The lesson from Better Place’s bankruptcy: Be more like Tesla

Out of juice.
Out of juice.
Image: AP
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Electric car infrastructure company Better Place’s move to file bankruptcy today marks the end of the road for a billion-dollar bet that Silicon Valley-style technological disruption could wean the world from fossil fuels.

Founded in 2007 in Palo Alto, California, by a charismatic former SAP executive named Shai Agassi, Better Place sought in one stroke to solve a conundrum: most electric cars were too expensive and too limited in their range to become a mass market alternative to the internal combustion engine. Agassi’s solution was to separate the most expensive component of an electric vehicle, the battery, from the car. Drivers would buy or lease an electric car for a price comparable to a gasoline-powered model and Better Place would own the batteries. Paying a monthly fee based on how much they drove, drivers would gain access to Better Place’s network of robotic switch stations to let them swap out depleted batteries for fresh ones in a matter of minutes.

That vision attracted $850 million in funding from such blue-chip investors as General Electric, Morgan Stanley and HSBC and Israel Corp., and Better Place announced plans to build battery-swapping networks in Australia, California, Canada, Denmark, Hawaii and Israel.

That Better Place has crashed and burned less than a year after launching its first network in Israel underscores a costly lesson for investors: hardware is hard. And expensive. Disrupting century-old industries and changing long-ingrained consumer behavior is even harder.

So why has Better Place become the Webvan of green tech while another Silicon Valley-born electric car company, Tesla Motors, is thriving?

It’s all about the network and the disruptive effects of distributed technology. Better Place’s business model depended on spending hundreds of millions of dollar building out its network before it could begin to sign up first paying customers. That turned out to be an extremely capital-intensive proposition. Each battery switch station cost about $500,000 and Better Place needed to deploy dozens, even in a small country like Israel.

And once stations were built, the customers didn’t come. Better Place only signed up about 750 drivers in Israel. One factor: you could drive any electric car you wanted as along as it was a Renault Fluence ZE, the only model made with swappable batteries compatible with Better Place’s network. After six years, Better Place executives could not persuade any other automaker to design an electric car with swappable batteries. Then last September, Better Place’s board of directors ousted Agassi and his successor only lasted a few months. Making matters worse, even Renault chief Carlos Ghosn said recently that battery-swapping was a technological dead end.

Tesla, on the other hand, is following consumer demand in scaling the manufacture of its Model S electric sports sedan and the build out of its network of Supercharger charging stations, which add 150 miles of range in 30 minutes to the already-long range car. While Tesla designed the Model S to be capable of battery swapping, the company believes the future lies in fixed-battery electric vehicles capable of going 200 miles to 300 miles (322 kilometers to 483 kilometers) on a charge and that will use a network of fast charging stations deployed on highways to make long-distance trips. Taking advantages of economies of scale, Tesla uses the same components it already makes for the Model S to manufacture Superchargers for just $15,000 each. The total cost of a Supercharger station with multiple chargers and solar panels to supply the electricity is about $250,000.

The cost of a coast-to-coast Supercharger network in the US? Just $25 million and charging is free for Tesla customers. And the company only builds a Supercharger station where its customers want to go. “We’re installing Superchargers once we know we have reservations for cars in an area,” JB Straubel, Tesla’s cofounder and chief technical officer, told me an interview last year. “So we literally can look at the map of where we have cars and then we can actually query those owners and ask what are the destinations you like to go in your region. It’s quite deterministic and very targeted.”

In a statement issued today, Dan Cohen, Better Place’s current chief executive, reaffirmed his belief in the company’s business model. “Unfortunately, after a year’s commercial operation, it was clear to us that despite many satisfied customers, the wider public take up would not be sufficient and that the support from the car producers was not forthcoming,” he said.