Tuesday, September 16, 2008

Opinion on Better Place

I met a woman the other day who is working at Project Better Place. Actually the company is just called Better Place now.

Ex-SAP bigwig Shai Agassi launched the company and the goal is promote widespread adoption of electric cars using EXISTING technologies. Basically he wants to reduce dependence on foreign sources of oil.

He has already got Israel and Denmark signed up.

I guess, props to him for having a big hairy audacious goal. Although, I sort of think he is insane. There are huge huge infrastructure costs to what he is proposing. It is not clear to me that he is going to make a return on the investment required and is just going to spend massive amounts of capex before he even starts making any kind of money. That sort of makes me nervous, since projects like that tend to explode. (Remember Iridium?) He has raised $200 million, much of it from a wealthy Israeli businessperson.

He is trying to create a whole ecosystem himself and is partnering with lots of players to do so. He has partnered with Nissan to develop an electric car. They are going to put in a "smart" dashboard that will calculate how far you are going and whether or not you need more energy.

Then within the car, the electric battery is going to be swappable. Basically consumers can charge at home or if you are on the go and need more energy, there will be recharging stations located everywhere for you to swap out your battery quickly. This is supposed to overcome the current problem of short distance for most electric cars (sub 60 miles) and time typically required to recharge the battery (several hours.)

Consumers will pay a subscription fee similar to a phone bill or something for energy usage. I am not sure what the monthly fee will be, but let's say it is something comparable to gas today. If you spend $50 per week today to fill up your tank to get around, then maybe it will cost like $200/month subscription. But consumers will not need to own the batteries, deal with battery purchasing/storage/discarding and instead are getting a service.

I am a big proponent of products turned into services, since I think that creates better accountability for whole life cycles of products and provides an incentive to use better technologies as they emerge. Plus there is a nice recurring revenue source for the service provider. :) Customers just specify the end usage they are looking for (e.g. energy for their car) and the service provider figures out the best way to give that service. Maybe today the best source is gasoline, however, if things change and suddenly bio-ethanol or whatever becomes cost effective, the service provider will transition over to that. The consumer will not have to make that decision. Plus today, when you are done with your electronic gadgets or products, oftentimes consumers just toss them out creating an incredible amount of waste. One thing I see a lot of is used computers. I imagine they could be useful in a recycle capacity for other electronic goods or even for people in developing countries. I just think there must be a better way to get used/discarded goods to people who need them.

Anyway, sorry, I just went on a tangent there.

So Shai wants to basically build this entire ecosystem from SCRATCH. I think there is a chicken and egg problem and he is just getting around it by spending big bucks. Kind of like if you build it they will come.

Some issues I see:

1. Replacement cycle of cars. Consumers are not going to upgrade to electric cars immediately because most households already own 1 or 2 cars. Probably if consumers buy a new car every 5 years, then only a fifth of cars will turnover each year. (I think this is sort of an aggressive assumption BTW.)

2. Catch-22 with charging stations. And when making their purchase decision, consumers will want to see the charging infrastructure already in place, otherwise, they will not buy the electric car. That infrastructure is going to be incredibly EXPENSIVE. And it will not pay off without consumers with cars utilizing the charging stations. So either you just spend all the money to put in this infrastructure or you don't put it in, but then consumers will not buy the cars.

3. Danger of technology obsolescence. Researchers in many labs are working to come up with better battery technologies, better fuel technologies, etc. What happens when one of these comes out and totally obliterates the expensive infrastructure you've built based on today's technology? If/when batteries can carry a charge supporting a car capable of travelling 350 miles and/or can be charged quickly - say in 5 minutes, what will you do with this car charging/swapping ecosystem?

4. Small geographic footprint limitation. I think this sort of idea works best also in small geographic spaces. In the bay area or in many parts of the United States, things are too spread out to justify such an investment. I think it may work in Israel or say Hawaii, but if you are in Texas and the closest town is 100 miles away, what will you do?

Although I sound like a grouchy, negative pessimist, I do applaud Shai for having a big vision and doing his best to change the world in a positive way. I think we need big thinkers like him who are able to mobilize and inspire a large group of talented people towards an important goal.

Unfortunately, I just feel as though this particular initiative is fraught with problems.

For more information, check out this Wired article about Better Place and Shai Agassi. A writer followed Shai around for an extended period of time and chronicled the going-ons.