Better Place Plans World Domination, But Success Seems Unlikely

Last Updated Apr 24, 2009 9:35 AM EDT

Better Place, an electric car charging startup planning to launch in several countries soon, has been in the headlines since it was founded. So it's no surprise to see it grabbing a fresh round of print. This time around, though, the stakes have gone up a notch -- as Earth2Tech reports, the company is planning an "all-or-nothing rollout".

A single problem led to Better Place's founding. Pure electric vehicles have no power other than their batteries, which typically give them a range of 50-150 miles (that upper number is a stretch for today's electrics). That's less than a vehicle running on gasoline or diesel fuel. But the greater obstacle to electrics is refueling: It takes hours to refuel a battery, versus minutes for a gas tank.

It will be very difficult, technically, to make batteries charge easily and safely in under 10 minutes. So Better Place has come up with the idea of simply popping the battery out and replacing it with a new one at specially-equipped stations. The company has been flogging this idea since 2007, when it raised a shockingly large $200 million first investment, in large part due to the cachet of its CEO, ex-SAP president Shai Agassi.

Now it's go time for Better Place. The company has its battery changing stations designed, and wants to go worldwide. It plans to build a network of stations in each country it enters. Some will be small charging posts, which the car owner will plug into with a cord. Others will be big changing stations, where drivers will pull into a small building to have a robotic system swap out the battery from the underside of their car. The company will charge not for the battery swaps, but for energy, measured in kilowatt-hours.

This seemed like a great idea when Better Place started. The company made deals in Israel, then in Denmark, to carpet those tiny countries with charging stations; it also partnered with Nissan-Renault, which is going to build a special car for sale in those markets. Small countries have all the dynamics needed to make the plan work: Drivers tend not to go on extended journeys, people drive less in general, and they're eager to stop paying sky-high prices for gas, which are caused by local taxes. Both of those two countries, in addition, has its own strong reason for moving to renewable energy -- in Denmark it's part of their climate change policy, and Israel wants to get off the oil its neighbors sell.

But Agassi is not a man for small ambitions. If he has his way the entire world will be driving using the Better Place model. However, as details emerge I've begun wondering if even Agassi's titanic ambitions can pull this plan off. For starters, the citizens of countries besides Denmark and Israel will have entirely different expectations of how to drive. The NYTimes Magazine has a piece by veteran tech reporter Clive Thompson which delves into the range problem:
"...the anxiety can be hard to shake, as I discovered when we drove the Megone across Tel Aviv. When we started our journey, the battery stood at 90 percent; barely 15 minutes later, it was down to 75 percent. I found myself staring at the battery meter, realizing that if we kept up at this rate, we'd be risking a dead battery in another hour or so. That's another problem with electric cars: even if there are tons of charging spots, you still have to plan ahead.

In an attempt to quell this anxiety, Better Place has designed software that effectively does the thinking on behalf of the customer -- providing directions to the nearest recharge location whenever the need arises ... With [a] G.P.S. mounted in your car, the computer would determine whether you could make your drive without charging; if you needed a swap, it would guide you to the most convenient swap station. When you parked to plug in, the system would tell you how full your battery will be depending on how long you charge."
While a GPS planning system must seem brilliant to the engineering minds over at Better Place, it reveals a world of difference between cars that run on electricity and gas. Gas vehicles require no planning to drive. They have quite a long range and, over many decades, a vast network of privately owned gas stations has appeared. One seldom needs to search more than a mile for one. Better Place's vehicles will be the opposite: Short-ranged, with widely spread swap stations. To someone used to regular cars, this will be a continual nuisance and worry. All trips of significant length will involve dealing with the GPS recharging system, and potentially logging extra miles to reach a swap station.

Along with this is the need, in bigger markets like the United States, to have a broad range of vehicle choices that can run on this network. However, the only deal that Better Place has made to date is with Nissan-Renault. The company needs these partnerships because vehicles have to be built to its specifications. But other large carmakers, like General Motors, Ford and Toyota, seem to be intent on their own plans, and definitely not intent on designing around the needs of a startup. Make that strike two against Better Place.

Strike three will likely end up being costs. Not necessarily those of the initial buildout; Better Place can handle those, with the money its investors have shelled out. Nevertheless, there will be large investments, which the company will have to make a profit on.

The Business Insider reveals that Better Place will have a cost per swapping station of $500,000. The company would thus end up paying $25 million to place stations every 25-30 miles on the stretch of highway going from San Diego, California, to Seattle, Washington -- essentially the whole West Coast.

That seems like a vanishingly small amount to cover a 1,500 mile territory. But there are some flaws to this idea. First, that's only 50 or so stations, and only along a single stretch of highway; it's I-5 or nothing for Better Place drivers, in other words. But, despite that inconvenience, expanding the network far outside of the I-5 corridor would be devastatingly expensive. The second problem is that the company is looking at the West Coast in the first place. That seems reasonable because this side of the country has historically been more supportive, both in civics and politics, of environmentally-friendly businesses. But it's not the main population corridor. That's over on the East Coast.

Still, there are probably 20-25 million drivers on the West Coast as a whole. Assume 50,000 of them are on Better Place's plan five years from now, and each drives 10,000 miles a year. Let's further assume that Better Place would charge 3 cents a mile -- a third of what a 30 mile per gallon car costs to drive with gas at $3 (hat tip Ecoworld). So Better Place would be making $15 million a year in revenue. Not bad, huh?

Unfortunately, electricity prices are on their way up, so you can knock off half of that for the electricity Better Place had to buy, especially if they insist on only buying solar or wind power. And into the remaining half, factor everything else: Costs for batteries, charging cords, GPS units, station upkeep, technology licensing, and so forth. How the company will be making a good return on its initial investment -- which would be more than $25 million, by the way, since you can hardly get away with just 50 stations for the whole West Coast -- I can't imagine.

Long-term, of course, the company might cover its initial investment and start to make money. But outside of a decade, we likely will have conquered the problems that made Better Place's stations necessary in the first place. Before that happens, the company will have to make its own model dominant. But at this moment, people aren't buying many cars; in fact, Better Place-compatible cars aren't even available yet. The time frame for the company to become successful and make a return for its investors just looks too small.

But the biggest challenge I see for Better Place is the existence of alternatives, namely high mile-per-gallon diesels and gasoline hybrids and plug-in hybrids. These vehicles all take advantage of existing infrastructure, and they all operate just like the vehicles every American grew up around -- except much better. By comparison, using electric vehicles may seem a shabby swap. And even other electric vehicles will be a challenge to Better Place, if they're not built to work with its swap stations.

None of this is an absolute indictment of Better Place. The company still looks like a great idea for small countries, where its could truly create a network. And in fact, its first battery swap station will actually be shown off in Japan, according to CNET. But all the noise Better Place is making suggests that the company intends to make an all-out attack on the world market, and for many countries, that just doesn't seem feasible. It would be sad if, given all its positive momentum, Better Place were to end up overextending and fizzling out.
  • Chris Morrison

Comments

Market Data

Watch CBSN Live

Watch CBS News anytime, anywhere with the new 24/7 digital news network. Stream CBSN live or on demand for FREE on your TV, computer, tablet, or smartphone.

Market News

Stock Watchlist