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The initiative of Israel-based company “Better Place” to put electric cars on the roads in Israel, Denmark and other countries suffered a serious blow early this month with the departure of its founder and global CEO Shai Agassi. Whether Agassi resigned voluntarily or was ousted from his post depends on who is asked, respectively, associates close to Agassi or the “Israel Corporation”, the dominant stake holder in Better Place. But even more so if Israel Corporation is right in its position, the action of its executives will not do them good. Agassi has been the visionary, leader and engine behind the fund-raising for the project ($751 million), including the recruitment of Israel Corp. as the main investor in Better Place (~30%) and other investors such as HSBC, General Electric and Morgan Stanley. Since this whole project of electric cars was primarily identified with Agassi, and gained its prestige through him (e.g., received the endorsement of Israeli President Shimon Peres), it may be very difficult pushing forward without him.

At the age of 33, some nine years ago, Agassi has already been recognized as a promising and exceptional entrepreneur and executive with a vision. He first had a vision for a different way for marketing technologies, products and services in high-tech. Yet he has had a furthermore encompassing vision of replacing fossil fuels with other sources of energy for vehicles, settling eventually on electric batteries as the more viable solution. He started promoting his vision while still serving as a senior executive of technology and business development at the global information technology firm SAP (1). Agassi has given up his job at SAP to pursue his initiative to develop and market electric cars, including the network of stations for servicing them. Even though his career path at SAP may have been truncated by his disappointment from not being nominated CEO (quite an ambitious expectation at his age), Agassi still has probably given up other lucrative options in that field to take on a rather risky enterprise all by his own. It should also be reckoned that Agassi has become keen on his idea regarding electric cars, shifting his attention and own energy in that direction, before quitting SAP. Therefore, his move away from the rewarding opportunities in high-tech into a less known territory deserves appreciation.

A genuine contribution of Agassi in employing batteries is to allow drivers to quickly replace them, within a few minutes, when depleted, rather than recharging them for hours. A known weakness of batteries for electric cars valid to-date is that they suffice for about 150 km (90 miles) of drive. That can cause lots of trouble for many inter-city drives, even in small countries like Israel — one may not be able to complete even a return trip without recharging. The process of recharging can take from 7-8 hours using a special high-volt outlet to 20-24 hours using a regular electric outlet (speedy recharge in 30 minutes is possible but will exhaust batteries sooner). Those batteries are very expensive (~$15,000), if compared to the cost of a family car running on benzine or diesel fuels, so buying a new battery for your car is certainly not economical. Hence Agassi offered a model in which (1) batteries are not sold but rented to car owners, and (2) drivers can use a mechanism for swapping batteries in special facilities (looking from the outside like automatic car washing facilities) at service stations of Better Place. In addition, drivers can recharge using special “fueling” installations at service stations or at home.

There are still a number of uncertainties and potential problems that consumers may encounter when applying the solution of Better Place and that probably hamper its adoption in the market. First, the rental schemes, that have already been modified once or twice, can be quite demanding or more expensive than Better Place has tried to portray them. At first they expected drivers to commit to  more than 20,000 kilometres a year to obtain the right to swap batteries for a relatively low fee. Later they offered other schemes that are based on actual kilometers driven but are still economical only if one drives more than 10,000 kilometers a year. There are also membership schemes for recharging at home. These schemes generally imply that drivers may commit in advance every year to expenses that are not lower than those expected from using fossil fuels, at least for now. Also, for a single drive, for instance from Tel-Aviv to Eilat on the Red Sea (approx. 350 km), it has been estimated that driving an electric car will cost 442 shekels while doing the trip in a family car (for example Ford Focus) would cost 436 shekels at the current level of benzine prices (TheMarker, 2 Oct. 2012). The main claim of Better Place is that a trip in an electric car should be cheaper and the difference in cost will increase dramatically with time, but the key question for many drivers is When will that happen?

Second, several uncertainties hover above how the whole operation of re-charging and swapping batteries will work in practice for the consumers-drivers. Better Place makes an impressive effort at explaining the options and its procedures on its website and demonstrating them in their Visitor/Experience Centers, but there is always a gap between theory and reality in-field. For example, how available will stations be on the roads? What will the distances be between stations so that drivers can soon find the next station near them? Agassi promised 100 stations in Israel by the end of this year but so far there are just 40 stations (Financial Times reports on 24 stations already built and 14 to be completed by year-end; in Denmark Better Place has 12 stations built and 6 more expected to be completed by the end of the year). In addition, critics have questioned how swiftly and quickly the operation of the mechanism for swapping batteries would work, particularly during rush hours. Concerns have also been raised about the possibilities for re-charging batteries and the convenience of using them, adding to the consumers’ confusion. The Transportation Ministry in Israel, for instance, is banning for now re-charging at home. And if a special facility can be installed at home, would it be practical only for private houses or also for apartment buildings? There have been talks about saving parking spots in cities with public posts for re-charge but nothing has been done about it so far.

  • More critical aspects have been suggested in the media that may further lower consumer confidence in electric cars (e.g.,  the battery usually weighs some 250 kilograms, adding burden on the vehicle that may hurt its acceleration power and reducing the space left for baggage at the back of the car) [Israel HaYom 5 Oct. 2012). It should be noted that some experts on cars and energy argue against electric batteries as the most efficient substitute to fossil fuels (e.g., vis-a-vis  bio-fuel cells).

People normally have a tendency to stick to the current state of affairs, “the way things are” or the status quo. They are not quick to change the attitudes they hold or the actions they follow (i.e., “habits die hard”). As consumers, people also often prefer the familiar (e.g., product or brand, the way a product is used) and avert uncertainty or risk. In order to change their ways, consumers expect to be convinced or feel that their well-being will be better-off in some significant manner. Unfortunately for electric cars this realisation has not come about yet: On the one hand, there is an established and familiar working solution for fueling cars with benzine or diesel. On the other hand, the new alternative solution for fueling cars with electric batteries is riddled with question marks and is not perceived as a working solution. Fossil fuels have become more expensive is recent years (again) but consumers-drivers do not see shortages yet and the savings from changing to electric batteries, recharging or swapping, are not salient enough. The concerns for reduced convenience and the fear of being stuck on the road appear more readily imminent. It is a matter of time, and it may take several more years for consumers-drivers to see and experience the current “working solution” of fossil fuels as no longer economical nor practical.

The investors, primarily the Israel Corp., display impatience and nervousness towards the slow progress of the initiative as managed by Better Place which can at least in part be understood. It is much more difficult to defend the manner in which Agassi found his way out of the doors of Better Place. The leading investor should have evaluated that this process may take years to get to fruition because of the significance of change expected in consumer behaviour. Unfortunately for the project, the economic climate has changed dramatically to the worse since the initiative came to life in 2006/7, when funds were invested, slowing down many market processes. Nonetheless, Agassi is also responsible for making ambitious, unrealistic forecasts (actually promises), that do not seem close to materialise. He projected that his company will obtain 2-4% of car deliveries in Israel by 2012 but this year he gained only 0.3% market share so far. More seriously, he committed to an order of 100,000 cars from Renault of their co-developed model Fluence ZE by 2016. Yet in the first nine months of 2012 Better Place managed to sell about 460 cars in Israel and an additional 200 in Denmark, far away from target.

Agassi first denied that he was fired and promised to stay on the board of directors to show that he stepped down as CEO in consent to help Better Place try a different managerial approach to hasten their progress. However, his decision a week later to quit the board of directors suggests otherwise. The way Israel Corp. allegedly leaked out the news that he had been ousted, to be replaced by CEO of Better Place in Australia Evan Thornley (2), has offended Agassi and caused him to walk away from his own creation. Shai Agassi has been the living spirit, the champion and visionary of the Better Place approach to electric cars. Visionaries often are not very realistic because of the enthusiasm and the broad and genuine way they approach situations and problems. They are not well understood, are criticised and even ridiculed. But even then the company needed him as a champion and leader of this groundbreaking initiative and should have been much more sensitive and careful to keep him on the team.

Better Place spent much effort and money in marketing activities, especially directed at convincing consumers that the time has come to move to electric cars and that a whole apparatus is ready to serve them. But the consumers are not ready yet, and although many visitors at the experience centers may have expressed strong support for the initiative, there is a persistent gap between attitudes, intentions and actions taken by consumers. Meanwhile the company used $471 millions of the funds, business results are slim, and the patience of investors has been fast dwindling. The time span needed to shift consumer behaviour from cars running of fossil fuels to electric cars or other sources of energy is longer than estimated, and is further extended by the global recession. Given the public interest in the success of such an initiative in the long-term, governments should provide much stronger backing and support to push the process forward and simultaneously give more breathing time to the businesses engaged to continue in their operational and marketing efforts.

Agassi brought his project to Israel in view of its energy problems but also with aim to reinforce Israel’s image as an innovative country. It is an opportunity Israel will be sorry to lose.

Ron Ventura, Ph.D. (Marketing)

(1) Shai and his father sold their family-grown high-tech start-up Quicksoft/TopTier to SAP in 2001 for 400 million dollars (a major stake in the company was acquired earlier in 1998 to a German investment fund for 110 million dollars). Agassi, who gained personally 40 million dollars from the deal, stayed with SAP for six years until 2007.

(2) Todd Woody of Forbes wonders about the choice of Thornley. Woody suggests that if the chair of Israel Corp. Idan Ofer is looking to see a return on their investment in 2-3 years and needs an operative executive who will lead Better Place through the challenges ahead, then Agassi actually has more experience in a senior managerial function than the new CEO. Thornley, formerly a consultant with McKinsey & Co., co-founded a Web directory in the late ’90s in San Fransisco against Yahoo! (Google was still in its infancy) but returned to Australia after the dot-com crash where he became a representative for the Labour Party in Victoria state Parliament until joining Better Place in 2009.

Sources:

“Taking His Keys Away: Shai Agassi, Founder and CEO of Better Place, Is Ousted”, TheMarker (Online — Hebrew), 2 Oct. 2012, http://www.themarker.com/dynamo/1.1834356

“Following His Ousting: Shai Agassi Resigns from the Board of Directors of Better Place”, TheMarker  (Online — Hebrew), 9 Oct. 2012, http://www.themarker.com/dynamo/1.1838903

“Better Place Ousts Founder Shai Agassi, John Reed, Financial Times (Online FT.com), 2 Oct. 2012, http://www.ft.com/intl/cms/s/0/723aa86a-0caf-11e2-b175-00144feabdc0.html#axzz28z0s8Y1O

“What’s Behind Better Place’s Ouster of Shai Agassi?” Todd Woody, Forbes (Online), 2 Oct. 2012, http://www.forbes.com/sites/toddwoody/2012/10/02/whats-behind-better-places-ouster-of-shai-agassi/

“Short Circuit”, Ilan Gatenio, Israel Hayom, 5 Oct. 2012, (“Hashavua” weekend supplement p. 7 — Hebrew)

“Charged”, Sara Leibovich-Dar, Ma’ariv, 5 Oct. 2012, ( “Musaf Shabat” weekend supplement pp. 10-13 — Hebrew)

“Driven: Shai Agassi Audacious Plan to Put Electric Cars on the Road”, Daniel Roth, Wired Magazine Online, 18 Aug. 2008, http://www.wired.com/cars/futuretransport/magazine/16-09/ff_agassi?currentPage=all

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