FROM THE ECONOMIST INTELLIGENCE UNIT
Better Place, an Israeli-US start-up, tried to bring EVs to the mass market in Israel and Denmark. But now its boss has been ousted amid disappointing results.
Shai Agassi’s departure from Better Place, an Israeli-US start-up with the ambitious goal of creating a global electric-vehicle (EV) fuelling network, may prove to be a small bump in the road to a brave new world of petrol-less cars. Or it may signal that the age of EVs is further away than Mr Agassi and his backers - including Renault - had hoped.Mr Agassi was forced to step down as CEO of Better Place on October 2nd, amid doubts about its finances. An Israeli-born technology entrepreneur who had earlier come close getting the top job at German software giant SAP, Mr Agassi not only led Better Place from its inception five years ago but was widely lauded as a visionary who could bring EVs into the mass market. His strategy was to address the reasons why buyers still shy away from EVs, namely the high cost of batteries and the short distances they can travel before they need to be recharged.
The first part of his solution was to install dedicated battery chargers in the homes and workplaces of customers. These were complemented by a network of battery-switching stations for when drivers were travelling long distances or didn’t have time to power up their cars. The batteries themselves are leased to drivers, rather than sold as part of the car. Given the batteries account for about a third the cost of an EV, that helps keep the sticker price down. The final element was Better Place’s communications network, which keeps drivers informed about how much power remains in the battery and where the nearest charger or switching station is.
In five years, Mr Agassi raised US$800m from investors, including HSBC, Morgan Stanley, and Australia’s Macquarie. He formed a partnership with French carmaker Renault-Nissan, whose president Carlos Ghosn shares Mr Agassi’s confidence in the future of EVs. Better Place recruited other important local allies in the power industry, such as China Southern Power Grid and Australia’s ActewAGL. In Israel, where Better Place is making its first mass market foray, Mr Agassi assiduously cultivated politicians to win tax breaks and other benefits for EVs.
Electric shock
The actual rollout of the Better Place network began in Israel early in 2012. In many ways this was the ideal country to serve as Better Place’s trial market. At just 21,000 km2, it is cut off from its neighbors, limiting the distance EVs have to travel and simplifying the development of a switching station network. Taxes make petrol quite expensive, but public transport is patchy.Yet the rollout has been plagued by faulty planning and delays. The company says it has 24 out of 38 planned battery-switching stations up and running across Israel, but media reports say many were poorly cited in a rush to deploy. The company has delivered fewer than 460 cars, many of those to employees of the company and its suppliers.
In Denmark, the other focus of Better Place's rollout, 12 of 18 planned switching stations are installed, but vehicle deliveries are well under 200. By the standards of the global EV market those are not tiny numbers. Even the Chevrolet Volt, the biggest selling EV, had sales in the giant US market of 16,348 in the same period. But Better Place had forecast in 2011 it would have 4,000 vehicles delivered to the Israeli market by the end of this year. And it is committed to taking 100,000 vehicles from Renault over the next 10 years.
Better Place currently offers only one model of car, the Renault Fluence ZE, and the package it offers is not particularly cheap. About half the cars in Israel are leased and for Better Place the percentage will probably be higher. But a rough comparison of costs by the financial daily Calcalist showed a Fluence EV would be slightly more expensive to operate on a monthly basis than a petrol-powered Mazda 3 – about NIS2,300 (US$594) versus NIS2,090.
Meanwhile, the company has been burning money. In the first half of the year it posted a US$132m loss, bringing total losses since its founding to US$490m. Revenue has been insignificant. Better Place had about US$110m in cash or near-cash on its balance sheet at the end of the second quarter.
Mr Agassi said in an interview a month ago that the company could break even on a cashflow basis when it had between 0.5% and 1% of the Israeli car market. That means selling between 10,000 and 20,000 cars, which looks ambitious. Media reports say some of the US$800m in backing is contingent on Better Place meeting certain milestones, so it is not clear how much of the capital it has raised is accessible.
These are all questions facing Evan Thornley, will now run the company. The former head of the Australian operations, he has pretty impressive credentials. In Australia, he convinced Lend Lease and car insurer RACV to invest in Better Place. He was also instrumental in putting together the local EV Engineering consortium, which includes Bosch, Continental, and General Electric, to develop a proof-of-concept EV for the local market. But he is unproven as someone who can juggle the demands of a global rollout, logistics, marketing and fundraising.
Moreover, Better Place’s future success may rely on more than good management. The global EV market has been a disappointment to date. Two years ago Boston Consulting Group said EVs could capture 4-5% of global auto sales by 2020, yet more recently it scaled back its estimate to 3%. Renault and its partner Nissan have invested heavily in EVs -- but to date have sold just 15,000 of the cars. So far, despite all of Better Place's efforts, even eco-minded drivers seem to think hybrids offer a more attractive mix of performance, price and greenness.
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