3 reasons Better Place’s EV strategy is flawed

The departure of Evan Thornley from the top job at Better Place is another sign the EV business is struggling – and given it's about 10 years too early to market, it's not hard to see why.

Electric vehicle business Better Place has hit the headlines in the past week due to the departure of Australian CEO Evan Thornley, just three months after he was promoted to the top job. This news, when combined with the pull-back of operations to just Israel and Denmark, and the surprise dumping of the company’s charismatic founder, Shai Agassi prior to Thornley’s appointment, suggests the company’s bold vision is now starting to come up against grim realities. 

Better Place was established by Silicon Valley IT entrepreneur and self-titled “imagineer” Shai Agassi on the premise that fully electric vehicles could be an attractive alternative to petrol power. However this required the battery pack to be unbundled from the purchase of the car and provided as a leased service.

As Agassi saw it, electric vehicles cost a lot more upfront than a conventional petrol car due mainly to the cost of the battery pack. Yet they deliver substantial savings in operating costs due to the low price of electricity relative to petroleum. In addition one of the key drawbacks of electric vehicles is the limited distance they can cover before they then need to be recharged, a process which can then take several hours. 

Agassi felt that if batteries and the associated electric recharging could be provided as a leased service paid for, say, monthly rather than purchased outright upfront, these drawbacks could be overcome. A monthly leasing fee would remove the high upfront cost of acquiring an electric vehicle and create a far more attractive comparison for consumers with their regular purchases of fuel.  Batteries could also be swapped in and out by consumers at battery swapping stations when they undertook longer journeys, removing concerns about limited driving range. 

The end result, according to Agassi, would be a zero-emission electric vehicle that would be perceived as cheaper to buy and run by the consumer with equivalent convenience.

Unfortunately the strategy isn’t working out quite as well as Agassi ‘imagineered’ it to be. Here are three reasons why.

1. Improvements to petroleum-fuelled vehicles can deliver big improvements in emissions without range anxiety and changes in consumer behaviour.

While Agassi’s vision is ultimately right – full electrification of vehicles is necessary – there is still large room for improvement in the old internal combustion engine. Better Place is at least about 10 years too early to market.

With both the US and European governments enacting motor vehicle emission standards with harsh penalties, motor vehicle manufacturers have finally started getting serious about fuel economy and the results have been impressive. As an example a European spec 2012 Ford Focus, one of the top five most popular cars in Europe, achieves 30 per cent lower CO2 emissions in 2012 than it had in 2010, without any reduction in vehicle weight and while maintaining all vehicle performance characteristics.

The International Council on Clean Transportation undertook a component by component engineering study which found that it would be possible to reach the European regulated 95 g/km target in 2020 (equivalent to about 4 litres of petrol per 100km) across the average of the fleet with minimal use of hybrid-electric vehicles. This would require an additional investment of €1000 per car but would result in per annum fuel savings of €350 to €450, providing less than a 3-year payback. 

Then hybrids and plug-in hybrids provide room for further improvement beyond 2020 all while still avoiding the need for the $3 million a pop Better Place battery swap stations.

Agassi’s strategy is based on an assumption that we’ll hit an inflection point where petrol cars would be rapidly abandoned by around 2020. The story he tells is compelling but the numbers don’t add up, certainly not yet.

Today you’ll pay a premium of about $30,000 for an electric vehicle. Versus a petrol Corolla, even after 15 years of purchasing petrol you’ll still be $5000 ahead, assuming 15,000km of driving per annum and ignoring the interest you’d save and the cost of electricity to recharge the battery. 

But batteries will become cheaper I hear you say. Sure, but that Corolla that gets 7L/100km today will get 4L in a few years time, reducing its 15-year fuel cost by $10,000.

2. Vehicle manufacturers aren’t buying into Better Place’s battery swap model.

While quite a few motor vehicle manufacturers have unveiled fully electric vehicles, so far only Renault has signed onto the idea of making their batteries compatible with the rapid battery swap technology from Better Place. The battery swap technology does work quickly and conveniently, but other manufacturers aren’t so sure they want to hand-over such a potentially vital component of their cars to a standards committee run by Better Place.

In addition vehicle manufacturers and battery makers are keen to increase the driving range well beyond the 200km limit Better Place tends to cite. For example the Tesla Model S has a version with a driving range of 500km.

3. Other companies are better positioned to capture the value from electric vehicle charging infrastructure

Better Place may be first to market with provision of technology to help you rapidly charge your electric vehicle, but it’s not like electric charging is a business where others lack expertise and the key assets required. Indeed, others are probably far better positioned than Better Place. 

At your own home, a qualified electrician is perfectly capable of installing the revised high amp charging plug. In addition the wide-scale roll-out of smart metering and time of use charging (which the energy rulemaker (AEMC) intends to mandate for electric vehicle owners) should hopefully ensure households charge their vehicles at times when there is spare network capacity.

If you need on-street charging infrastructure, network businesses would be in a prime position to deliver this at the lowest cost given their existing assets and staff.

Further, car park operators would appear to sit in the prime position to capture the value from provision of convenient charging infrastructure.

Also you don’t need a special leasing arrangement to handle out-of-home vehicle charging – just a swipe machine for a credit card. In addition cars are mainly bought on finance anyway, so lease back of the battery separate from purchase of the car doesn't really change the time phasing for consumers' cash flow. 

Lastly if battery swap does turn out to be the way the industry goes, Better Place will be unlikely to hold a monopoly on the technology to rapidly swap batteries with the only real constraint being a site with an adequate network connection nearby to a highway.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles