This weekend electric vehicle (EV) charging company Better Place announced that they are shuttering the company and liquidating their assets (WSJ Article). Over the previous few years, Better Place had raised more than $850m in venture funding from well-known investors like Morgan Stanley, GE Capital, HSBC and VantagePoint Capital Partners. Armed with lots of money and ambition, Better Place wanted to revolutionize the automobile industry by allowing EV customers to have a monthly subscription to their fuel plan just like they did to their mobile phone plan.
Back in 2009 I was working for the consumer electronics retailer Best Buy to flesh out potential partnership opportunities in the electric vehicle industry. At the time, we were talking with vehicle manufacturers and the companies that created the charging equipment for electric vehicles. Better Place was one of the companies we had been in discussions with. After only a few hours of meetings it had become obvious that they were going to struggle to survive.
Don’t get me wrong, Better Place had some incredibly smart people and they had identified some really innovative ways to monetize the EV charging industry but they also had a very lethal business combination. Even with their intelligence and ingenuity, their business model was seriously flawed and they had an unbridled arrogance that pushed them to think that everyone else was wrong.
Earlier this year Better Place had shut down their United Stated and Australian operations to focus on their operations in Denmark and Israel (Forbes Article). On May 25, 2013, Better Place finally filed for bankruptcy in Israel and is putting their assets up for sale. Taking a few minutes to better understand the Better Place failure can help future generations of entrepreneurs looking to revolutionize an industry.
Why was the Better Place business model flawed?
- Ensure that your business model and your technology are in sync. Climate and driving habits can dramatically affect a battery’s performance. Better Place wanted to use their smart charging software in vehicles and in their charging stations to control how much charge a vehicle would need. Their flaw was in their modeling when they treated the battery as if it were a completely fungible energy source. Their processes equated swapping an EV battery like exchanging liquid propane (LP) tank where a customer takes an empty tank to a store and exchanges it for an identical full tank. The problem was that not every EV battery was equal. The “treatment” of the battery could greatly influence its performance. Cold weather and hard driving could greatly reduce the battery’s ability to retain a charge and thus impact the vehicle’s range. Take this fact and add consider that the battery is the most expensive element in these cars, easily exceeding $10,000, and it becomes easy to see why some customers won’t want to swap their batteries. Back to the LP example, many American’s already have anxiety over swapping their new and shiny propane tank with an old and rusty one.
- Does your business model necessitate that the industry adopts a standard? The Better Place battery swapping model would work best if global manufacturers had agreed to a battery standard (size, design, etc). In smaller socialized states it would be much easier for the government to require one battery standard used for electric vehicles. But in the US we already had moved beyond that option. General Motors (GM) had already put in more than a decade on their battery research for the Chevy Volt and they were not likely to want to share that technology with their competitors. GM had recognized the importance of temperature on the battery and had built in a separate heating and cooling system just for the battery itself. GM also thought they had a superior safety design with their unique T-shaped battery that ran along the middle of the vehicle to protect it further. The number of battery types scheduled for the US market was at least five: General Motors Chevy Volt, Nissan Leaf, Ford Focus Electric, Mitsubishi i-MiEV, and the Tesla Roadster. If we add in the cost of each of these batteries and the design changes necessary we see why battery swapping wasn’t going to work in the US.
- The entire battery swapping model hinged on vehicle sales rates. Finally, Better Place had expected their batter swapping stations to cost upwards of $500,000 each to build. They also estimated that these stations would need to be spaced about 25 miles apart to be most effective. Based on robust EV sales it would take years or decades for Better Place to recoup their initial build costs for these stations. In contrast, a home or office Level 2 vehicle charging unit would run customers $500-$1500 depending on the manufacturer. Since 2008, there have been approximately 100,000 plug-in electric vehicles sold in the United States. The sales numbers are hardly enough for anyone to breakeven when building an EV battery swapping stations.
Battery swapping might have worked in a country that allowed for centralized planning but it was severely flawed model in a capitalist marketplace where customers aren’t keen on swapping their good battery for a bad one and manufacturers aren’t keen on giving up their competitive advantage in battery technology. Poor sales were the final straw that broke the camel’s back and killed EV battery swapping… at least for now.
Updating with a couple of other interesting articles on Better Place and and the future of Electric Vehicles:
- The Washington Post – What Better Place’s bankruptcy tells us about the future of electric cars
- The Wall Street Journal – To Spark Buyers for Electric Cars, Drop the Price to Nearly $0