Renault's Public 'No Confidence' Vote is a Blow to Better Place

On January 21, 2008, Carlos Ghosn, President and CEO of Renault-Nissan, Shai Agassi, founder and CEO of Better Place and Shimon Peres, the President of Israel sat together during a ceremonial event for Better Place, where the company announced plans to build its first pilot electric battery rechargeable grid system in Israel and its partnership with Renault-Nissan that will supply the project’s electric vehicles.

Following the event, Agassi wrote in his blog, “January 21st changes the balance in this industry – if we are right about the business model of PBP, and given the cars will be insanely great (as Renault promised us), there is a possibility of market tipping first in the test markets but very rapidly in the entire car industry worldwide.”

More than five years later, it seems like Agassi, who was forced out of Better Place last October got it wrong. Not only that the company has managed to sell only about 2,000 cars in Denmark and Israel so far, but also Ghosn, one of Better Place’s most enthusiastic supporters, doesn’t seem to believe anymore that the company’s model is viable.

According to EV World, Ghosn told the Danish publication Energi Watch that Renault is shelving its electric car battery switching initiative in response to the lack of interest shown in Israel for the concept. He said that in the future, Renault will build only electric vehicles with fixed batteries, and “while it will continue to offer the Fluence ZE with both fixed and swappable battery capability… no new models will offer this feature.”

Given that Renault is the only car maker that manufacture cars for Better Place, this is a serious blow for the company. Adding to that the company’s current shaky financial situation and its urgent need to raise funds to continue its operations, it begs the question – is this the end of Better Place?

Unfortunately, unless some sort of a miracle happens, the answer is yes. Here’s why: As Shai Agassi described so well on his blog in 2008, Better Place depends or four ingredients: countries, car makers, funding and the company itself as an integrator of the other three. Better Place can succeed only if all four ingredients work well, and right now it seems like all four are falling apart.

Let’s start with the countries. Israel was supposed to be the main testbed for Better Place, enabling the company to expand later on to other countries where the conditions are suitable for the company’s model, like Australia, Denmark and Hawaii. Yet, in Israel, things didn’t work out exactly as the company expected them to work. Though the company worked closely with government officials, it received from the government what Agassi described as “negligible financial incentives” and had a hard time handling the Israeli bureaucracy which caused delays in the commercial launch of Better Place in Israel.

In the last couple months, Better Place got very close to reaching a market share of about one percent of new car sales in Israel. Agassi wrote recently on Huffington Post that “to put that in perspective - while it is an unfair comparison, Toyota took 15 years to reach 1% of global new car sales with the Prius.” Still, another perspective would be that in the case of Better Place, we’re only talking about 100-120 cars a month. This is also very far from what the company had in mind when it signed an agreement with Renault, committing to buy 115,000 cars between 2011-2016.

This brings us to the second ingredient, which right now gives Better Place a serious headache – car makers. Not only that no car maker besides Renault has agreed to provide Better Place with swappable battery cars over the years, but now it is basically losing the support of the only car maker that it has been working with.

The main problem from Better Place’s point of view is that Ghosn has publicly doubted the viability of its business model: "When you look at the overall trends, we must conclude that replaceable batteries are no longer the main track for electric vehicles. The main track is flat batteries in cars with charging. We believe that people want flexibility in the technology, and we can see that the demand is for rechargeable standard batteries." Do you see any car maker that will read it and sign a deal with Better Place?

The most troubling ingredient is money. Better Place still loses money and burns a lot of cash, and according to the Israeli newspaper, Globes, it now has enough cash to operate only until August 2013. According to estimates, the company needs around $120 million a year for the next four years to survive. Will it get it? It depends mainly on the extent to which Idan Ofer, the Chairman of Israel Corp, the main shareholder who already lost almost $300 million on the investment in Better Place will be willing to continue funding the company. My guess is that Ghosn’s announcement will push Ofer much closer to saying enough is enough.

Finally, the fourth ingredient, Better Place, isn’t doing very well, and not just because of its inability to successfully integrate the other three ingredients, but also because of a fifth ingredient Agassi somehow didn’t mention – customers.

“The model requires a leap of faith on the part of the customer, and many were unwilling to take that leap because of the slowness of Better Place’s development,” John Gartner, an electric car expert with Pike Research told The Guardian. With the latest news from Renault, I doubt many will be have faith in Better Place now, when this leap looks more like a free fall.

[Image credit: sielju, Flickr Creative Commons]

Raz Godelnik is the co-founder of Eco-Libris and an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and the Parsons The New School for Design, teaching courses in green business, sustainable design and new product development. You can follow Raz on Twitter.