Last week, the Israeli company called Better Place filed for bankruptcy. Better Place (BP) tried to base its business upon battery-switching and charging networks for electric vehicles (EVs). It will be remembered as the most heavily-funded and government-backed startup in Israeli history, raising some $700-800 million in a couple of years - and also as the one to have burned the most cash most quickly. BP built about 40 battery-switching stations across Israel, and a couple of dozen elsewhere - each costing some $2-3 million (at least 4x higher than predicted; cost back-calculated from their financial reports). It sold less than 1000 cars in Israel, all of them of the same Renault Fluence ZE model, the only model car makers have agreed to build for its network. You do the cost-per-car math. BP's finances are literally like Wile E. Coyote falling from a high cliff, and continuing to fall through the ground. It is so bad, that it's hysterically comical - except for the hundreds of stranded employees and customers.
The possibility of government bailout, given BP's strong Establishment contacts, has evaporated once Israel's huge government deficit (hidden from the public until recently) has become the country's leading news story. The English-language Jewish press is now floating some feel-good stories about last-minute saviors. Very little of that appears in the Hebrew press: apparently, some Diaspora Jews are having a hard time letting go of a "Brand Israel" poster child, a company that served as Exhibit A for a recent propaganda bestseller ("Start-Up Nation", Dan Senor and Saul Singer, 2009). But no one can pick up these terrible numbers. BP did not have money to operate even one more month. Most of its employees were sent home, and its assets are mostly liabilities: who wants to buy and shoulder the cost for running these stations on practically no revenue stream?
Kossacks could read about Better Place's poor prognosis long before most of the business press had caught up - some 9 months ago, to be exact, courtesy of yours truly (see also this somewhat refined version). The lazy American mainstream media now attempts to wrap BP's bankruptcy together with other recent EV bankruptcies such as Fisker and the lesser-known Coda, in order to pour cold water upon the good-to-excellent EV news coming out of Tesla, Nissan and others (nationwide sales of EV/PHEVs are now at a 90k/year pace, and rising).
Not surprisingly, the media are WRONG about BP's story. True, the modern EV, an emerging technology, is definitely riskier - but the way BP has gone about doing business, it would have failed in pretty much any undertaking.
My analysis from 9 months ago largely stands. Most of BP's failure stems from its founder Shai Agassi's arrogant blindness to the real world of EV technology and business, his confounding of vision, spin and national propaganda - and his disdain towards the rest of the world in general. Unlike say Tesla's Elon Musk who is an engineer by training, Agassi comes from the software world, and has never realized that the EV revolution (which yes, I believe is coming with 2013 shaping up to be the watershed year) is NOT like the computer revolution - rather, it far more closely resembles the gradual replacement of horses by cars (more on that analogy, later). That said, I do hope for Tesla's sake (or for any other company, for that matter) that they don't fall prey like BP did, to stupid leader-worship in lieu of intelligent and resopnsible technology and business strategies.
Another very big part of BP's failure is related to Israel's peculiarities. The country's eminent unsuitability as the first location for large-scale launch of BP's network, the nest where the company has literally sunk all its eggs, had been conveniently glossed over, due to what BP saw as a huge structural advantage (this too, will be discussed a bit later).
At bottom line: the smallest role, IMHO, in BP's bankruptcy is attributable to the failure of the switchable-battery idea itself. The idea is rather viable. It is its application that has been at fault.
If so, then where when and how can switchable-battery EVs successfully integrate into the EV revolution? Follow me to learn more.
The Horse-and-Buggy Analogy
We've been living through a continual digital and information revolution. It is easy for us to fall into the trap of thinking all technology+consumer revolutions have looked like "ours". They do not:
- The digital/information revolution introduces to the world an incessant stream of products, services and capabilities that simply hadn't existed before. 20 years ago, you could NOT answer any silly question you dream up by immediately tapping into a large universal pool of Humanity's current knowledge. Or for a less striking example, typewriters had existed before word processing - but erasing even a single character was a hassle.
- On the other hand, the EV revolution attempts to replace a known, functional mass consumer product, with one that might be qualitatively better, but is not functionally better in all respects compared with the old defaults. At least not right away. Early on, it is also typically less cost-effective in the narrow sense.
When cars (initially steam and electric, then also gasoline) came onto the world stage, people were getting around just fine using trains, trams and in particular horse-drawn carts. For a rather long period, early cars were not necessarily faster than a horse-cart. They were definitely more high-maintenance and included unknown challenges. They were less reliable, more dangerous and surely way more expensive. In short, for the vast majority of potential consumers, "mechanical carts" were more trouble than they were worth. The transition of private locomotion to become internal-combustion-engine (ICE) dominated took at least a generation.
What kind of users had spearheaded that transition? some combination of hobbyists, early-adopter-consumer types who love anything novel and can afford to buy it, and the ideologically motivated: those who acquired a mechanical cart because they believed it represents the advancement of human civilization.
The same is happening now. Socially speaking, EVs are not yet for everybody - not because they cannot answer the locomotion needs of a large chunk of society (they can), but because they represent a social and technological unknown that must compete against an entrenched convenient default on the latter's turf. So right now EVs rely upon a motley crew of early adopters, hoping to gradually expand into the mainstream as the product becomes both more cost-effective and more socially desirable.
One of Agassi's conceptual mistakes was to think he can leap-frog past this social process via two shortcuts:
- "Dumb down" the user experience by setting up a nanny-company charging service that includes battery-switching stations, in order to reach the low-information consumer right from the get-go.
- Start the system in Israel, where half of car sales are fleet leases, meaning that switchable-battery EVs can be forced upon the Israeli consumer market via the decisions of a few fleet managers of large employers.
Double fail. Low-information consumers ask, "What's in it for me?" - and at this point there is no good answer from their perspective. Even with a switchable battery, on a road trip they would need to stop every hour to switch it out. Low-information consumers don't tend to care for environmental calculations, which are rather complicated with EVs anyway. And fleet managers are anything but risk-taking early adopters. Combine that with about a dozen other fails BP committed (such as pissing off Israel's DIYers and would-be early adopters by going to the government and soliciting a ban on home trickle-charging) - and you get a dead company.
But what about Switchable Batteries?
Let's do what Agassi et al. had apparently never done, and think about common consumer usage patterns. We have a Nissan Leaf. Living in the city and doing most of our driving around town, it makes perfect sense. How often do we contemplate a drive that would require stopping for a quick-charge - or, had we driven a switchable-battery EV, switching it out? Not very often, maybe once a month.
True, this sliver of usage looms large in consumer minds when they contemplate buying EVs. But there are more elegant ways to address this psychological and marketing issue. Fiat, for example, has just come up with a creative solution: its 500e sub-compact, to be sold in the US next month, comes with 12 free car-rental days per year for 3 years. Building an entire battery-switching network, and constraining your cars to match the concept? Ordinary consumers won't want to pay for it, and frankly they don't need it. The current range of affordable EVs (60-90 miles) is more than enough to last from morning to evening for the typical urban commuter. And once you can drive for 2 hours straight, stopping for a 30-minute fast charge can be nicely paired with a meal - making EV road trips an acceptable experience.
Fast-charge stations are orders of magnitude cheaper to build than battery-switching, are far more easily compatible with practically any EV, and are less energy intensive (among other things, the BP post-mortem stories mention large refrigeration facilities built in each station to keep the batteries from depleting). At the pace of current technology improvement, we are only 3-5 years out, maybe less, from the day when the Nissan Leafs and the Fiat 500e's will be able to make that 2-hour drive without breaking a sweat - thus turning all EVs and not just the Teslas into viable road-trip vehicles.
In short, BP's attempt to position itself as the solution to mass-consumers' range anxiety came with a rather short expiry date. Even had the company not conducted itself with such spectacular incompetence, it would have had to seek an alternate business strategy very soon, because it could not compete on the mass consumer market once ranges pass a critical threshold. But one viable direction for switchable batteries has been actually hidden in plain sight, in BP's small single-station pilot at Amsterdam's Schiphol airport. That station serves a fleet of switchable-battery Renault Fluence ZE taxis. As far as I know it is still operational.
This is the niche: fleets of service vehicles that operate nearly continuously on short to medium rides, returning to the same base. Instead of building a ridiculously expensive, hideously energy-wasteful network of stations and then waiting for the intrepid traveler to arrive, all you need is a single station and a large-enough fleet to justify its existence. Even better: at present EV technology has no fixed-battery solution for the likes of taxis and delivery trucks.
Thank goodness, the defunct BP is not the only one in this niche. Credit is due to John Gartner of Forbes, who mentioned this in his intelligent analysis of BP's demise. He links to a company in Slovakia that claims to have built a battery-swap station for a fraction of BP's cost, and has begun pilot trials with delivery vans. Besides, the main technological task is the switchable-battery car itself. Switching stations, with all due respect to BP's amazing talent in burning wads of $$$ on them, are basically just real-estate with some robotic lifts.
Taxis and local deliveries are a niche market, but not a small one. Reducing the oil and carbon footprint of these activities will be a respectable mission for the battery-switching EV concept.