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Electric-Car Company ‘Better Place’ Fails To Make It in the Start-Up Nation

Israeli battery-swapping venture burns through millions in capital without changing the world. What went wrong?

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Brian Thomas with his Better Place car, which he is using to criss-cross Israel before the network shuts down. (Daniella Cheslow)
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Computer importer Brian Thomas has been racking up the miles on Israel’s roads. Thomas, 43, is one of 950 Israelis who drives a Better Place electric car with a battery that can be swapped within five minutes at one of nearly 40 stations across Israel. He bought the car in what he called a political move to help Israel overcome its dependency on oil from hostile countries. The price included power for about four years of driving. But after the company filed for bankruptcy in May, Thomas has been hauling friends across Israel for fun, trying to maximize his cheap electric driving before the network shuts down.

“I have all these extra kilometers I’ve paid for, and I’m going to use them,” Thomas said last week. Thomas—who goes by his blogging pen name—is part of a small group of Israelis who took a bet on Better Place, a company with an audacious goal to switch the automotive industry over from gas to electric power. Six years ago, Israeli software engineer Shai Agassi announced that he had solved the range limitation of electric vehicles by pioneering cars with removable batteries that could be swapped at robot-operated stations. Israel would be the pilot for his idea. But after raising $850 million from A-list investors in the United States, Europe, and Israel, Better Place and its early adopters are now facing the worst-case scenario that scared off scores of other potential buyers. And Agassi, who was forced out of Better Place in October 2012, is being painted as both a megalomaniac who badly managed an over-the-top mission and a visionary who got caught in a web of bureaucratic hurdles.

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Better Place was founded with the goal of being a game-changing company. Agassi predicted he would sell 5,000 cars by 2011 and that electric cars would be the majority on Israel’s roads by 2016. He built 38 swapping stations across Israel. He held court at press conferences and test drives in Israel, Denmark, the United States, and Australia, promising to change the way we drive. He had the ear and support of Israeli President Shimon Peres and was interviewed by a host of major U.S. publications.

Agassi, 45, fit, well-dressed, and charismatic, became the embodiment of the phenomenon described in Start-Up Nation by Dan Senor and Saul Singer, who argued that, when it comes to technological inventiveness, Israeli nerve and innovation more than make up for its sparse natural resources. Foreign Policy magazine named Agassi one of the 100 top thinkers of 2010.

The drum roll of the international press made Agassi’s vision seem inevitable, and it was matched by the exuberance of Better Place’s marketing. I reported on one of Agassi’s press events in 2011, a demo of Israel’s first battery-swap station just outside Rehovot. Israeli press conferences usually offer dry wafer cookies and instant black coffee. In this event, I peered at Agassi from the standing-room-only back section of the white press tent, while piles of quality pastries, smoked salmon sandwiches, and trays of juice lined high tables between us. A barista made fresh espresso in a corner. The only more lavish press events I have attended were orchestrated by Google. At that point, Agassi still had not sold one car.

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You could say he was faking it to make it—after all, Better Place aimed to change the driving infrastructure in Israel and then the world. But the number of cars sold stubbornly refused to follow Agassi’s narrative arc. By May 2013, there were nearly a thousand Israeli Better Place drivers—not even a fifth of what Agassi had predicted for 2012. Potential buyers went to the gleaming white visitors’ center north of Tel Aviv, and most were put off by the US$40,000-plus price tag, the lack of choice in models available, or the uncertain future of driving electric. Corporations didn’t take up EVs for their fleets.

For the few early adopters, Better Place inspired a tribal loyalty. Translator Yaara Di Segni, from a suburb of Tel Aviv, said it’s her family’s only car. A month before Better Place folded, Di Segni had filed the paperwork to create the Association for the Advancement of Electric Transportation in Israel, which would lobby the government to give tax credits to electric drivers and to secure public parking spots with chargers.

“We love it, and we love that it doesn’t directly pollute,” she said. “Electric cars are not just a solution for someone who wants a little runaround in a city, but also for the person who wants to go from one end of the country to the other.”

Yet even Better Place’s most ardent fans say the company failed to reach out to most Israelis. Thomas, the computer importer, said he paid 160,000 shekels (about US$44,000), the same as the price of a new Toyota Prius, for his car and 80,000 kilometers of driving.

“Why wasn’t there a billboard in Tel Aviv showing a picture of a Toyota Prius for 160,000 shekels and a picture of this car, for 160,000 plus fuel for four years?” he wondered. “They never sold that way. It was always complicated.”

This slow sell eventually cost Agassi his job. He was forced out in 2012, after his company had posted $490 million in losses. By May 2013, the Israel Corporation conglomerate that owned about 30 percent of the company saw Better Place as a sinking ship and refused to inject more cash, and the company folded.

“This is a very sad day for all of us,” the company’s board of directors said in 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. Unfortunately, the path to realizing that vision was difficult, complex, and littered with obstacles, not all of which we were able to overcome.”

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Electric-car expert John Gartner works at Navigant Research, a clean-tech consulting firm. He said Better Place had fantastic marketing and raised the profile of electric cars worldwide. But he smelled problems early on. There were a lot of staffers in North America, even though the business plan called for an American Better Place rollout years down the line. There would be only one car manufacturer, Renault, making only one car model, the Fluence Z.E. family sedan. After the initial lightning bolt of an idea, Better Place couldn’t deliver, he said. “They became inconsequential a few years ago when it became obvious to many of us tracking the EV industry that they were no longer leading a successful change,” Gartner told Tablet.

Better Place has been tight-lipped about its tumble. The spokespeople for the company have lost their jobs, and Agassi is no longer in the picture. He only vaguely referred to government hurdles in his speech at the President’s Conference in mid-June. But Tami Chotoveli, Agassi’s girlfriend and a former company spokeswoman, offered her take via a Facebook note that Agassi endorsed. She said Better Place paid about 750 million shekels (US$206 million) in taxes and got little help from the Israeli government. She also pointed to Tesla Motors, the luxury electric car company based in California that got a loan for half a billion dollars from the U.S. government, repaid it, and posted its first profitable quarter the same week Better Place pulled the plug.

A spokeswoman for Israel’s Tax Authority could not confirm or deny the taxes Better Place paid. But she noted that electric vehicles have enjoyed a low rate of only 8 percent purchase tax, set to expire at the end of this year. Regular cars are taxed at 83 percent, with deductions for those with fewer emissions.

Gartner, the researcher, argued that the tax complaint was a cop-out. Tesla succeeded where Better Place failed because it was a less ambitious project, he said. Rather than blanket California with swapping stations that cost half a million dollars apiece to build, Tesla has relied on cheaper plug-in charge spots. Only in June, after posting profits, did Tesla begin exploring battery-swapping options.

One lesson for electric-car entrepreneurs in Israel may be not to forget the environmental movement. Yael Cohen Paran heads the Israel Energy Forum, devoted to promoting sustainable energy in Israel. She said Agassi didn’t seriously approach the environmental movement and that his green argument was unconvincing.

“One of the things I was outraged by is them saying we want to buy all our electricity from renewables,” said Paran. “I didn’t see Better Place putting their money into power plants so there would be more solar energy for their cars. You’re driving on coal instead of gasoline.” Agassi, for his part, has claimed in past interviews that Israel declined to give his company swaths of land in the Negev for building solar fields.

Thomas, the British computer importer, said he understood why Agassi lost his job. And he said he will probably file a claim against the company. But he also said the service was “gold-plated,” with polite, responsive troubleshooters available at all times. “The sort of depressing part of the collapse is they had just started selling.”

The company is now in the hands of two government-appointed liquidators. One of them, attorney Shaul Kotler, said “not a few” investors have contacted him to inquire about buying the Better Place assets in Israel. Kotler said it’s an attractive package, deeply discounted, and that he expects offers to range between “dozens to a hundred million dollars.” Kotler said the courts agreed to extend Better Place’s operations to mid-July to allow time for a buyout. “We’re trying not to waste money, but if we stop it the cars will not be a going concern,” he said.

Massachusetts transplant Yosef Abramowitz is one of those inquirers. He is known as “Captain Sunshine” for building commercial solar fields in Israel and the developing world. He said he would urge the government to step in with tax credits, preferential parking, and possibly even to run the infrastructure Agassi installed, potentially with help from the Better Place drivers. “It’s quite spectacular to burn through $850 million and fail,” said Abramowitz, whose two businesses have raised more than that. “But I don’t want the lesson for Israel to be ‘don’t dream big.’ ”

Doron Vadai, who imports cars through Clal Motors, said there are only a handful of Nissan or Chevy electric cars on Israeli roads. He said he is working to import electric buses for the Dan public transportation company. Whatever its failings—and maybe, because of them—he said, “Better Place raised awareness of the issue of electric cars.”

In late June, Better Place’s system was still running. One Tel Aviv-based start-up called “Just Park It” created an app for drivers to exchange their charging spots should the swapping stations shut down. In this way, a driver who lives in Tel Aviv but works in Jerusalem can charge his car over the workday and have enough fuel to get home.

Thomas, meanwhile, is eagerly checking into far-flung battery stations on Foursquare, like in the northern Arab villages of Baqa and Eilaboun, getting to all the spots on the network before someone pulls the plug. He considers himself lucky—his wife drives a gas-powered car, and he can take that for long trips. But he hates the idea of paying for gas.

“I don’t regret buying it,” Thomas said as he steered his silent car through Tel Aviv. “I enjoyed driving an electric car for a year. I would do anything to keep driving it.”

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Electric-Car Company ‘Better Place’ Fails To Make It in the Start-Up Nation

Israeli battery-swapping venture burns through millions in capital without changing the world. What went wrong?