Better Place was founded by Shai Agassi, and launched publicly in 2007. Better Place aimed to drive adoption of electric vehicles through a differentiated approach to addressing a critical barrier to adoption of EVs: short battery life. While the conventional wisdom in the industry was to create value through investment in R&D to improve battery life, Agassi proposed the creation of infrastructure that would decrease the distance that users would need to go to get charge. Better Place sought to create coverage through a network of charging stations at which EV drivers could swap their battery with a new, charged battery, allowing EV drivers to top up their power supply at shorter intervals. Agassi was able to raise $200 million in venture funding with which to launch the business in Tel Aviv. 4 years and 11 months after the opening of the first charging station, Better Place’s investors had lost the billion-dollar bet, and the company filed for bankruptcy. I think it is clear that Better Place is a Loser.
The Business Model
In it’s simplest terms, Better Place’s business model was to” make batteries as convenient as gasoline”. More specifically, the model was to create a gas-station equivalent for EVs, with sufficient coverage to allow drivers to obtain charge before their batteries go flat. It remains an excellent business model, as seen by Tesla’s success in it’s early-stage pursuit of the same model. The execution, however, was less than ideal.
One aspect specific to Better Place’s model (that has not been adopted by its successors) was to make EVs the economical option as compared to internal combustion engines.
The Operating Model
Better Place tried to implement the business model through a subscription-based battery-swapping service. Each user would enter in to a subscription that would come with a minimum driving distance, and then pay for additional distance if the amount included in the subscription was exceeded. The subscription fee would cover the cost of “leasing” the battery to drivers (including maintenance and replacement of batteries). Drivers would be able to arrive at the battery station, remove the flat battery and swap it for a charged battery.
To facilitate the battery swapping, and as part of bringing the cost of EV adoption down, Better Place formed a partnership with Renault, and created the Renault Laguna, which was powered by a swappable battery instead of an internal combustion engine. The business model is interesting because it addresses both of the main pain points associated with the adoption of an EV without having to engage in a competitive technology race with other battery developers.
The business model and the operating model were not well aligned. The Renault Laguna was not any cheaper than a comparable fossil-fuel powered car, and the cost of power per unit of distance was only marginally lower than that of petrol. The failure to provide significant cost savings to the consumer was in direct conflict with the intended business model.
The second, and more significant problem, was that the battery swapping was not a direct alternative to filling petrol. Only the Renault Laguna was powered by swappable battery, so the charging station offered no value to drivers of any other EV.
How significant was the misalignment?
The misalignment between the business and operating models, while significant, is not the only factor that lead to the company’s bankruptcy. Implementation was extremely capital intensive and no significant revenue streams could be secured before sufficient infrastructure had already been developed to fulfil the value proposition. The execution of going to market was faulty on several fronts, including failure to fully develop and validate the system in the launch city of Tel Aviv, an aggressive international expansion without having proven the model, and failure to find an effective way of communicating the value proposition to a substantial base of potential subscribers. These are all issues that could have been remedied, however, had financing not been a constraint.
However, even if these errors had not been made, there are two fundamental factors in Better Place’s ultimate demise:
- The operating model relied on battery swapping, and therefore could not fulfil the business model – petrol can be filled in to any car, whereas battery swapping was only viable for the Renault Laguna, and therefore Better Place did not offer a true equivalent to gas stations.
- Advances in rapid charging technology became a much more widely-applicable and cost effective alternative.
Better Place’s choice to focus on battery swapping without driving use of swappable batteries in all EVs was a critical misalignment that ensured that they could not effectively deliver on their business model