“Electric vehicles” (EVs) has been the buzz word over the past few years – and rightfully so. A closer look at this sector would reveal that the most fundamental piece in the EV jigsaw puzzle is battery technology. The existence of easily accessible and widespread network of charging infrastructure in whatsoever form, becomes essential to the large-scale adoption of electric mobility. Even the national finance policy vide the 2022 Union Budget proposed the roll out of a policy on battery swapping – which would, of course, lead to several innovative business models in the battery technology space.
What is battery-as-a-service?
Battery-as-a-service (BaaS) allows customer to lease batteries separately from the vehicle, so that customers do not have to purchase the battery upfront along with the vehicle. The BaaS model envisages leasing of the battery from a charging infrastructure company and swapping the battery in swapping stations for a recharged battery every time the battery gets discharged. The said leasing is offered as a service and akin to “software as a service”, “banking as a service” and “infrastructure as a service” which has been prevalent in other industries.
Advantages of BaaS model
From a customer perspective, BaaS is an asset-light, low-cost and a fast-on-its-feet model which allows the customer to instantly swap the battery – as opposed to a fixed charging station where charging batteries is time consuming and the charging infrastructure is cost-intensive. Owing to the BaaS model, the upfront costs of the EVs may go down significantly – as an illustration for two-wheelers, the costs may easily go down up to 20%.
From the BaaS provider’s perspective, the model brings down the cost of setting up a retail charging station and attendant infrastructure. Further, the BaaS provider does not require setting up of infrastructure by itself but can expand its network by collaborating with entities having widespread networks of agents and charging infrastructure, much like how banks use business correspondents to expand their banking services to the unbanked and underbanked. Of course, in BaaS, the discharged batteries will have to be recharged for next exchange and to that extent, business-to-business level charging infrastructure will be required.
Necessary ecosystem
It is well understood that the BaaS model not only helps in faster adoption of EV technology, but it also addresses the lack of EV charging infrastructure in the country. A typical BaaS ecosystem includes following players:
- Battery and EV manufacturers: The BaaS ecosystem is heavily dependent on the manufacturing of batteries (including research and development for advancements in battery technology). EV manufacturers are next in the chain, where they rely on battery manufacturers to power their EVs, which are then sold to customers.
- Network operators: A network operator facilitates and provides customers with charging solutions (charging stations/battery swapping infrastructure) for their EVs in the form of BaaS. The key player in the BaaS model is the network operator. India has seen a rise in network operators such as Sun Mobility, Jio-bp, Charge+Zone who have set up charging and battery swapping stations in places such as petrol pumps or even in standalone stations, albeit at a small scale.
- Operation and maintenance (O&M) services providers: At times, it may not be possible for the network operator to operate EV charging or battery swapping stations by itself. Accordingly, the network operators may enter into arrangements with O&M service providers who are engaged in developing and operating EV charging infrastructure. Irrespective of the BaaS model adopted, arrangements with O&Ms become essential to ensuring seamless operation and maintenance of charging/swapping stations on behalf of the network operator and to provide allied services.
- Customers: Last but not the least, successful operation of the BaaS model requires adoption by customers of such a model, which includes retail customers or institutional customers such as fleet operators/big logistics or delivery companies. Also, the effective onboarding and role of customers in this ecosystem is facilitated by mobile applications which help in providing details of the nearest battery swapping station, availability of fully-charged batteries and other critical data points relevant for growth and evolution of this industry.
Prevalent types of BaaS models
While BaaS is a concept in itself, there are different models which are prevalent in the industry. Few such models are set out below:
- The battery manufacturer acts as a network operator and offers swapping services to customers. For instance, Sun Mobility’s smart batteries, which can be swapped at its quick interchange stations and are interoperable across 2-wheelers and 3-wheelers from different EV manufacturers.
- The EV manufacturer (after having procured batteries from battery manufacturers) acts as a network operator and offer swapping services to customers. For instance, Bounce Infinity, which manufactures the EV as well as sets up battery swapping stations.
- The network operator contracts with battery manufacturers (for purchase or leasing of batteries) and EV manufacturers, and offers swapping services to end-use customers (directly or through O&Ms). Reliance Industries and UK BP Plc joint venture (operating under the brand name “Jio-bp”) participates in similar model.
The industry is still developing, and several new collaboration avenues will come up some of which may shape up the growth journey of BaaS for good.
Contractual nuances in the BaaS model
A comprehensive BaaS model requires contractual arrangements with a combination of one or more of the abovementioned players, whether on a bilateral basis or otherwise. Contracts with retail outlets and space providers, power generation companies, customers, network operators, battery manufacturers (to procure batteries for storage in battery swapping stations), EV manufacturers (to offer swapping facility to customers) and O&Ms are essential to develop the battery swapping ecosystem. The terms and conditions of such contracts are often not standard and are tailor-made to suit the commercial nuances of the specific BaaS model. The commercials for each arrangement differ depending upon the involvement, experience and role of the players participating. Also, it becomes important to clarify, among other things, at least the rights and obligations of parties, exclusivity status, minimum user commitment and allocation of risks (such as in relation to damaged battery, charge level warranty and non-return of battery or accidents, etc.).
Key challenge vis-à-vis standardisation and interoperability
While there are numerous benefits of BaaS as a model contributing to the adoption of EVs, there are certain inherent set of challenges, which primarily stem from the fact that EVs and the battery requirements of EVs currently in the market, are not standardised. In this context, an analogy can be drawn with cell phone removable batteries which could be replaced to extend the life of the cell phone battery. But since battery specifications vary from brand to brand, hypothetically speaking, a user could not use battery of Brand A in a cell phone of Brand B. Similarly, if an EV user signs up with a particular network operator to swap batteries, such EV user can avail battery-related services from the outlets of just that particular network operator. This is unlike petrol pumps for internal combustion engine vehicles.
It is largely in a bid to be competitive and differentiate themselves, that EV and battery manufacturers worldwide have been using different standards for design of their products, based on factors like financial resources, technological sophistication and research and development capabilities, and this has a trickle-down effect on the battery requirements. Considering the number of battery and EV manufacturers, it is difficult to expect that the charging solution for EVs can be easily and quickly standardised.
However, for the BaaS model to function effectively and become a real option for EV users, it will be crucial that there is battery standardisation across EVs as well as interoperability (i.e. the ability to use the same battery in different types of EVs). To revolutionise the BaaS model, a strong collaboration between all the players is a must-have and will help solve the issue of interoperability.
Other Challenges
BaaS is more convenient for smaller EVs and the industry players and innovation teams will have to find solutions for use of BaaS for heavy EVs like trucks, transport vehicles, etc.
One of the teething issues in respect of EVs has been the safety concerns, especially considering the fire incidents and EVs catching fire over product issues. Accordingly, research and innovation in battery-related technology is required to make BaaS as a durable and safer option.
Availability of raw material and components for battery manufacturing poses another issue, given the paucity of core resources, and if not paucity, then cost, ready and local availability. Currently, there is great amount of dependency on import. All of this impacts the cost of investment and manufacturing, which acts as an inhibitor to market entry for battery manufacturers, which is the starting point of the BaaS ecosystem.
Future of BaaS model in India
A lot more clarity and incentives are likely to be introduced in the government’s battery swapping policy, which is aimed at providing guidelines on interoperability standards. Sources indicate that the proposed policy will be released in the next couple of months and will introduce BaaS and battery leasing concepts for 2-wheelers and 3-wheelers, and also help address issues such as high upfront costs and battery range concerns.
While the mechanics of interoperable standards actually being achieved is yet to be seen, we are hopeful that the policy will spur several developments like standardisation of vehicle components to adapt to such interoperability standards and setting up of greater network of battery swapping stations across the country with less real estate.
† Partner, Khaitan & Co.
†† Principal Associate, Khaitan & Co.
††† Associate, Khaitan & Co.
