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Electric Car Company Better Place Bankrupt, Burns Nearly $1 Billion

[Source: Better Place]

[Source: Better Place]

Electric cars just took a major detour, at least in Israel. Behind the company Better Place, the country had been Europe’s foremost champion for electric cars, vowing to replace all gasoline-run cars with electric ones over the next few years. But after racking up massive debt over the past five years, the company has been forced to file for bankruptcy.

Two major limitations keep electric cars from going mainstream, and both center on the battery. For one, charge storage is limited. The cars produced by Better Place had a range of about 100 to 160 miles per charge, leaving many to worry about getting stranded. Another problem is the cost, as the battery is the most expensive part of an electric car.

When he founded Better Place in 2007, Shai Agassi sought to solve both of these problems by retaining ownership of the batteries in the cars, that way they could be leased to customers at prices comparable to conventional cars, and by setting up ‘swap stations’ where a spent battery could be swapped out for a fully charged one. Dozens of stations were set up around Israel initially, then in Denmark and the Netherlands to extend the car’s European range. And, thinking globally, the company had even set up stations in China, Hawaii and Japan.

Israel, Agassi’s home country, was considered an ideal place to establish the feasibility of the system because of its relatively small size, dense population centers, and high gas prices. Backed by Israeli President Shimon Peres and Prime Minister Ehud Olmert, Israel had formed a partnership with Better Place and Renault-Nissan with the explicit goal of replacing gas-run cars with electric ones. The company attracted private support too, raising as much as $850 million in funding from companies including General Electric, Morgan Stanley and HSBC. It all looked so promising a year ago when the company launched its first network.

As it turned out, Agassi’s solution, so elegant on paper, didn’t translate quite as well to the real world. First, it drove overhead costs extraordinarily high. Each switch station cost about $500,000 to build and, to make a network large enough for even Israel required building dozens of stations. And – the fatal drawback – even when the stations had been built, customers remained unconvinced. The company could only attract 750 drivers throughout all of Israel. On May 26th, citing losses totaling almost a billion dollars, Better Place filed to liquidate.

Better Place is still committed to founder Shai Agassi's vision, even if they're no longer behind the man. [Source: Wikipedia]

Better Place is still committed to founder Shai Agassi’s vision, even if they’re no longer behind the man. [Source: Wikipedia]

Signs that something might be fatally wrong with the company could have been read into last September’s ouster of Agassi. Speaking with Forbes following Agassi’s departure, Better Place chairman Idan Ofer had said the company would turn around, they just needed to scale. “The faster we scale up and refine the model, the faster we’ll be making money. I would say there’s probably two years, three years to go.”

Apparently they couldn’t wait that long.

“This is a very sad day for all of us,” Better Place’s Board of Directors said in a statement. “We stand by the original vision as formulated by Shai Agassi of creating a green alternative that would lessen our dependence on highly polluting transportation technologies. The technical challenges we overcame successfully, but the other obstacles we were not able to overcome.”

But while Better Place screeches to a halt, the world’s leading electric car maker, Tesla continues to pick up speed. The company’s shares are up 180 percent this year and there’s plans in the works to add to the successful Model S ($62,000 to $87,000) with another sedan and a compact SUV, both priced around $35,000 and with ranges of around 200 miles. Unlike Better Place that required a vast network of swap stations to make owning the cars feasible, scaling the Model S has tracked consumer demand. The Model S can drive 208 to 265 miles on a single Supercharge. Supercharging stations provide reliable 150 mile boosts for long distance travelers, but right now there are only 12 of them. The company says they plan on installing hundreds more by 2015. In an effort to spread publicity about the feasibility of electric cars, Tesla’s charismatic founder Elon Musk plans to take the Model S on a road trip across America, recharging all the way from New York to Los Angeles.

As with gasoline-powered vehicles, some electric cars will be successful, some won’t. While Better Place’s solution to low battery power was technologically elegant, it wasn’t socially effective. As other electric cars like Tesla’s growing fleet, Mitsubishi’s i-MiEV, Chevrolet Volt or Nissan’s Leaf compete in the electric car market, the feasibility will grow with as visibility – and the number of charger stations – spread. Hard lessons will be learned and more companies will fold. But the biggest winner may still be Agassi’s original vision, to one day rid vehicles their dependency on oil.

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7 comments

  • Mycroft says:

    The overhead of requiring dozens of swap stations in tiny little Israel is what killed Better Place. Of course bad management didn’t help. The capex to set up the swap stations was bad enough, but then you have the maintenance of them.

    With Tesla’s Model S, you can drive from Boston to Washington DC, (for free by the way), while using just two SuperChargers! Yes, it takes time to charge, but a 30 minute delay every 150 miles or so isn’t too much to ask IMO. By the end of the year, the east and west coasts will be covered and a Model S owner can drive coast to coast for free!

    Tesla’s cars are pretty spendy. ~$80,000 for the larger battery pack. But they are comparably priced with other luxury sedans in their class, (Mercedes S, BMW 7, Audi A7). And their Gen-3 car should be out by 2017, retailing for $30k-$40k with > 200 miles range.

    Being able to drive at 10% of the cost of gasoline cars is just a part of it. Tesla’s amazing magical drive train is the real kicker! The battery pack is under the car and the motor fits between the two rear wheels. Acceleration is unmatched by any gas car! Instant torque!

  • nkaragas says:

    Great article. When I first starting reading, I said, “What about Tesla Motors!?!?”. I’m glad you pointed out that there some amazingly innovative electric car companies, such as Tesla, that are doing well and showing the way towards a future where humanity is less dependent on fossil fuels. It’s unfortunate that Better Place has stumbled, but hopefully they will have a comeback. Again, thanks for the article.

  • Buck-Nasty says:

    I remember seeing this years ago and thinking it was a terrible business model. Just to get it off the ground all car manufacturers would have needed to standardize their batteries, battery swap stations must be in place before the first customer (huge capital investment), and the worst part is that they were betting against any continued improvements in battery technology.

    Batteries today are already able to take a Tesla Model S from one end of Israel to the other, so why would anyone swap the battery? The technology behind Better Place was obsolete before they even began.

  • David Rose says:

    Sorry but as the owner of a Renault Fluence ZE from Better Place, I must disagree strongly with the following statement ” the fatal drawback – even when the stations had been built, customers remained unconvinced”. Customers, those of us who purchased, leased and drove the car, as I have for over one year and 31,068 miles to date, absolutely love the car! We are enthralled with the concept of Drive Switch and Go, of not owning an expensive battery and getting a fantastic car. Those who were “unconvinced” for the most part, never drove the car, believed the lies of vested interests and shared a fear of going for something new and different. While it is true that EVs have taken a detour, they are in no way off the roads of Israel.

  • Ivan.Malagurski says:

    I agree with most of the people who commented, from the start it was fairly obvious that the business model was unsustainable…but it is still good to have people bold enough to try something that risky, even when it fails…

  • Andrew Hamilton says:

    Better Place sold more cars per capita in Israel than Tesla sold in the US in 2013, indeed more than all electric cars in the US and it outsold the Prius in Israel.
    Customers love the cars and the switch network.

    The problem was Better Place overextended itself (wasting $200M in US alone) instead of proving themselves in Israel first before taking on the rest of the world.
    Napoleon was a great General but he lost when he overextended himself by trying to invade Russia. Better Place failed by taking on the US before it had secured Israel.

  • Sanders says:

    Electric car are the latest invention in our automobile sector and it is friendly to our environment. Rather than it is consider as dead in market. Renault is a branded car but quite it is not spread in market. It will take more time as our automobile market is highly competitive. Europe market is best for car. http://www.europeanstarmotors.com/

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