Nio's Battery Swaps Dampen Global Ambitions: Ark Invest Analyst

NIO Inc. NIO has more to lose than to gain with the subsidies the Chinese government is doling out to domestic electric vehicle manufacturers, according to an analyst at Ark Invest, the investment fund run by Cathie Wood.

What Happened: The Chinese Ministry of Finance announced in April that it is extending the subsidy meant for EVs priced below 300,000 yuan ($46,766) through the end of 2022.

The government also extended subsidies for higher-priced vehicles with battery-swapping capability in a bid to promote this technology. Nio's EVs, though positioned as premium brands, qualify for subsidies for this reason. 

Tesla, Inc. TSLA has not embraced battery swapping tech,  and therefore Teslas priced above this limit do not qualify for subsidies in China. 

Related Link: Why Nio Will Hold An Extraordinary Meeting Of Shareholders On June 3

Are Subsidies A Long-Term Negative For Nio? Government support in the form of subsidies will harm Nio's global ambitions in the long run, Ark Invest analyst Sam Korus said in a note.

The economics associated with battery swapping will lead to design constraints and shortened battery lives, the analyst said. 

"Encouraging these sub-optimal results, the Chinese government could limit Nio's success globally, even more so if the company relies on subsidies instead of aggressive investments in innovation to deliver competitively priced vehicles," he said. 

See also: How to Buy Nio Stock

Benzinga's Take: Nio is lase- focused on product quality and innovation given its intent to remain as a premium brand. The Chinese EV maker has thus far shied away from launching a low-end model for fear of hurting its premium positioning.

Even if the company launches a cost-competitive model, it would be under a different brand name and not Nio, William Li, the company's founder, chairman and CEO, has said more than once. 

It is less likely that Nio will allow a loophole in the battery swap technology that it is pioneering in order to allow rivals to capitalize on it. The company has been promoting it as a service offered to increase the affordability of its cars.

NIO Price Action: At last check, Nio shares were down 6.69% to $34.47.

Related Link: Nio Working On Lower-Priced Model With Lithium Iron Phosphate Battery: Report

Photo courtesy of Nio.