wasn't really the core argument of my original post. I was more trying to think 5-10 years in to the future where there could be one to several millon Teslas on the roads and thinking of the possible market opportunities in a battery "swap/upgrade/trading" market.

I know Harris Ranch is off the beaten track, but it could be that it's just a prototype kind of place they're doing, like a proof-of-concept type thing and since they have a SC there and there was this abandoned car wash building it was just as convenient as anything else for a trial facility.

Also, the way we're seeing them working on this in a very relaxed way without showing any signs of being in a hurry tells med that if there is going to be some point in swapping it's many years in the future.

- - - Updated - - -

Drucifer said:
Agree conceptually, but I think the median Tesla owner would be likely to keep their battery for 4-8 years, not only 2.

Only thing is we don't really know how much battery tech will evolve in the future, at what rate, and how quickly prices can come down.

Hypothetical: In 2018 you buy a Model S version 2.0 with a 100 kWh battery for $70000. In 2020 you can trade that battery in for a new $125kWh battery that weighs 35% less for only $4000. I think a lot of people would do that.

austinEV · Apr 13, 2015

Johan said:
I see your points, and I agree there are some real challanges. Maybe the swap just has to be semi-automated, the fully automated technology wasn't really the core argument of my original post. I was more trying to think 5-10 years in to the future where there could be one to several millon Teslas on the roads and thinking of the possible market opportunities in a battery "swap/upgrade/trading" market.

I know Harris Ranch is off the beaten track, but it could be that it's just a prototype kind of place they're doing, like a proof-of-concept type thing and since they have a SC there and there was this abandoned car wash building it was just as convenient as anything else for a trial facility.

Also, the way we're seeing them working on this in a very relaxed way without showing any signs of being in a hurry tells med that if there is going to be some point in swapping it's many years in the future.

- - - Updated - - -

Only thing is we don't really know how much battery tech will evolve in the future, at what rate, and how quickly prices can come down.

Hypothetical: In 2018 you buy a Model S version 2.0 with a 100 kWh battery for $70000. In 2020 you can trade that battery in for a new $125kWh battery that weighs 35% less for only $4000. I think a lot of people would do that.

Wow, count me out for that $70,000 battery.

A new twist on battery swapping

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