Q&A: Better Place's electric car plans, brilliant or nuts?

Shai Agassi is famously persuasive. With just an idea, he was able to raise US$300 million to launch Better Place, a venture that plans to build electric car charging spots and battery switching stations in Israel, Denmark, Australia, San Francisco and many other places.

(Credit: Martin LaMonica/CNET)

He was able to convince Carlos Ghosn, the CEO of Renault-Nissan to build electric sedans with a battery pack that can be swapped out at Better Place's robot-assisted stations.

People in the auto industry seemed intrigued with Better Place's business model, where the company owns the batteries and the consumer buys a monthly contract to charge their cars.

But apart from Renault-Nissan, no other auto makers have signed on with Better Place. And industry executives have voiced scepticism on various aspects of Better Place's ambitious plan: can one company build an electric vehicle charging infrastructure and operate it profitably? On a technical level, can battery packs be standardised in size for automated battery changing?

Said another way, nobody doubts that Agassi is a visionary with good intentions — to reduce the world's dependence on oil to help preserve the planet. People just wonder if he can make a business of it.

Next month, Better Place will show off a key piece of its technology in Yokohama, Japan: an automated system to switch out batteries. Cars drive up a ramp and a robot quickly removes a battery pack and puts a fresh one in.

During a talk at the Fortune Brainstorm Green conference on Tuesday, Agassi said that the company plans to test its technology components this year, test its charging networks next year, and then have "mass market" roll-out in 2011.

After his presentation, we sat down with Agassi, the Israel-born former SAP software executive, to get a better idea of where Better Place is going.

CNET: This is a hugely ambitious project. Do you ever doubt that you're taking on too much?

Shai Agassi: Not at all. Look, engineering is a very interesting discipline. You get into a room, you design, design, design. You write a bunch of white papers and you build a prototype. If you've built a prototype, the next question is can you build at scale and will it last?

If I can take a battery pack in and out of a car 50 times in an hour and the car still drives, then nothing in the design says that there is an issue there. Then what you got to do is do it a thousand times and then a million times. And then at some point, you can say that, engineering-wise, it has been solved. We're at a point today where the engineering questions are at a fourth or fifth level — they're not first-order questions. We're debating whether there will be one or two or three spots on the car for charging. We're debating ways to make sure that kids can't pull the plug out when they run around the neighbourhood.

Is it done? Absolutely not. Will it take another two years to get done? Yes. Have I done bigger, more complicated projects? I gotta tell you, the mySAP Business Suite is more complex. What most people don't realise is we have 300 or 400 engineers working on this. With the BusinessSuite, I had to somehow synchronise 5000 engineers. Engineering-wise, this is one of the simpler problems that I've solved in my life.

OK, but at SAP you were in control of the resources at hand. When you talk about installing switching stations, battery-swapping stations, there's a whole lot of other variables at play.

SA: No, it's just hardware.

If there were three companies copying Better Place, your headline for this interview would be "Shai Agassi, the visionary, the first operator of the electric car". Right now it would say: "Shai Agassi, the outlier. Maybe he's right, maybe he's nuts".

It's people — getting people to agree to install these things, getting money to install them.

Ever see SAP users? In everything you install, there is that variable of the user. In this case, it's actually an easier thing to do because it's a consumer. You know very quickly if you fail.

So what I'm trying to say is, the engineering isn't the problem any more. The second problem is the economics. We've sourced in the car most of the components — well, Renault-Nissan has. So we roughly know what the costs are. We've sourced most of the components of our system, so we roughly know the cost. We're not that far from what we thought our costs would be. It's not too complex.

The last thing that remains that nobody knows is scale and the x-factor: consumer fear versus consumer green.

Do you mean whether the car will perform well and consumers will get used to plugging their car in every day?

SA: Our car compared to the petrol version of the same car is twice as fast going from 30mph (48km/h) to 50mph (80km/h), and from 50mph (80km/h) to 70mph (113km/h) too. It's a fast car. We know it's fun.

The second part is, do people plug? I have two electric cars. I have a plug at home, I have a plug at work. There's a world of difference between zero plugs, one plug and two plugs.

You raised US$200 million and then US$100 million to build out the project in Denmark because these things will be financed locally. These are big numbers. Can you keep raising the money you need?

SA: Yeah. A way to think about it is we're the next oil company. We sell miles. Oil companies sell miles. An integrated oil company, at the end of the day, one of its key products is miles. It's not petrol or diesel. If I told you I'm an oil company that has a guaranteed supply of oil once I put the distribution infrastructure in place at a cost of zero dollars a barrel, how many companies don't want to invest in a company like that?

What do you mean by a zero-dollar barrel?

SA: When I say zero-dollar barrel, I mean if you took out all components that go into the cost of a barrel of oil other than the crude oil — refining costs and taxes mainly. What is equivalency of a zero-dollar barrel? It's 90 US cents (AU$1.26).

We're going to be at two US cents a mile (1.7 Aussie cents per km) between 2015 and 2020. At 2 cents a mile, 45 miles per gallon (5.2L/100km) is equivalent to 90 cents, which is equivalent to a zero-dollar barrel.

So what do I get if I sign on with Better Place?

SA: You get miles.

I want a car, though. I don't want miles.

SA: You still buy the car. It's the exact same model as you do now. You go to your dealer, you buy a car.

So imagine in 2012, you go to a dealer that works with us and you buy an electric car. The price is, give or take, US$20,000 (AU$28,000) minus a US$7,500 (AU$10,500) US government rebate. Luxury would bring the price up, fewer features lowers the cost down but that's roughly the range. The same car you'd see on Sunday afternoon for ball games.

It feels to you like a US$12,000 car. Now you have different options for buying miles. You can buy miles on variable price. You can say, every time I go 500 miles, I'll pay the price of the mile at the petrol station near me. If it goes up, I pay more. If it goes down, I pay less. So it's the equivalent of a petrol tank, which will take you about 400 miles. Every time you drive 400 miles (640km), we'll take a petrol tank's worth of money out of your credit card.

If you hate the variable rate, and you know that you're going to drive, say, 15,000 miles (24,000km) a year, then you can pre-buy 15,000 miles at a fixed rate. If you go above that, you're buying at the variable rate. Or you can have a fixed rate and drive as many miles as you want.

When you say you're like a mobile phone operator, do you mean you're sort of like the energy provider?

SA: I don't sell the energy — the battery makers do that. I sell the convenience.

Basically what we've understood is that people buy cars and miles. We came in and said we need to provide an integrated experience. I love the convenience of being able to drive and never getting stuck, and petrol stations fulfil that need.

And then we need to create some level of standardisation so that customers are not afraid. We needed to give them the safety that somebody is standing behind it, putting the supply chain together, testing all these pieces. That's what an operator is.

And then you make money on these contracts?

SA: There's a margin. We buy batteries and electrons, and then we sell miles. We buy batteries and electrons wholesale, while we sell miles at retail and there is a margin between one and the other.

How does AT&T make money? They bought bandwidth from the government at wholesale. How much did they pay for bandwidth? A tonne — billions. How much do you pay for minutes? Nothing. How do you buy something at a tonne and sell at nothing? You do it in large volumes.

How much volume do you need for the whole enterprise to be profitable?

Well, to ensure that customers never have the feeling of being stuck requires a certain amount of infrastructure. Israel is an example. Before you have 100 battery switch stations, there will be routes where I could drive 25 or 30 miles and not find a switch station. But the minute I put in 100 switch stations across the country, there is no route in the country in which there won't be a stop every 25 miles where one could switch the batteries.

For charge spots, it's roughly about 100,000 spots across Israel. Everywhere you go there will be enough spots, especially with software in the car to direct customers to charging spots. This is the cost of entry for our model.

The question is if that's the cost of entry for a two million car country, what percentage out of the population do I need to get to break even on that entry? It's 1 per cent or about 20,000 people. You have to keep building up naturally, but from that point on you're a profitable business.

Here's the interesting thing: we're two and a half years away from finishing the network and we've pre-sold 20,000 subscribers. How do you like that economic model compared to car companies?

The software you've developed can identify cars when they plug into your charge spots and charge the batteries at off-peak times. Yet you say you appreciate the importance of standards. Isn't that a closed network model?

SA: No, because we stated from the beginning two things. We asked any country we come to to put one regulation in place which is that all charge spots will be international standards based.

And all charge networks will be forced to provide open access to all other charge networks at the same price across networks.

Walk us through the level of interoperability.

SA: Say, we have a million spots, somebody else built a thousand spots. Our spots need to be the same. I can't block you from being able to come into the same market by the fact that I've created a patented interface. So we have the same connector and the connector has to be decided by the ISO (International Organisation for Standardisation), not by me, not by you. So the physical lock is gone.

The second thing is, I can't ask for a fee for my connector. If you think about the iPod interface, Apple is charging a fee to anybody who makes a speaker that can plug into the iPod by licensing the connector.

We say, sorry, even though we're going to be the largest network operator — probably — in the beginning we don't want to be Apple. I actually believe that would be the worst thing that could happen to adoption in the beginning. Speed is super-critical in this.

I need to be able to walk up to a charge spot from my competitor and have that network basically charge us — the other operator — a fee. And when their customer comes to our network, we need to be able to charge that network. It's like roaming. This is like ATMs across banks with no fees for the customer.

I'm not aware of any other companies that are copying your operator model. Do you think there will be others?

SA: I hope so. Only it's worst than first. Having a competitor would cut our costs of lobbying because I can't point to someone and say, they're doing it, too.

Who do you think will do it? Auto makers, utilities?

SA: That's the quagmire. I didn't write this plan thinking I wanted to start a company. I was thinking I was going to be the head of SAP, but we need somebody to go do this. It was a hypothetical. It wasn't a business plan I wrote. It was a white paper I did for the World Economic Forum.

If we didn't exist, the car guys would have to invent us because they would not build it. They'll hope somebody else builds. The funny part is that we've invented ourselves out of a lack of desire from all parties to do it. And you see them [the executives in charge of car makers] on panels, see them on discussions and they're extremely defensive. They don't think: somebody just opened up a new segment of the market, let me take advantage of it. Carlos Ghosn of Renault-Nissan said, somebody took a problem off my hands, let's build volume cars, which is what we know what to do.

So do you think it's just a question of time before someone else gets into the electric car infrastructure business?

SA: I think a tonne of people will do it. I don't believe that there's a market opportunity of this magnitude and I'm the only guy that's going to do it. Now, they'll let us prove it, let us work out the bugs. But at some point, somebody will want to build a network in Akron, Ohio, and we'll be busy in Paris, France. And they'll say, I'll do it and copy your model.



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tunker posted a comment   

I agree with tinker until to the point of rubbish. This is not rubbish, it si a very good idea that needs to be refined. There are many questions that need to be answered and only time will prove how cost effective and green this solution is? I think the idiots in detroit are waiting to see if Carlos made a mistake on this and will react based on the success or disaster of this model. I think the point of failure would be the business model itself and how much increase in CO2 will the increase in electric usage for the charging. The hybrids will be more green because they charge themselves and less gas usage will be definitely less than generating the electricity. I think having alternative electricity generation methods such as windmill and solar panel next to the switch stations could help the business model although with longer ROI time.

 

tinker posted a comment   

And the electricity will come from where exactly? Given that most of the world's electricity is generated very inefficiently from fossil fuels I'd suggest that powering cars in this way would generate more CO2. Then of course you need to take into account the energy used in building the batteries - huge! The whole thing is rubbish.

 

Ian posted a comment   

I think this is a very do-able project. I am very impressed by the concept and by Mr Agassi.
If the dinosaurs of the North American auto industry could get their heads out of their butts and jump onboard an innovative concept like this, things could move amazingly fast. We DO NOT have the luxury of time. We HAVE to do something to cut the dependency on oil. This, combined with ideas from others like T. Boone Pickens, who desires to move all "Semi" transports to alternative fuel (there probably never will be an electric "Semi" do to size and weight concerns)can save us and the planet from our old thought patterns.

 

cephus posted a comment   

on the topic of charging / swapping times for batteries, Better Place spokesman Joe Paluska told earth2tech journalists that the current swapping time at a Better Place station is 40 seconds. See http://earth2tech.com/2009/04/21/shai-agassi-first-battery-swap-station-lands-in-japan-but-skeptics-remain/ for the article.

sounds fast to me ;)

 

Deering posted a comment   

There seems to be a fundamental conflict between this business model and the claimed cost of batteries as reported by the Boston Consulting Group's January electric vehicle report:

http://www.bcg.com/impact_expertise/publications/files/Comeback_Electric_Car_Jan_2009_rev.pdf

They state that battery industry experts are projecting that a battery that can power a car for 200 miles will cost about US$40,000 in 2020.

If those cost projections are correct I just don't see how this can work. What battery cost is Agassi basing his financial projections on?

 

ClemS posted a comment   
Australia

also, bugbuster, consider that 90% of commuter/personal car use is under 80 miles a day. Most of the time, for most users, recharging would be at home/work; battery swaps on the road would be between cities and towns, where people stop after driving hundreds of miles on one battery, to stretch their legs, eat, etc. 10 minutes for a pit stop is pretty typical.

 

dj posted a comment   

bugbuster, I wonder what the actual "in & out" time would be for a battery pack exchange,... I doubt it would come close to your 3-4 minute requirement. A self serve recharge might exceed your time demands by 6-7 minutes,.... time enough to enjoy a quick cup of coffee. Also, if your "tank" was not dry the recharge might be proportionally less.

 

bugbuster posted a comment   

dj points to a 10-minute charge time. That's too long. I can be in and out of the gas station in 3-4 minutes. That's my standard. I don't care who has to do what, that's what I demand.

 

12345678910 posted a comment   
United States

I understand that they're good for off-peak storage that encourages green power, but just how would PEVs would reduce peak electric consumption? I

 

dj posted a comment   

Has anyone seriously checked out the Altair battery technology which is capable of a 10 minute total recharge of their battery. I would think that a station to provide a 10 minute re-charge would be much more cost effective than the infrastructure and battery supplies (of many brands) required by the Better Place concept.


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