In 2009 Shai Agassi and his company Better Place were the toast of the
town.
A star at the President’s Conference, he told an interviewer, “by
2015-2016 we should see Israel going to more than 50% of the new cars will be
electric [sic].”
On Sunday, Better Place filed for bankruptcy.
As
The Atlantic’s Todd Woody noted, the company had “attracted $850 million in
funding from such blue-chip investors as General Electric, Morgan Stanley and
HSBC and Israel Corp.” With 350 employees now facing a bleak future, this has
been a terrible faltering for one of Israel’s “sexiest”
businesses.
Numerous key questions about the failure remain.
The
story of Better Place is featured in the introduction to Dan Senor and Saul
Singer’s 2009 best-seller Start Up Nation. The book begins with a question
Shimon Peres asked Agassi: “nice speech, but what are you going to do?”
According to their telling of it, Agassi was at Davos in 2007 with then-vice
prime minister Peres, and he discussed his ideas for an electric car charging
station network with corporate executives. “Here Agassi was, with the next
President of Israel, trying to instruct an auto executive on the future of the
auto industry.”
It was Peres, however, that supposedly fell in love with
the dream of getting the world off oil by creating a viable electric car
alternative: “he [Peres] orchestrated for Agassi a whirlwind of more than fifty
meetings with Israel’s top industry and government leaders....
Peres also
sent letters to the five biggest auto makers, along with Agassi’s concept
paper.”
When Agassi met Carlos Ghosn, the chairman and CEO of Nissan and
Renault, Ghosn seemed skeptical and said that any plan to build his cars in
Israel would require manufacturing 50,000 a year. According to Senor and Singer
“Peres didn’t blink, and committed to an annual production of one hundred
thousand cars.”
Ghosn was serious about electric vehicles.
When he
came to Israel in 2008 he was feted by Ehud Olmert and declared “for the first
time in our history we have created the circumstances to sell electric cars for
a large number of people in Israel.” By 2011 he had invested $5.6 billion
outside of Israel in various electric cars to be built by Nissan.
Agassi,
with the support of Peres, became the romantic hero of the “start-up
nation.”
The idea was that Israel was a small country with dynamic people
who were innovating the way Silicon Valley had in the 1990s.
Everything
Israelis invented was a gold concept.
The oft-repeated mantra was “Israel
has the second most companies on Nasdaq after the US.”
The model Better
Place proposed was to build battery exchange stations throughout Israel. Since
Israel is a small isolated country it was a perfect test case because people
would rarely need to drive further than the range of an electric car, and
setting up a grid of battery exchange stations would be possible.
As
Senor and Singer explain, “the key to the model would be that consumers would
own their cars, but Agassi’s start-up Better Place would own the batteries.”
People would pay a subscription, like with cable, and would have the right to
swap out their batteries.
Agassi capitalized on this sexy “clean energy
high tech” sales tactic and was aided by Peres and books like The Start-Up
Nation. He received support from then-prime minister Olmert and early
investments from Idan Ofer, head of the Israel Corporation, one of Israel’s
largest holding companies.
Agassi raised $200m. relatively quickly,
making Better Place “the fifth largest startup in history” according to Senor
and Singer.
The company was going from success to seeking markets in
Australia, Denmark, Canada and the US. Furthermore, Agassi had “recruited a
former Israeli army general...
to become the company’s local Israeli CEO
and lead the planning for the grid and the national network of charging/parking
spots.”
In an undated online article apparently from 2011 about the Davos
group Young Global Leaders, Agassi was featured as an exemplar of the qualities
of the innovative new-technology businessman: “In 2007 he left [German software
giant] SAP and he is now bringing large numbers of electric cars onto the road.”
In the article Agassi is said to have raised $700m. and claimed he had a full
supply line of vehicles from Renault-Nissan.
“Our biggest challenge in
the coming years will be meeting demand,” he is reported to have said. He is
quoted as claiming that “In 2009 we had one [battery exchange station], in 2010
there were 10, this year there will be 100, and next year there will be 1,000.
By 2013, the total should stand at 100,000.”
IT IS hard to quantify, but
in terms of startups, Better Place received more hype than many. Its claims were
rarely questioned.
From Fox News specials on the company to hagiographic
articles in Wired and The New York Times, it was always presented as the classic
case of the plucky Israeli that would easily conquer not only Israel, but the
world as well, with an innovative idea.
In a 2009 article in the Times by
Clive Thomson, he claimed “Going country by country, [Agassi’s] start-up firm
has begun to construct what it hopes will ultimately be a worldwide network of
millions of smallscale ‘charging spots,’ parking-meter-like posts scattered
around downtown areas and along highways.” At a meeting with Thomson, Agassi
boasted, “I’ve learned every industry in the world.” According to the author
Agassi claimed he was approached by Peres after speaking at the Saban forum in
2006, who told him, “you have to do this thing.”
The Times piece shows
how deeply intermeshed Better Place was with Israel’s elite society, and points
out that “within months, he [Agassi] had acquired crucial political and
financial backing.”
Peres is presented as selling Better Place to
government ministers and, as related above, to Nissan’s Ghosn. Thomson also
related that Agassi’s brother, Tal, was working as the company’s global manager
for infrastructure.
Alan Salzman, “Agassi’s main American investor” was
so enamored of Agassi he told the Times, “he’s the Steve Jobs of clean
energy.”
However, buried in his article is an interesting quote from
Toyota employee John Hanson regarding electric cars: “There is no market.” It
turns out Hanson was correct where the rest of the world was falling over itself
to invest in Better Place and believe in statements like Agassi’s “I’ve learned
every industry in the world.”
In October 2012 the dream seemed to be
over. Todd Woody at Forbes expressed shock.
“What’s behind the ouster of
Shai Agassi,” he wondered in a headline. He couldn’t figure it out in the
article, but did note that “Better Place has lost $490 million since its
founding.”
The company seemed to enter a death spiral.
As with
Enron or any other company, the sudden departure of a founding CEO is a sign
something is deeply wrong. Agassi’s replacement, Even Thornley, was out the door
in January 2012 and Dan Cohen, formerly vice-president of the company’s
strategic initiatives, was brought in to give the sick beast its last
rites.
When it was all over the carnage was impressive. According to the
Atlantic the company had only signed up 750 customers (Some reports mention
1,300). The Atlantic also claimed it had cost the company $500,000 to build each
battery changing station. According to Walla! the company had only built 21
stations in Israel by September 2012. It doesn’t seem it could have built many
more after it began juggling CEOs.
If these cost figures are correct, the
company only spent $10.5m. on building the stations.
Better Place seems
to have delivered its first cars to customers in 2012, so it was actively in
business for only about a year. As with its dreams in Israel, its expansion
overseas never met expectations. It was attempting to build 500 charge stations
in Australia but apparently only built around 20.
SO WHERE did all the
money go? Supposedly the initial investment of $200m. was to cover
infrastructure roll-outs in Israel, but the stories of 100,000 exchange stations
or millions of charging spots were just that: a dream. When Enron collapsed with
$38b. in outstanding debts, it was considered a major scandal. Since America’s
economy is about 58 times the size of Israel’s, the relative financial sizes of
the Enron collapse and the Better Place collapse are not so different. Yet here,
no one seems to be asking tough questions about where the money went.
How
much did the top executives earn, for instance? This is the downside of the
“start-up nation.” There is very little transparency in Israel and never
contrition for failure. It is easy to sell dreams when CEOs can boast that they
“learned every industry in the world” and business reporters don’t call them on
it.
Talk of hiring “a former general,” always markets well to people
abroad but really is quite meaningless. Usually farming out these “former
generals” is just a way to give them a good retirement, they don’t necessarily
bring much to the table. Furthermore the strange entanglement between Better
Place and the government, particularly Shimon Peres, is a cause for
concern.
Peres plowed political capital into the company, but where was
the followthrough? Men like Carlos Ghosn likely feel burned, not by a private
company, but by Israel, that promised the moon but couldn’t deliver. The next
time a suave, smoothtalking businessman shows up to talk to one of these
companies at Davos, they may be more wary of Israeli government commitments and
all the talk about “100,000 cars.”
Business reporters should ask tough
questions about what happened at Better Place.
According to the reports
there was a great deal of money invested and a lot of political entanglements.
Those can be a toxic mix for any company. Israel should be the start-up nation,
but that means having real start-ups, run with transparency and with a proven
business model, not just financial black holes that use the Israeli brand to
sell themselves.