Earlier this week, Better Place, the company that launched a unique electrical vehicle battery-switching and charging network, filed for bankruptcy in Israel.
Just over a year ago, after five years of R&D, construction and public relations, the firm handed over the first EVs ever to be sold commercially in Israel to a small group of customers who enthusiastically embraced the network's user experience, clocking over 10 million all-electric kilometers to-date. Despite Israel's stated strategic interest in oil alternatives and a well-funded company (that must be an understatement for $850M in investments), sales were far below target and investors finally lost faith.
Luckily, there is no need to call in a rabbi to conduct a local version of the infamous Californian EV funeral ceremony. (If you haven't watched Who Killed the Electric Car? -- you should. It's got cult appeal.) There seems to be hope for EVs in Israel despite Better Place's demise; in the short term, the combination of bankruptcy proceedings and slow-moving Israeli bureaucracy suggests it will take time to bring Shai Agassi's vision down. But there is no doubt that battery-switching networks have been delivered a life-threatening blow.
While we wait around for news from Bankruptcy Hospital's intensive care ward, it may be useful to kill some time and ask ourselves: Who Maimed Battery Switching? In a homage to our Californian predecessors, let's review the suspects.
The Battery-Switching Model
Battery switching as a concept has been around for a while. In fact, that's how many consumer products are designed. But its adoption for vehicles was considered complicated and costly.
And indeed it is. Better Place did an excellent job adopting a bomb-loading robot for the purpose of battery switching and got Renault to reciprocate with a car design that meets the standard. Better Place also did a great job of digitally integrating the switching stations with everything else an EV network dreams of, including on-board computers/GPS, public charging spots and call centers. It allowed Better Place to free customers from paying for the battery upfront. Customers could pay for energy as they needed it, through monthly subscription charges.
But these innovative technologies and business model came at a cost -- a very significant cost: the cost of a capital-intensive business model. Every new customer became a financial burden, requiring the company to buy yet another battery, add residential and workplace charging spots, and continue developing the network. Positive payback could only work at scale, although the company had to start at zero. It is hard to execute flawlessly with such a capital-intensive business model. Such models blindly assume future investment rounds during early stages of deployment -- if you encounter any bit of operational trouble, that assumption evaporates. Better Place certainly managed to deliver on its technology, but fell short, very short, on its financials.
Could more prudent management of its funds bought it more time? Maybe, but the model is tough to execute, even for the most prudent entrepreneur.
Founder and Key Investors
From the onset, Better Place put Shai Agassi, the charismatic founder, at center stage. Few communications, if any, were delivered by other personnel. Also in the limelight was Better Place's major investor, Israel Corporation, and its chairman, Idan Ofer, one of Israel's financial “tycoons.” Better Place would have benefited if both individuals could have remained in the back seat at times; the company drew continuous fire from conspiracy theorists (“creating a monopoly”), environmental activists (“greenwashing”), and social activists (“overcharging for electricity”).
Israel's press fueled the fury with a toxic combination of malicious and negligent reporting, stating investments as losses, calling the moderately priced Renault Fluence ZE ($35,000) “outrageously priced,” calculating the service fee by the kilowatt-hour while ignoring the fact that energy has been made available nationwide with a 5-minute swap, and by failing to report on the success of the complex technological launch and outstanding user experience it enabled. Above all, auto and financial reporters were unable to recognize that despite their drawbacks, both Agassi and Ofer made a real and measurable effort to change the auto industry.
Unfortunately, this treatment of successful individuals is customary in countries with small-town mentalities. But Better Place and its investors should have been given credit for putting their time and money on the line.
First Marketing Campaign
Startups, especially those with complex and disruptive technologies, tend to notoriously miss the mark with their first marketing campaign. It's usually the outcome of the utter impossibility of fully anticipating consumer response to a new offering and the fact that entrepreneurs and companies get blinded by their own vision of the product. When that happens to a capital-intensive company with no room for error, it could spell their last chance. The initial campaign by Better Place underestimated Israeli consumers' and leasing companies' risk aversion with regard to the selling price of the car. By the time Better Place offered well-priced leasing and buy-back guarantees and sales finally picked up, it was too late and too little -- the service offering had lost its charm, especially with the investors.
Israel is not situated in the best of neighborhoods: in the Middle East, oil fuels violence and extremism, alongside its more standard role in promoting pollution and climate change. Thus, the government has clear policies intended to promote oil alternatives.
Clear, that is, to everyone but its own bureaucrats.
While Israel was busy spending R&D funds on everything from biofuels to PVs, Better Place found itself having to apply for building permits for charging spots and having to delay its launch due to the less-than-friendly treatment of its switching station construction efforts. An example published in a recent post in Hebrew describes the tale of a central switching station on the coastal highway that was never built because a restaurant on the same plot violated building codes. Better Place's request for a switching station building permit was simply held hostage indefinitely in a typical bureaucratic catch-22. As for the attitude of the press, many have claimed malice, but we all know better: why suspect conspiracy when government actions can be explained by sheer stupidity and ineptitude?
Previously, I lambasted Renault for their disregard for coffee-cup holders in the Renault Fluence. But despite this design oversight, the vehicle is an excellent modification and upgrade to its fossil-fuel siblings. The vehicle has all the well-known EV qualities: acceleration, silence and smooth handling. It is also competitively priced in its switchable-battery version.
Renault had initially committed to developing a second model for the switchable-battery network -- the smaller Zoe, an electric-by-design city car model being introduced in Europe. But, despite Renault-Nissan's commitment to being early movers in the EV market, and given Better Place's sluggish sales, the Zoe was never introduced in its switchable-battery version. While it may be unfair to point fingers at the one manufacturer that showed up at the arena as all others procrastinated, the indefinite delay to introducing the Zoe was a blow to Better Place's sales efforts and a vote of no confidence at a critical time for the cash-strapped startup.
Finally, there are the enthusiasts who can only be faulted for their limited numbers and for their very individualistic joy of the EV ride. Individualistic, that is, until this week.
With news of Better Place's demise, these Birkenstock-wearing, organic-eating, laid-back intellectuals sprang in to what can only be described as electric action. A nonprofit promoting EVs was up and running overnight following the bankruptcy notice. Four days later, it's already representing close to a third of all EV drivers, and more are being located and signed up by the hour. A private Facebook forum now coordinates all members' actions and communications with the press, ensuring presence at all relevant events, as well as initiating discussions and negotiations with other stakeholders.
It's a techy bunch, so a few took it upon themselves to figure out alternatives to Better Place's charging scheme, should the network shut down. Others have been sent out on investigative fact-finding missions. Those with a business orientation are exploring future service alternatives, while members who are lawyers and business consultants are ensuring the group effectively mobilizes its forces through the maze of bankruptcy procedures. Finally, after five years of cynicism surrounding electrical vehicles in Israel, a new attitude is emerging -- one that recognizes Better Place's assets as a national and international priority.
Will the Switchable-Battery Electric Car Survive?
As we all know, bankrupt startups should be declared clinically dead. But it's important to remember the not-so-distant days when it was fashionable for investors to short Tesla's stock. Betting against EV innovation might be just as risky as investing in it. The wheel of fortune might still turn on the battery-switching network, faster than many expect. Despite the initial costs, Israel is now a perfect development site for EV adoption models, all paid for courtesy of Better Place investors. The company's court-appointed trustee decided to keep the network running for a couple more weeks, recognizing that a running network with dedicated clients is a good starting point for a restart. She also noted that there have been a number of serious inquiries in the short period since she was appointed.
Miracles are considered a viable alternative within a 100-mile radius of Jerusalem, but so are hallucinations. At this point, it's hard to tell if the switching stations can be salvaged and operated at profit (or at operational break-even, for that matter). But the local EV enthusiasts (myself included) are living proof of Gressel's 1st law of electrical vehicles: After driving an EV for more than a month, no one returns to an internal combustion engine (ICE) of their own free will. It's a one-way street. Unfortunately, its street name currently reads "Via Dolorosa."
Disclosure: I am neither invested in nor have business relations with Better Place or Israel Corporation at this time. Nor do I have any personal connection to Shai Agassi or Idan Ofer. I also have no interest in Better Place's bankrupt assets, other than from my perspective as an EV owner on their network. Assif-Strategies, my consulting firm, had consulted in the past for Better Place and some of Israel Corporation's other holdings on environmental accounting issues. However, this post is completely independent of any such past ties and is solely my personal perspective.
Noam Gressel founded Assif-Strategies in 2001, an environmental management firm that provides strategic corporate consulting services while also serving as an accelerator for early-stage cleantech firms. Gressel is a co-founder and board member of two cleantech companies: Elysium Carbon Trade & Investment, a developer of greenhouse gas offset projects, and TransAlgae, an agricultural biotechnology firm developing algae-based crops. In 2008, Gressel joined Greylock Partners, a prominent venture capital firm, developing a cleantech investment practice at the firm.