What went wrong with Better Place?

The company innovated novel solutions to long-standing problems in the way of making electric cars viable in the marketplace.

May 27, 2013 01:34
3 minute read.
Nadav in Better Place car

Nadav in Better Place car_390. (photo credit: Nadav Shemer)

Better Place’s Sunday bankruptcy announcement elicited emotional responses seldom felt at the closure of a company. Executives and customers, environmentalists and oil hawks, car enthusiasts and TED talk-inspired converts alike expressed sadness at the news that Shai Agassi’s great scheme to revolutionize the automotive industry had failed.

It was not the loss of nearly a billion dollars of investment that elicited the morosity, nor the fates of the 1,300 brave early adopters left with limited cars that drew forth tears. The closure of Better Place was the death of a dream, a broken promise, a body blow to inspired vision and a reminder of the start-up nation’s limits.

While there are those who will argue that replacing the gasoline infrastructure that keeps the world addicted to oil with an electric one was a pipe dream to begin with, many see in Better Place a story of poor execution, what one employee called a problem of moving from visionary to operative mode.

Unquestionably, the company innovated novel solutions to long-standing problems in the way of making electric cars viable in the marketplace.

To cover the costs of expensive batteries, it figured that it could merely lease them to the car owners, charging them by the mile. To counter problems with driving long distances without a lengthy recharge, it decided to swap those batteries for fresh ones at specially built stations.

But the devil is, as always, in the details.

For one, the company bit off more than it could chew. Instead of focusing on one small market such as Israel, so that it could fine-tune all the details and iron out mistakes, it poured investments into Denmark, Australia and the United States, burning through cash on the assumption that it would not face any problems entering the market.

Far too late in the game, it shut down operations outside Israel and Denmark, where the infrastructure was already complete, to focus its efforts.

“We were expending a lot of energy on getting the idea out to other markets. It’s a very sexy idea and we got carried away,” one executive said.

A second failure was the company’s inability to get more than one car manufacturer – Renault – to produce its rather uniform fleet.

Bearing only a small portion of the financial risks and having no competition in the switchable battery market, Renault had few incentives to make the cars cheaper. Instead of passing generous tax breaks on to consumers, the company was able to push up the prices and gobble up the difference.

The company’s final failure, however, an offshoot of the first two, came from its inability to inspire confidence, or as a spokesman termed it, build “social proof.”

Without an aggressive enough push to get cars on the market, the general public kept its distance from the company, fearing it as an unknown. The fact that the dramatic company shake-up that ousted Agassi happened only months after its initial foray into the market didn’t help matters. In fact, the only way the company managed to produce a spike in sales was when it offered new leasing options, which allowed unsure customers an exit path after a year. When Renault CEO Carlos Ghosn glibly said earlier in May that he did not see battery- swapping cars as the future, he hammered the final nail into the Better Place coffin.

The fuel-hungry transportation market – which exacerbates environmental damage and funds petro-dictatorships – is expected only to grow as giants like China and India continue to develop. The worst repercussion of Better Place’s fall from grace, then, is the false impression it will leave on the next generation of entrepreneurs, thinkers and investors: that tough problems cannot be solved, and that innovative thinking is merely wishful dreaming.

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