Elegies for high-profile tech startups typically depict their failure as oh-so-predictable. So it is with Better Place, an electric-car venture on which some of Wall Street’s most seasoned hands lost a spectacular $812 million. But it is worth pausing over this Israeli company, which offered a devilishly practical remedy for the troubled electric industry, only to be hobbled by incomplete execution, tenacious incumbents and newer technology.
Better Place had a visionary idea, but not the chops to pull it off. Here is what happened—and why the concept still stands a good chance of being carried through, only by someone else.
Five years ago, Shai Agassi turned up amid a small pantheon of celebrity technologists who seemed to be leading the way to a new electric age. Along with Tesla’s Elon Musk and A123’s Yet-Ming Chiang, Agassi seemed to have the panache that, in addition to timing, luck and a first-rate product, often moves a new technology from mere coolness to wild popularity.
Until then, Agassi’s claim to fame was that, in 2001, he had sold his Silicon Valley company, which made useful but unexciting information-management software for companies, for $397 million. Now, he proposed a solution to “range anxiety,” the outsized malady afflicting potential electric-car buyers. Faced with the prospect of running out of juice at an inconvenient moment, motorists had spurned dozens of electrified models launched in recent years by Detroit, Europe, Japan and China.
Agassi rejected the main proposed remedy to the condition—that scientists get back to the bench and create a battery that lasts a lot longer and costs a lot less. Instead, he said, one merely needed to make batteries as convenient as gasoline.
Which brought Agassi to the swapping station—a network of automated pitstops that, in a mere three minutes, or about the same time required to fill up a car with gasoline, would replace an exhausted battery with a charged one. In one fell swoop, a large new generation of drivers would be corralled into quiet, clean electric cars, now equipped with the allure of effectively limitless distance. The idea seemed especially well-suited for compact countries such as Israel and Denmark, along with dense cities in the US and Australia.
That he would succeed seemed self-evident. For one thing, Agassi’s idea seemed to align with technological history, in which entrepreneurs first engage in brutal competition over whose version of a breakthrough is superior, before one of them becomes the standard. Think of how the upstart Ford Model T put away electric cars for good; silicon chips triumphed over germanium; and the app-packed smartphone rendered the BlackBerry ho-hum. In Agassi’s version, carmakers would agree to produce electric vehicles equipped with standard battery ports that accepted a standard battery pack. Agassi’s company would sell such cars cheaply—or even give them away—and earn its money off of the electricity, much as cellphone providers discount or give away the hardware and sell minutes.
The idea caught fire with serious investors such as HSBC, Lazard, General Electric, Morgan Stanley and Israeli billionaire Idan Ofer, who gave Agassi $850 million in funding. Renault’s Carlos Ghosn climbed aboard by outfitting a $38,000 Fluence to carry Agassi’s swappable battery, and promising to build 100,000 of them. Wrapping up the whole story, the best-selling book Startup Nation wove Agassi’s venture into that of plucky Israel itself.
The post-mortems we read (like this one) make Agassi sound like a chimerical operator with a thin hold on reality. But read this 2008 profile in Wired, and you see a different picture—of a systematic and holistic pursuit of a prodigious commercial challenge, starting with indefatigable political lobbying, a campaign to persuade car company executives to produce swappable models, and the recruitment of top technical hands to create software from scratch.
Still, it wasn’t enough. John Voelcker, editor of Green Car Reports, told me that Agassi missed important lobbying steps in Israel, his test market. Israel is an unusual place to sell cars, in that half of all new car sales are to fleet owners such as businesses, which provide the vehicles as a perk to their employees. If successful, Agassi’s strategy would have seriously dented the income stream of competing carmakers, and, more importantly, car leasing companies that would lose business to Better Place.
Since employees themselves don’t pay for gasoline, Agassi needed to entice the leasing companies to his side. Instead, they by and large refused to buy his cars—in all, only about 500 of the electric Renaults were sold in the country. There was not just the irritation over Agassi’s perceived attempt to make the leasing companies obsolete, but, even if they did buy his cars, a skepticism about the economics: Would the Fluence hold its value? Would the electric bargain truly pay off in customers?
Incumbent carmakers, too, proved obstinate. For the purposes of scale and variety of choice, Agassi needed a number of them to offer up swappable models, and a Deutsche Bank analyst told clients in a note that he expected carmakers to pile in. Daimler’s CEO at the time, Dieter Zetsche, confirmed publicly that he was talking to Better Place.
But, for reasons similar to the leasing companies, they didn’t pile in: What was their economic upside in handing over the electric drive train to Agassi? Renault’s Ghosn remained Better Place’s sole industry partner, and he offered only a single model–the Fluence.
There were other mis-steps. Agassi figured that Israelis would flock to a cleaner future, as he himself had. But a lot of Israeli drivers simply don’t embrace environmentalism, one local writer said. They care most about reaching their destination fast, and display an “indifference … to emissions and pollution.” Israeli president Shimon Peres hailed Better Place, and the Knesset approved tax incentives favoring the system. But Agassi failed to win enough support from lower-ranking bureaucrats, some of whom held up permits to build swapping infrastructure.
Agassi had also promised to undercut the price of gasoline-propelled cars. But he didn’t—the Fluence cost about the same as equivalent gas-driven rivals, and the electricity rates he charged shaved just 20% off the cost of fuel. It was a mind-boggling, miserly strategy.
Some analysts have suggested that a fatal blow to Better Place’s approach was the emergence of a competing technology: fast-charging stations, 480-volt systems that can restore 80% of an electric car’s battery in a half-hour. (The standard chargers take several hours.) These are what Tesla is banking on. It has opened six stations offering such charge-ups in California, Milford, Connecticut, and Wilmington, Delaware. On May 30, Tesla said that by the end of June it will offer 16 more along the US west coast, in Colorado, Illinois and Texas, and within a year or so will install them at regular intervals across the country. Toby Procter, an analyst with Trend Tracker, told me that fast-charging stations “look capable of rivaling the convenience aspect of battery-swaps.”
But I doubt that Agassi lost many sales on the grounds of fast-charging. Even half an hour’s charging time is a considerable inconvenience. Three minutes to swap batteries is trivial. It wasn’t the concept of fast-charging that killed Better Place, but the tyranny of the details; there was simply little room for error.
On May 26, Better Place announced that all its money is gone. It was a full seven months after Agassi himself was forced to resign—the signs already glaring in October 2012 that the company was in grave peril.
Of the original electric celebrity pantheon, Musk is the last man standing. Chiang’s A123 went bankrupt, too—it is now the hands of China’s Wanxiang Group. Some suggest that Musk may need to become more practical if he wants to avoid the dust heap as well. Yet shares in Tesla have soared a whopping 104% in May, forcing a stampede of skeptical short-sellers out of the stock at a loss.
Better Place appears to have no chance of resurrection. On its home turf, critics have been unsentimental. “Where did all the money go?” asked the Jerusalem Post. Haaretz simply wrote, in so many words, I told you so. Though Agassi has not yet commented publicly, some insider post-mortems have echoed what we already know: former CEO Evan Thornley, who followed Agassi but then stepped down four months later, said the company had sound technology and strategy, but executed poorly.
Yet what stands out is not the flaws of a single company—no business can claim perfect execution—but that the electric-car industry is still in the pre-shakeout stage. This is the period in the new-technology business cycle in which competing players refuse to accept that dozens of different sizes, shapes and chemical compositions of batteries cannot survive. The rules state that products tend toward standardization.
Voelcker, the Green Car Reports editor, told me that carmakers regard their battery packs as core intellectual property, and hence will refuse to standardize “any time soon.” The main thing allowing them to persist in this stubborn posture is that their principal enabling technology—the batteries within those packs—is not yet sufficiently advanced. No current battery chemistry is good enough to fully relieve range anxiety, and none seems likely to break through any time soon.
Until a meaningful battery breakthrough is made, swapping remains a valid idea. Since Agassi identified the market, others have piled in, such as Slovakia’s GreenWay, which is building cheap charging stations for delivery vans. If GreenWay succeeds, it will demonstrate another rule of the new-technology business cycle, which is that a concept’s pioneer isn’t necessarily the one who enjoys its profitable fruition.