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Why Better Place is in a better place…

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The billion-dollar bet on batteries that ended in bankruptcy

Better Place was founded by Shai Agassi, and launched publicly in 2007. Better Place aimed to drive adoption of electric vehicles through a differentiated approach to addressing a critical barrier to adoption of EVs: short battery life. While the conventional wisdom in the industry was to create value through investment in R&D to improve battery life, Agassi proposed the creation of infrastructure that would decrease the distance that users would need to go to get charge. Better Place sought to create coverage through a network of charging stations at which EV drivers could swap their battery with a new, charged battery, allowing EV drivers to top up their power supply at shorter intervals. Agassi was able to raise $200 million in venture funding with which to launch the business in Tel Aviv. 4 years and 11 months after the opening of the first charging station, Better Place’s investors had lost the billion-dollar bet, and the company filed for bankruptcy. I think it is clear that Better Place is a Loser.

 

The Business Model

In it’s simplest terms, Better Place’s business model was to” make batteries as convenient as gasoline”. More specifically, the model was to create a gas-station equivalent for EVs, with sufficient coverage to allow drivers to obtain charge before their batteries go flat. It remains an excellent business model, as seen by Tesla’s success in it’s early-stage pursuit of the same model. The execution, however, was less than ideal.

One aspect specific to Better Place’s model (that has not been adopted by its successors) was to make EVs the economical option as compared to internal combustion engines.

 

The Operating Model

Better Place tried to implement the business model through a subscription-based battery-swapping service. Each user would enter in to a subscription that would come with a minimum driving distance, and then pay for additional distance if the amount included in the subscription was exceeded. The subscription fee would cover the cost of “leasing” the battery to drivers (including maintenance and replacement of batteries). Drivers would be able to arrive at the battery station, remove the flat battery and swap it for a charged battery.

To facilitate the battery swapping, and as part of bringing the cost of EV adoption down, Better Place formed a partnership with Renault, and created the Renault Laguna, which was powered by a swappable battery instead of an internal combustion engine. The business model is interesting because it addresses both of the main pain points associated with the adoption of an EV without having to engage in a competitive technology race with other battery developers.

 

Alignment

The business model and the operating model were not well aligned. The Renault Laguna was not any cheaper than a comparable fossil-fuel powered car, and the cost of power per unit of distance was only marginally lower than that of petrol. The failure to provide significant cost savings to the consumer was in direct conflict with the intended business model.

The second, and more significant problem, was that the battery swapping was not a direct alternative to filling petrol. Only the Renault Laguna was powered by swappable battery, so the charging station offered no value to drivers of any other EV.

 

How significant was the misalignment?

The misalignment between the business and operating models, while significant, is not the only factor that lead to the company’s bankruptcy. Implementation was extremely capital intensive and no significant revenue streams could be secured before sufficient infrastructure had already been developed to fulfil the value proposition. The execution of going to market was faulty on several fronts, including failure to fully develop and validate the system in the launch city of Tel Aviv, an aggressive international expansion without having proven the model, and failure to find an effective way of communicating the value proposition to a substantial base of potential subscribers. These are all issues that could have been remedied, however, had financing not been a constraint.

 

However, even if these errors had not been made, there are two fundamental factors in Better Place’s ultimate demise:

  1. The operating model relied on battery swapping, and therefore could not fulfil the business model – petrol can be filled in to any car, whereas battery swapping was only viable for the Renault Laguna, and therefore Better Place did not offer a true equivalent to gas stations.
  2. Advances in rapid charging technology became a much more widely-applicable and cost effective alternative.

 

Better Place’s choice to focus on battery swapping without driving use of swappable batteries in all EVs was a critical misalignment that ensured that they could not effectively deliver on their business model

 

Sources:

  1. http://techcrunch.com/2013/07/12/a-new-place-for-better-place-as-bankrupt-800m-backed-electric-car-startup-sold-for-12m/
  2. http://www.theatlantic.com/technology/archive/2013/05/another-clean-tech-startup-goes-down-better-place-is-bankrupt/276257/
  3. http://qz.com/88871/better-place-shai-agassi-swappable-electric-car-batteries/

3 thoughts on “Why Better Place is in a better place…

  1. In my mind, this almost seems like the chicken and the egg scenario. What comes first? Infrastructure for electric cars that promotes their use, or the widespread adoption of electric cars, which makes infrastructure more economically palatable for a company to build? Clearly here, Better Place betted on first building infrastructure to entice the use of electric cars, and it failed. But it raises the question of how electric cars will be supported when you are away from home? If you drive across the country, where are the “gas stations” for electric cars? Would more electric cars be used here in the US if that infrastructure existed? I’m not very familiar with the electric car scene – this was very informative!

    1. Ultimately it is a chicken-and-egg scenario but it has the potential to grow if players on both fronts (those promoting electric cars and those promoting the supporting infrastructure) continue to make incremental advances. The two are inextricably linked, which is why you see Tesla investing in both.

      Regarding your question on users who are away from home – right now, cross-country trips are only possible for those willing to stop and re-charge their cars at an outlet whenever they run out of juice. It’s a sad reality but the industry needs to grow exponentially before that can become a reality. EV adoption is driven mainly by ideology – users who care enough about the environmental effects of their transport to take on extra inconvenience in exchange for a smaller footprint. Therefore, companies have to continue to try to improve and capture new users incrementally with incremental improvements in the technology to drive adoption. Bottom line, to make it work, we have to make people care!

    2. I enjoyed reading this post. At first glance, it’s logical to assume you need some way to swap batteries to make electric cars practical. But when you consider average driving statistics, it’s clear that current technology is more than enough for the average driver. For example, according to the AAA, the average American driver will drive about 13,500 miles in a year. On a daily basis, this is 37 miles per day. A Tesla Model S has 270 miles of EPA-rated range on a charge, but even downmarket pure EV’s can travel 80-100 miles on a charge. For the vast majority of consumers, home charging is sufficient – and many Tesla owners ask their electricians to install higher power 240 volt outlets (similar to what you would use for a washing machine) to increase the speed of charging. Even if more people bought cars that were compatible with Better Place’s technology, I think as battery capacity increased to where it is today, consumers would have realized that charging wasn’t really a pain point, and Better Place’s services would not have been necessary.

      Steve, in response to your comment on what comes first – the fleet of EV’s or the EV infrastructure – the infrastructure is already here, and far more available than gas stations! EV’s can charge out of ANY outlet, and it only costs a few hundred dollars for an electrician to convert a standard outlet (which you could use to charge, but it would take a long time) to a 240V outlet capable of charging a Tesla Model S in 4-5 hours. One additional note – the 4-5 hour charge time is assuming your battery is fully drained. But because the average driver would have only used 30 miles, it would take well under an hour to charge at the end of a day. This can actually happen while you sleep – even though you may plug in the car when you arrive home from work or dinner, the car is smart and will charge when utility rates are lowest, often in the early hours of the morning.

      Tesla has also been building out its own network of Superchargers, which can charge a Model S for free in under an hour.

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