One of the most interesting entrepreneurial developments in the past couple of years is Project Better Place, which has one of the most well-articulated corporate visions I’ve ever seen. Their business model: evolve beyond using oil-based transportation fuels by constructing a network of charging stations and battery swap stations for electric vehicles. Their funding model: subscription to the Better Place network:
Innovative business model: For the first time in the electric vehicle business, ownership of the car is separated from the requirement to own a battery. Consumers will buy and own their car and subscribe to energy, including the use of the battery, on a basis of kilometers driven. This model is similar to the way mobile phones are sold, with an initial purchase and a monthly subscription for the mobility service.
This is a very cool concept. The range of existing battery technology is 40-60 miles, so a network like this would extend the travel range of electric vehicles. Better Place is venture-capital funded, not taxpayer-funded (although the governments in Israel and Denmark, the two initial pilot countries, offer tax incentives for electric vehicle purchase). They have partnered with Renault-Nissan to develop a lithium ion battery-powered vehicle that can be mass produced and can do the Better Place battery swaps easily and quickly. Their goal is for these batteries to have a 100-mile range.
One of the economic reasons why I think this model may succeed is that it strikes directly at the largest consumer-facing barriers to electric vehicles — the battery range constraints and the inconvenience and cost of dealing with battery ownership, replacement, and disposal. Better Place takes on those risks and costs by retaining ownership of the batteries; this is a great example of specialization according to comparative advantage, and a transactional/contractual innovation to enable it to come to market. If Better Place can make battery swaps and recharges no less convenient than buying gasoline, I think they have a future. The biggest unknown facing them is the innovations coming down the pipeline in battery technologies; how will it affect their business model if new battery technologies increase the range of batteries? I think if they adopt those innovations as they occur, and tweak their pricing, it shouldn’t destroy their value added; in fact, longer-range batteries may increase their market share, because it would increase the probability that consumers would buy an electric vehicle.
On Tuesday Better Place announced that it has entered a development agreement with Hawaii, which is a brilliant place to roll out such a network: it’s an archipelago of relatively small islands that each fit within the 100-mile range, all of its petroleum-based fuels are imported to the state, and it’s got a lot of renewable energy potential from wind, solar, and geothermal.
The density of the charging stations on Oahu is interesting; Oahu is small but is also the most densely populated of the islands. I’m also intrigued by the fact that there are only 4 stations planned for the Big Island, which probably reflects the lower population density.
Another possible revenue stream for Better Place in a place like Hawaii would be a little vertical integration into car rentals. Tourism is Hawaii’s biggest industry, and a large share of the driving that goes on in Hawaii is tourists, some substantial share of whom are likely to be interested in the “eco-tourism” angle to visiting Hawaii. Imagine landing at Kona and spending a few days circumnavigating the Big Island in your spiffy, high-tech electric vehicle, enjoying the lava flows and active volcanoes (which are correlated with the geothermal activity than can fuel electricity generation), the wind farm at the southernmost point in the United States, the gorgeous microclimates that are all within a battery range. Stay at hotels near the charging stations, charge your battery, and take off the next day.
This Ars Technica article provides a good discussion, including some comments on the business model and how low-risk a partnership this is for a state like Hawaii. This New York Times article on the partnership provides some insights into the investment model and why it’s viable:
The plan, the brainchild of the former Silicon Valley software executive Shai Agassi, is an effort to overcome the major hurdles to electric cars — slow battery recharging and limited availability.
Mr. Agassi has raised $200 million in private financing for his idea. In October, he obtained a commitment from the Macquarie Capital Group to raise an additional $1 billion for an Australian project.
On Tuesday, he said that he was optimistic about his project despite the dismal investment and credit markets because his network could provide investors with an annuity. Users of his recharging network would subscribe to the service, paying for access and for the miles they drive.
Given the downturn in the mortgage market, he said that investors are looking for new classes of assets that will provide dependable revenue streams over many years. “I believe the new asset class is batteries,” he said. “When you have a driver in a car using a battery, nobody is going to cut their subscription and stop driving.”
I am quite optimistic about this venture.
When there are such innovative and promising business models in the marketplace, why squander so much taxpayer money on a U.S. auto manufacturer bailout?