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Question

Put yourself in the role of a senior executive at Tesla (not CEO!); you are trying to learn from the failures
of Better Place in order to help Tesla in the future.

Each essay should contain:

1. Using at least 3 concepts from class, develop a set of answers to the question: what can Tesla learn
from Better Places failures? This can include any concepts from class. For some examples, think about
the following: The framework process: what gaps between the framework and Agassis apparent
course of action are there? (Alfie gives you a head start here in the lectures, but think on your own as
well) The behavior of individuals (e.g., how were key situations handled? How could they have been
handled better? How can we plan for better handling these decisions?) Ethical issues presented
Ethical frames used, principles espoused, principles used for decisions Scope of stakeholders
considered in decisions: did Better Place give more weight to some over others? Are important
stakeholders included in decisions? Are any groups ignored? Alternatives considered? Long term vs
short term plans? CSR, CSP what stakeholder groups are there, and how should we think about them
generally (not for any specific decisions, but as policy)? Feel free to use any concepts not mentioned
above. Again, the list above are examples, I am not telling you to answer every bullet point above.
Please clearly indicate what concepts from class you are using. I recommend using headings or
subheadings that explicitly state what concept you are using for each part of your paper.

2. A personal statement on what you believe to be interesting or useful from the course. This can be in a
separate section from the case, but it should be in the same document

Format
Submission / Grading / Feedback Your 2,500 word (approximately 7-10 pages) written essay (in .doc,
.docx, or .pdf format) should be uploaded to Moodle by 11:55pm on Sunday, October 22. This
assignment will count 20% of the final grade for the course.

Tesla Part I video


Early 1990s electric car concept got popular considering that things could become ecofriendly, however
much did not happen in this space because there was less interest to start and because a lot of Private
Equity money was in IT

Early 2000s IT collapsed and so PE firms were also looking where they can invest

In 2003 Tesla was formed

Benefits:

a) Existing power outlets can be used during down time so no new infrastructure
b) Potentially Non coal energy sources is used to charge the car, so better renewable, wind,
natural energy
c) No need of gas stations and visiting them, so time saving
d) Less noise and heat pollution
e) Better acceleration than most other cars
Tesla Part II Video
Old financials; look at Google Finance for the latest

Tesla has overtaken GM on Market cap now. It is yet to overtake Toyota Motors (TM).

Are GM and TM paying for the sins of their past? GM and TM has come up with hybrid cars

Tesla still does not have a guaranteed success and people are investing in Tesla because they think it
could be successful

Elon Musk Ted Talk


University time was thinking and felt that sustainable transportation and energy is a problem

CO2 is not sustainable, we need sustainability

Power station carbon efficiency 60%, but in a car engine only 20%. Hence choosing the right modem of
power generation is important, and electric cars is one good modem

How do you advent the use of electric cars? Very light car despite having a big and heavy battery

How to achieve mass market? 3 steps 1) high price low volume 2) medium price medium volume, 3)
low cost high volume. This kind of strategy is necessary for such new ventures to be successful

Boston to DC, CA to Nevada routes are covered with charging stations

Strong belief that solar will beat everything hands down including natural gas. Solar panels can be
bought or leased through tesla. These will work for decades without a problem

Solar panel energy cost is lower than utility costs. First time there is a competition against the monopoly
of utility companies, so this is taking some time to become prevalent

Goal of spaceX is to advance rocket technology to make human race space accessable and to have
reusuable space rockets
Achieved 75% decrease in rocket cost. Rocket returns to launch site (earlier would take 8 to 9 months to
refurbish to reuse; tesla can reuse in hours) and propeller goes into space

Better Place
Not manufacturing cars, was getting them manufactured through Renault Nissan Renault Fluence

They owned battery and were in the charging station business.

Consumers could rent battery and need not buy and charge them

If traveling less than 120 miles, no battery swap needed

Robots swap battery in your car in time less than what it takes to fuel a car (2 minutes to recharge)

If a customer needs to swap a batter 50+ times, better place will pay the customer
Agassi Ted
Cost of battery per mile can reach 2 cents a mile by 2020

Launched in Israel, Denmark, Australia, Hawaii, bay area

1MM hybrid cars by 2015 was the goal

Cars and trucks are responsible for 25% of CO2 emissions


The lesson from Better
Places bankruptcy: Be
more like Tesla
Electric car infrastructure company Better Places move to file
bankruptcy today marks the end of the road for a billion-dollar bet that
Silicon Valley-style technological disruption could wean the world
from fossil fuels.
Founded in 2007 in Palo Alto, California, by a charismatic former SAP
executive named Shai Agassi, Better Place sought in one stroke to
solve a conundrum: most electric cars were too expensive and too
limited in their range to become a mass market alternative to the
internal combustion engine. Agassis solution was to separate the most
expensive component of an electric vehicle, the battery, from the car.
Drivers would buy or lease an electric car for a price comparable to a
gasoline-powered model and Better Place would own the batteries.
Paying a monthly fee based on how much they drove, drivers would
gain access to Better Places network of robotic switch stations to let
them swap out depleted batteries for fresh ones in a matter of minutes.
That vision attracted $850 million in funding from such blue-chip
investors as General Electric, Morgan Stanley and HSBC and Israel
Corp., and Better Place announced plans to build battery-swapping
networks in Australia, California, Canada, Denmark, Hawaii and
Israel.
That Better Place has crashed and burned less than a year after
launching its first network in Israel underscores a costly lesson for
investors: hardware is hard. And expensive. Disrupting century-old
industries and changing long-ingrained consumer behavior is even
harder.
So why has Better Place become the Webvan of green tech while another
Silicon Valley-born electric car company, Tesla Motors, is thriving?
Its all about the network and the disruptive effects of distributed
technology. Better Places business model depended on spending
hundreds of millions of dollar building out its network before it could
begin to sign up first paying customers. That turned out to be an
extremely capital-intensive proposition. Each battery switch station
cost about $500,000 and Better Place needed to deploy dozens, even
in a small country like Israel.
And once stations were built, the customers didnt come. Better Place
only signed up about 750 drivers in Israel. One factor: you could drive
any electric car you wanted as along as it was a Renault Fluence ZE,
the only model made with swappable batteries compatible with Better
Places network. After six years, Better Place executives could not
persuade any other automaker to design an electric car with
swappable batteries. Then last September, Better Places board of
directors ousted Agassi and his successor only lasted a few months. Making
matters worse, even Renault chief Carlos Ghosn said recently that
battery-swapping was a technological dead end.
Tesla, on the other hand, is following consumer demand in scaling the
manufacture of its Model S electric sports sedan and the build out of
its network of Supercharger charging stations, which add 150 miles of
range in 30 minutes to the already-long range car. While Tesla
designed the Model S to be capable of battery swapping, the company
believes the future lies in fixed-battery electric vehicles capable of
going 200 miles to 300 miles (322 kilometers to 483 kilometers) on a
charge and that will use a network of fast charging stations deployed
on highways to make long-distance trips. Taking advantages of
economies of scale, Tesla uses the same components it already makes
for the Model S to manufacture Superchargers for just $15,000 each.
The total cost of a Supercharger station with multiple chargers and
solar panels to supply the electricity is about $250,000.
The cost of a coast-to-coast Supercharger network in the US? Just $25
million and charging is free for Tesla customers. And the company
only builds a Supercharger station where its customers want to go.
Were installing Superchargers once we know we have reservations
for cars in an area, JB Straubel, Teslas cofounder and chief technical
officer, told me an interview last year. So we literally can look at the
map of where we have cars and then we can actually query those
owners and ask what are the destinations you like to go in your region.
Its quite deterministic and very targeted.
In a statement issued today, Dan Cohen, Better Places current chief
executive, reaffirmed his belief in the companys business model.
Unfortunately, after a years commercial operation, it was clear to us
that despite many satisfied customers, the wider public take up would
not be sufficient and that the support from the car producers was not
forthcoming, he said.

Why Better Place's Swap Scheme Failed And Tesla's Is


Likely To Succeed For Now
Jun.28.13 | About: Tesla Motors (TSLA)

Juan Carlos Zuleta


Research analyst, portfolio strategy, energy, natural resources

MARKETPLACE
Lithium Investing & Beyond

(984 followers)

In a recent blog, I contended that: (i) Better Place (BP) had an essential flaw
in its approach because it underestimated Li-ion battery technological
development; and (ii) better batteries would make costly battery-swap
stations such as the ones envisioned by BP both meaningless and out of
focus.

Subsequently, in a series of replies to comments on my piece both on


EVWorld.com and LinkedIn.com, I argued that: (iii) Elon Musk never bought
the swap idea betting on supercharging instead; and (iv) vertical integration
gave Tesla (NASDAQ:TSLA) a major advantage over its competitors,
permitting it to learn by doing.

By the time I was writing my blog, I had no knowledge of Musk's swap idea.
This gave rise to some misleading comments on my part. After Tesla's
demonstration of its battery exchange scheme last week, I need to make the
following clarifications and complementary remarks:

First, BP's approach was flawed not only because it underestimated Li-ion
battery technological development but also because it originated as a
commercial idea, not a production one. It has been known that Shai Agassi's
swap system was based on a previous concept developed by Musk a few
years ago. What appears to be astonishing is that both the Roadster and
Model S may already have the swap capability incorporated.

This means that in its original production design Tesla included two key
factors, both of which aimed at extending the range of its vehicles: One, a
supercharging mechanism that implied development of better batteries with
this kind of capability and two, a swap system that was indeed a sort of ace
under Musk's sleeve.

By contrast, Agassi's approach rested essentially on the notion that EV


owners shouldn't own the battery whose rental would constitute BP's main
source of income and profit. The question then was whether owning an EV
without a battery made any sense. And, as it turned out, it didn't, since it at
most meant an eternal dependence on BP, something not too many car
owners were willing to take. In this connection, it seemed much more
reasonable to devise a complete leasing scheme (of EVs, including their
corresponding batteries), which is in fact now being offered by a number of
auto makers at the marketplace.

What Tesla can learn from Israels


Better Place post-mortem
Posted on May 4, 2014 by Brian Nitz in Transportation with 8 Comments
What if we could apply the charisma, imagination and marketing genius of Steve Jobs to
help promote green technology? Israeli entrepreneur Shai Agassi had many of the
characteristics of Apples much-worshiped CEO but instead of personal entertainment
devices, Shai focused his energies on electric cars.

He had enough chutzpah to convince investors to bet nearly $1 billion on his grandiose plan to free
Israel from the shackles of oil dependency.

Agassis inspirational Ted talk entitled A New Ecosystem for Electric Cars won him respect and a
standing ovation. He appeared on the cover of Wired magazine and Fast Company celebrated him on
its 2009 Most Creative People in Business list.

So what went wrong? How did Shais dream of a Better Place turn into a nightmare
of chaos and bankruptcy? To learn what went wrong we first need to understand a little bit about
Better Place and the history of technology.
The technology wasnt the problem

Just as Thomas Edison tried nearly everything under the sun before he settled on a carbon filament
for his incandescent bulb, Agassis team studied everything from railed slot-cars to air powered cars
as they searched for a path out of Israels oil dependency. They settled on electric cars based on
Lithium Iron Phosphate batteries. These batteries have an energy density of 220 Wh/L, twice that of
the best lead-acid batteries but more importantly, his Renault Fluence Z.E. cars relied on an
innovative charging mechanism where a robot would swap out the entire battery for a fresh one in
less time than it takes to go through a drive-through car wash. Just as Edison developed electricity
generation and distribution infrastructure to power his electric lights, Shai made sure that these
robotic charging stations were part of his electric car plan. Israel was the perfect place to begin. 1000
charging stations would be sufficient to make sure that the entire country was within range. He made
arrangements with Renault to produce 100,000 electric cars.

Underestimating your competition


And this, according to a former Better Place employee interviewed by Fast Company, is where things
began to go wrong. Approximately 200,000 new cars are sold in Israel each year. Even Steve Jobs
reality distortion field would have to stretch to assume that half of Israels new car buyers would
abandon their Hondas, Hyundais, Toyotas and Fords and flock to his single model electric Renault
during its first year of production. As one GM executive explained, It took the Toyota Prius 15
years to get to 1.5% market share in the U.S., and the Prius is a hit.

Overselling yourself

As a salesman, Shai Agassi would have given even the venerable Steve Jobs a run for his money. In
fact after making comparisons to the growth of the cell phone industry and hyping the possibility that
Better Place could be the worlds first trillion dollar company, Shai soon had the ear and money from
Israel Corp, Morgan Stanley, Maniv Energy Capital and other venture capitalists. With his reality
distortion field on overdrive, Agassi suggested that Better Place cars might sell for half the price of
their gasoline competition, a number seemingly pulled out of the air before agreements had been
finalized with Renault.

More money than sense


Speaking to Fast Company, former Better Place policy VP Ziva Patir said, If Shai had raised $50
million instead of $200 million, it would have forced us to focus. Projects overran their budgets, too
many cars were ordered, charging stations cost twice as much as estimated, employees were highly
paid in cash rather than in performance-based bonuses and no one had thought to hire managers with
expertise in the automotive industry where efficient cut-throat competition is the norm.

An alternative point of blame, government as innovations anchor

Michael Granoff, the founder Maniv Energy Capital, one of Better Places first investors blames the
government of Israel for a tax structure which favors hybrids and punishes electric car manufacturers.
Because of this, he told Haaretz he fears that Israel will be the last country in the world to develop a
viable electric car industry.
Repeating history
Those who believe in the relentless forward march of technology believe in a myth. A glance at
history shows that the path to progress is full of backpedals and pitfalls. For example, the lead-acid
storage battery enabled the first practical electric car to be developed in the year 1859. This
technology improved until 1911 when the first hybrid was produced and became a commercial
failure. We can imagine an alternative history where these early electric car companies invested their
profits into the steady improvement of motors, batteries and photovoltaic charging technology. But
Ford and other companies had begun the century of the internal combustion engine. Nearly all early
electric car companies had failed by 1920. Electric car prototypes and limited production models
made appearances in fuel-starved Europe during WWII and again in the 50s, 60s, 70s and 90s but
their commercial success was limited by long charging times and the fact that state-of-the art lead
acid batteries had only 1/100th the energy storage density of gasoline.
Better Place isnt the first innovative companies to fail and it certainly wont be the last. The
computer industry is littered with examples such as Altair, Atari, Commodore, Cray, Digital
Equipment Corporation, NeXT, Tandem most of which created technological innovations which
were lost for decades or forever after their demise. But for a bit of luck and the gleam in Steve Jobs
eye, Apple could have easily ended up on that list. The auto industry is no different. Tucker, Edsel,
AMC, DeLorean and others have come and gone.

There is a story from my home town about a man named Dr. John Wesley Carhart. He was a
Methodist Episcopal pastor and he invented the worlds first automobile in 1871. He entered it in the
worlds first long distance car race and drove it around Racine Wisconsin until the noise of its two
cylinder steam engine frightened a valuable horse to death. Townspeople convinced him to
disassemble it. Like the electric car, its time had not yet come.

Shai Agassi Weighs In On The Lessons


Of Tesla & Electric Cars
Shai Agassi, founder of the now-defunct Better Place electric-car service in Israel, hasn't been in the public
eye much of late.

But on the business network LinkedIn this morning, he emerged to weigh in on the lessons of Tesla
Motors [NSDQ:TSLA] and what the auto industry at large could learn from the electric-car startup.

His post on the topic appears to have been prompted by the news last month that General Motors set up
a task force to study Tesla, prompting him to muse on what that company and the rest of the industry
could learn.

Agassi suggests in his post--the first of two on the topic, he notes--that "GM shouldnt be the only
company worried about Teslas future plans."

And he offers four lessons he feels the industry ignores at its peril.

The first is that an electric car can be an "object of desire," not just a fungible, utilitarian device for
moving people and goods from Point A to Point B.

The sleek, Jaguar-like Tesla Model S electric luxury sport sedan has proven that point handily. It's the
must-have car in Silicon Valley this year, and it's generating buzz and inquiries among wealthy buyers who
have little interest in green causes.

Second: An electric car is more like a modern appliance, "more like a cellphone than a refrigerator."

It will be constantly upgraded and improved--something automakers historically haven't done outside
safety recalls.

Agassi's third point, he says, is that "an electric car is Moore's Law on wheels," or what he calls
"exponential technology."

We might challenge his phrasing, as improvements to lithium-ion cell performance do not follow Moore's
law (doubling every 18 months). Instead, they average out to about 7 percent a year--as he notes, giving a
figure of about 8 percent.
Finally, Agassi suggests that an electric car drives differently, and should sell differently too. The first
point is often overlooked in media coverage of monthly or annual sales figures, and is likely the long-term
secret weapon of plug-in electric cars.

But the second part of that statement, we suspect, is something that the National Automobile Dealers
Association (NADA) would disagree with--very, very strongly.

That group is embarked on a multi-year lobbying and legislative strategy, along with state dealer
associations, to ensure that all vehicles of any sort are sold only through independently owned franchised
auto dealers--and Tesla's company-owned store model is made illegal in as many places as possible.

Agassi does not address that issue at all.

Still, his piece is worth reading, as it will educate his many followers on aspects of the electric-car business
that may be more familiar to Green Car Reports readers than to the broader business world at large.

As his publicist points out, Agassi is--among his other credentials--one of LinkedIns Influencers.

That group is limited to 300 of the world's top luminaries, who "share unique business insights and start
thought-provoking conversations" on the business networking site.

Better Place, meanwhile, filed for bankruptcy in May, although 15 of its battery-swap stations will remain
open to service 1,000 or so former customers.

The company's assets were purchased by businessman Josef Abramowitz and his company Sunrise SL.

Five Lessons From Better Place's


Collapse
The green tech darling Better Place has flamed out, burning through $850 million
with fewer than 1,500 electric vehicles sold. The company's impending liquidation
says little about the potential of EVs; indeed, it occurred within days of Tesla
repaying its federal loans nine years early. But the story holds a trove of lessons
about how (not) to launch innovative products.

A quick primer: Better Place sought to make EVs accessible through selling a single
Renault model, leasing a battery and the electricity it uses. For about $350 a month,
buyers would be able to access batteries and charge points. Even more enticing,
they could access a network of "swap stations" at which depleted batteries could be
changed out for fresh ones in just a few minutes. A nifty idea.

Alas, the grand vision failed to account for several rules of marketplace adoption:
1. De-risk the buying decision: In just about any new market, the rate of early
adoption is related directly to the amount of risk that buyers are taking. Surgical
robots -- pretty slow adoption. New soda flavors -- fast. Better Place forced people
to buy an EV with uncertain resale value, or to lease one from a company if leasing
firms were willing to take the risk of buying the asset (unfortunately, they
weren't). The company also locked people into purchasing expensive charging
stations if they wanted one at more than a single location, or to use a network of a
few dozen swap stations. If swap station locations were inconvenient...tough
luck. Contrast this approach with how Nissan leases its Leaf EV, or how Tesla's long
range doesn't require dependence on charging locations. Rarely is an innovation so
compelling that customers will give up all flexibility to be one of the few lucky early
adopters. It is better to lead with something innocuous and slowly embrace the
customer, as Apple first did with iTunes, then the iPhone, then the iPad. Once the
customer realizes how intertwined he has become with the company,
disentanglement is difficult.

2. Avoid fragmented decision-makers: Better Place should have remembered the


lesson of indoor plumbing, which took 4,500 years from its invention to broad
adoption due in-part to fragmented decision-making. Great ideas can take a long
time to get traction if decision-makers abound. To succeed, Better Place needed to
convince automakers, leasing companies, and customers of its value. Just why
would an automaker engineer its EV so that its batteries could be interchangeable
with Better Place's? Not to take advantage of the company's whopping 1,500
customers, nor to lock itself to a business partner with uncertain prospects. Why
would a leasing company invest a lot of capital into an asset with unclear value? Not
for any good reason they could discern.

3. Prevent chicken-and-egg situations: What made Better Place unique and


compelling was its swap station network. Unfortunately, each station required
about $500,000 to build. It made little sense to build a vast network for few drivers,
yet customers were averse to signing on without a substantial network. These
situations can require a lot of time and money to work through. Perhaps the
chicken-and-egg conundrum wasn't even necessary: in France, when Renault
launched the same EV it was making for Better Place, the company sold 800 units in
the first month alone, with no swap stations to offer.

4. Target a foothold: New markets get traction in well-defined footholds, which


are customer groups that will adopt an innovation quickly and prove its value to
others. These groups may be small, but they are influential. Better Place had
difficulty defining what foothold it was pursuing. Initially it aimed to penetrate the
US, Australia, Israel, and Denmark. Eventually it pruned its ambitions to Israel and
Denmark, but a whole nation is not a foothold. What was the compelling reason
that a targeted foothold would rush to adopt this innovation and showcase its
success to others? The company couldn't really say. Contrast this approach to
France's Autolib' scheme, which has created a network of locations throughout Paris
at which trendsetters can rent a proprietary EV (the "Bluecar") by the hour, trying it
out and driving a distinctively decorated car about town. Because the focus is so
local, the charging station network is ample. The approach has led to demand
generation, with the Bluecar becoming the top-selling EV in France in 2012.

5. Give people an easy choice: Revolutionary ideas take hold if they are
simple. Better Place did not qualify. The company sold a business model more than
a car; moreover, the car it offered was unenthusiastically reviewed by the
automotive press, and it looked boring to boot. So customers were being asked to
buy a mediocre car with uncertain resale value, a nascent network of swap stations,
and an unfamiliar contract for battery power. No thanks.

The rules that Better Place tried to break have been proven time and again, in
industry after industry. By all means, flout industry convention. But ignore the rules
of marketplace adoption at great peril.

Why Did Better Place Fail?: Range anxiety, interpretive


flexibility, and electric vehicle promotion in Denmark
and Israel
Better Place was a well-conceived business model to encourage electric
vehicles.

Despite substantial funds, Better Place declared bankruptcy, selling 1300


cars.

We identify several reasons Better Place failed in Denmark, Israel, and in


general.

We postulate that range anxiety is not a functional barrier to electric vehicles.

Electric vehicles will require consumers changing and sustained government


support.
With almost $1 billion in funding, Better Place was poised to become one of
the most innovative companies in the electric mobility market. The system
Better Place proposed had two novel prongs; first, to reduce the cost of
batteries, and second, to reduce range anxiety, public infrastructure concerns,
and long charging times. Yet, despite this seemingly strong combination,
Better Place failed to make any progress in Denmark and Israel, the first two
markets it operated in, and subsequently declared bankruptcy, selling off its
collective assets for less than $500,000. Drawing from science and
technology studies and the notion of interpretive flexibility, this paper posits
several reasons to explain the failure of Better Place, including that Denmark
is not as green as it seems nor is the Israeli market as attractive as believed,
and that Better Place's solution to charging time and range anxiety resolved a
psychological, not a functional, barrier of the general public to adopt electric
vehicles. Before investigating these two reasons, the paper presents a short
history of Better Place and explores the contours of its operations in Denmark
and Israel. It then discusses why Better Place failed across both countries
before concluding with implications for energy planning, policy, and analysis.

Why Better Place failed


with swappable batteries
and your cars might just
use them one day
Elegies for high-profile tech startups typically depict their failure as
oh-so-predictable. So it is with Better Place, an electric-car venture on
which some of Wall Streets most seasoned hands lost a spectacular
$812 million. But it is worth pausing over this Israeli company, which
offered a devilishly practical remedy for the troubled electric industry,
only to be hobbled by incomplete execution, tenacious incumbents
and newer technology.
Better Place had a visionary idea, but not the chops to pull it off. Here
is what happenedand why the concept still stands a good chance of
being carried through, only by someone else.
It started with the right founder
Five years ago, Shai Agassi turned up amid a small pantheon of
celebrity technologists who seemed to be leading the way to a new
electric age. Along with Teslas Elon Musk and A123s Yet-Ming Chiang,
Agassi seemed to have the panache that, in addition to timing, luck
and a first-rate product, often moves a new technology from mere
coolness to wild popularity.
Until then, Agassis claim to fame was that, in 2001, he had sold his
Silicon Valley company, which made useful but unexciting
information-management software for companies, for $397 million.
Now, he proposed a solution to range anxiety, the outsized malady
afflicting potential electric-car buyers. Faced with the prospect of
running out of juice at an inconvenient moment, motorists had
spurned dozens of electrified models launched in recent years by
Detroit, Europe, Japan and China.
Agassi rejected the main proposed remedy to the conditionthat
scientists get back to the bench and create a battery that lasts a lot
longer and costs a lot less. Instead, he said, one merely needed to
make batteries as convenient as gasoline.
Which brought Agassi to the swapping stationa network of
automated pitstops that, in a mere three minutes, or about the same
time required to fill up a car with gasoline, would replace an exhausted
battery with a charged one. In one fell swoop, a large new generation
of drivers would be corralled into quiet, clean electric cars, now
equipped with the allure of effectively limitless distance. The idea
seemed especially well-suited for compact countries such as Israel and
Denmark, along with dense cities in the US and Australia.
That he would succeed seemed self-evident. For one thing, Agassis
idea seemed to align with technological history, in which
entrepreneurs first engage in brutal competition over whose version of
a breakthrough is superior, before one of them becomes the standard.
Think of how the upstart Ford Model T put away electric cars for good;
silicon chips triumphed over germanium; and the app-packed
smartphone rendered the BlackBerry ho-hum. In Agassis version,
carmakers would agree to produce electric vehicles equipped with
standard battery ports that accepted a standard battery pack. Agassis
company would sell such cars cheaplyor even give them awayand
earn its money off of the electricity, much as cellphone providers
discount or give away the hardware and sell minutes.
The idea caught fire with serious investors such as HSBC, Lazard,
General Electric, Morgan Stanley and Israeli billionaire Idan Ofer, who
gave Agassi $850 million in funding. Renaults Carlos Ghosn climbed
aboard by outfitting a $38,000 Fluence to carry Agassis swappable
battery, and promising to build 100,000 of them. Wrapping up the
whole story, the best-selling book Startup Nation wove Agassis venture
into that of plucky Israel itself.

But then things went wrong

The post-mortems we read (like this one) make Agassi sound like a
chimerical operator with a thin hold on reality. But read this 2008
profile in Wired, and you see a different pictureof a systematic and
holistic pursuit of a prodigious commercial challenge, starting with
indefatigable political lobbying, a campaign to persuade car company
executives to produce swappable models, and the recruitment of top
technical hands to create software from scratch.
Still, it wasnt enough. John Voelcker, editor of Green Car Reports,
told me that Agassi missed important lobbying steps in Israel, his test
market. Israel is an unusual place to sell cars, in that half of all new car
sales are to fleet owners such as businesses, which provide the vehicles
as a perk to their employees. If successful, Agassis strategy would
have seriously dented the income stream of competing carmakers,
and, more importantly, car leasing companies that would lose business
to Better Place.
Since employees themselves dont pay for gasoline, Agassi needed to
entice the leasing companies to his side. Instead, they by and large
refused to buy his carsin all, only about 500 of the electric Renaults
were sold in the country. There was not just the irritation over Agassis
perceived attempt to make the leasing companies obsolete, but, even if
they did buy his cars, a skepticism about the economics: Would the
Fluence hold its value? Would the electric bargain truly pay off in
customers?
Incumbent carmakers, too, proved obstinate. For the purposes of scale
and variety of choice, Agassi needed a number of them to offer up
swappable models, and a Deutsche Bank analyst told clients in a
notethat he expected carmakers to pile in. Daimlers CEO at the time,
Dieter Zetsche, confirmed publicly that he was talking to Better Place.
But, for reasons similar to the leasing companies, they didnt pile in:
What was their economic upside in handing over the electric drive
train to Agassi? Renaults Ghosn remained Better Places sole industry
partner, and he offered only a single modelthe Fluence.
There were other mis-steps. Agassi figured that Israelis would flock to
a cleaner future, as he himself had. But a lot of Israeli drivers simply
dont embrace environmentalism, one local writer said. They care most
about reaching their destination fast, and display an indifference to
emissions and pollution. Israeli president Shimon Peres hailed Better
Place, and the Knesset approved tax incentives favoring the system.
But Agassi failed to win enough support from lower-ranking
bureaucrats, some of whom held up permits to build swapping
infrastructure.
Agassi had also promised to undercut the price of gasoline-propelled
cars. But he didntthe Fluence cost about the same as equivalent gas-
driven rivals, and the electricity rates he charged shaved just 20% off
the cost of fuel. It was a mind-boggling, miserly strategy.
Some analysts have suggested that a fatal blow to Better Places
approach was the emergence of a competing technology: fast-charging
stations, 480-volt systems that can restore 80% of an electric cars
battery in a half-hour. (The standard chargers take several hours.)
These are what Tesla is banking on. It has opened six stations offering
such charge-ups in California, Milford, Connecticut, and Wilmington,
Delaware. On May 30, Tesla said that by the end of June it will offer 16
more along the US west coast, in Colorado, Illinois and Texas, and
within a year or so will install them at regular intervals across the
country. Toby Procter, an analyst with Trend Tracker, told me that
fast-charging stations look capable of rivaling the convenience aspect
of battery-swaps.
But I doubt that Agassi lost many sales on the grounds of fast-
charging. Even half an hours charging time is a considerable
inconvenience. Three minutes to swap batteries is trivial. It wasnt the
concept of fast-charging that killed Better Place, but the tyranny of the
details; there was simply little room for error.
On May 26, Better Place announced that all its money is gone. It was a
full seven months after Agassi himself was forced to resignthe signs
already glaring in October 2012 that the company was in grave peril.
The pioneer rarely wins, except in the movies
Of the original electric celebrity pantheon, Musk is the last man
standing. Chiangs A123 went bankrupt, tooit is now the hands of
Chinas Wanxiang Group. Some suggest that Musk may need to become
more practical if he wants to avoid the dust heap as well. Yet shares in
Tesla have soared a whopping 104% in May, forcing a stampede of
skeptical short-sellers out of the stock at a loss.
Better Place appears to have no chance of resurrection. On its home
turf, critics have been unsentimental. Where did all the money go?
asked the Jerusalem Post. Haaretz simply wrote, in so many words, I told
you so. Though Agassi has not yet commented publicly, some insider
post-mortems have echoed what we already know: former CEO Evan
Thornley, who followed Agassi but then stepped down four months
later, said the company had sound technology and strategy, but
executed poorly.
Yet what stands out is not the flaws of a single companyno business
can claim perfect executionbut that the electric-car industry is still in
the pre-shakeout stage. This is the period in the new-technology
business cycle in which competing players refuse to accept that dozens
of different sizes, shapes and chemical compositions of batteries
cannot survive. The rules state that products tend toward
standardization.
Voelcker, the Green Car Reports editor, told me that carmakers regard
their battery packs as core intellectual property, and hence will refuse
to standardize any time soon. The main thing allowing them to
persist in this stubborn posture is that their principal enabling
technologythe batteries within those packsis not yet sufficiently
advanced. No current battery chemistry is good enough to fully relieve
range anxiety, and none seems likely to break through any time soon.
Until a meaningful battery breakthrough is made, swapping remains a
valid idea. Since Agassi identified the market, others have piled in,
such as Slovakias GreenWay, which is building cheap charging stations
for delivery vans. If GreenWay succeeds, it will demonstrate another
rule of the new-technology business cycle, which is that a concepts
pioneer isnt necessarily the one who enjoys its profitable fruition.

[Famous Failures] The fascinating story of an automobile


entrepreneur who raised $1 billion
Conversations in the Indian startup ecosystem in the past week have been in the scale
of billions of dollars. Millions of dollars is passe these days! In the wake of Flipkart
raising $1 billion and Amazon announcing an investment of $2 billion the very next day,
it seems to be raining money in the private investment space. These are humongous
investments by any standard, and all accounts talk about how a war chest of this size
precludes failure of any kind. But history has taught us differently. We decided to look
back in time and find startups that had giant bets placed on them either in funding, or
in blue chip investors, or in early adoption yet failed. The series, titled Famous
Failures will chronicle why they failed, in an attempt to identify lessons for all
entrepreneurs.

Imagine that you are driving your beautifully quiet and smooth electric car with zero
emissions, on a highway. You notice that the charge in your battery is running low. You
look at your custom navigation software on the dashboard and find the nearest charging
station. You drive in, and robotic arms swap your depleted battery with a fully charged
one, all in a matter of minutes, leaving no need for charging your own batter. You
continue on your journey, without even having to get out of your car. Sounds like
something straight out of sci-fi? No thats exactly what Better Place created.

Better Place raised nearly $1 billion dollars in venture funding, was led by Shai
Agassi, a charismatic ex-SAP executive who already was a part of the World
Economic Forums Young Global Leaders and had the ear of the top world leaders
from Israels Shimon Peres to Bill Clinton yet managed to sell all of 1400 cars in its
lifetime of 6 years before filing for bankruptcy.
Vision vs. Execution

Better Place was founded about 3 years after its more famous cousin, Tesla Motors was
founded by Elon Musk. Shai Agassi, whose startup Top Tier, which managed data and
enabled companies to create internal web portals, was acquired by SAP for $400
million, came up with the thought of how to run an entire country without oil. This
outrageously radical thought led him to research tens of alternatives over 18 months to
finally co-author a white paper titled Transforming Global Transportation. At the time,
the only other electric car company worth its salt was Tesla, whose Roadster, costing a
bomb at $100,000 was seen more as a millionaires experimental vehicle rather than an
affordable mass-market alternative. So the white paper that proposed an affordable
family car with a reasonable reach per charge soon became famous. The charismatic
Agassi was invited to speak at various conferences worldwide where he got to hobnob
with powerful heads of state and other leaders. As the conference circuits applauded his
vision, Agassi took that as confirmation of his vision and founded Better Place, with zero
market research or competitor analysis. For example, Tesla Motors was doing its own
research and Yet-Ming Chiang of MIT founded A123 came up with a nanoscale
electrode powders based battery technology, which the team did not even consider for
potential alternatives.

Better Place founder Shai Agassi

Lesson: A great vision can be concocted by a talented fiction writer too. In fact, ideas
are cheap and history is paved with startups that had great ideas but failed at
execution. Flights of fancy on a Davos World Economic Forum afternoon are vastly
different from real life.
Steve Jobs Reality Distortion Field vs. Shai Logic

Jobs biography talks about what his associates, employees and friends referred to as
reality distortion field where Jobs seemed to almost bend reality to get seemingly
impossible outputs from his employees by forcing his sheer will on them. Agassi, who
seemed to fancy himself the Steve Jobs of the auto industry (he even wore black
turtlenecks) also seemed to bend reality but with a fatal flaw he would come up with
estimations and numbers on the fly without any calculation whatsoever, when speaking
at public events. Sample these:
he started mentioning at press conferences that the first car planned in collaboration with
Renault would be priced at $35,000 even before having any pricing discussion with Renault

at a meeting with GE to explore collaboration opportunities, he threatened them that his cars
would be free and hence they should simply stop worrying about capturing any market share
with their averagely priced cars

the initial estimations for building each charging station was $500,000, while the actual cost
turned out to be $2 million. These stations were influenced by Apple design philosophy. Further,
Renault sold 800 of the same electric vehicles in France in just a month, without battery swap
stations, but with a straightforward charging option at home (contrast this with 1400 cars sold in
Better Places lifetime)
in his famous TED talk in 2009, even before any infrastructure was in place, he claimed
that 100,000 cars would hit the market in the first year of launch in 2011 amidst a rousing
reception
A Battery Swap Station of Better Place

Lesson: Theres no bullshitting with numbers and data. Decisions originating in a deep
confirmation bias that the market will work, will always be flawed. Believing what your
PR story says about your startup as the true state of things is naivety at its worst
(No) Focus, (No) Focus, (No) Focus
Even before a single car was manufactured, Agassi hired teams of managers in Israel,
Denmark, US and Australia. Demos were created and executed in China, Japan and
Hawaii. He created a 10-member team headed by a VP of Policy, whose job was to
influence policy making in any country to enable battery swapping and make it legal. In
2010, he opened a $5 million visitor center in Tel Aviv, with a mile-long track where
visitors could drive a prototype, read about plans on futuristic touch screens and even
fill up a form stating intent to buy a car whose price and launch date were unknown. He
hired expensive PR agencies to have multiple glitzy launches in New York, with
holograms and other technologies, again, years before the car was close to
production. In fact, the complete senior management team did not have a single
person who had built a car in his lifetime.
Lesson: While every waking hour and every venture dollar should have been pumped
into the one thing that mattered the car it was being spent on events, PR stories and
visitor centers with absolutely no ROI to show. In the world of easily accessed press
and paid media, it is very easy to be distracted from your core product
Friction
Any startup, and more so a pioneering one that is attempting to disrupt the market
needs partnerships and collaborations. At the very least, it needs a cordial working
relationship. Agassi, on the other hand, went about antagonizing and turning away
every single potential partner. He rudely sent a text message to a major carmaker Ill
be offering $20,000 cars in a market where youre selling $60,000 cars. How many have
you planned to sell in Denmark? Because I recommend you take them off your plan.
He was extremely arrogant with the conservative German carmakers Mercedes and
BMW, who refused to work with him. He mandated and built a proprietary battery
charging station instead of buying it off-the-shelf from GE. He spent $60 million on
creating a custom navigation software when an existing $30 navigation software
could have been easily customized. His lack of market knowledge also did not give
him time to digest one major development the emergence of the 480-volt super
charger that could charge a battery 80% within a few hours, rendering the battery swap
investments irrelevant.
Lesson: There is absolutely no point of view in reinventing the wheel as a startup. Build
on existing technologies and thought processes. And more importantly figure out how
partnerships can reduce the time to market

Of course, there was a lot of dirty linen washed in public before and after the bankruptcy
filing. Agassi was unceremoniously thrown out by the Board. The charismatic Agassi
who could do no wrong and who was the darling of the media turned into a pariah over
the months. Stories of him recruiting family members, his girlfriend and her friends to
senior positions, of the CFO position remaining unfilled for 2 years and his supposed
extreme narcissistic behaviour surfaced. The Board was blamed for being blinded by his
personal charisma. Shai Agassi, on his part, has gone on record at all media
interactions even after he was fired from the company, that he still thinks that the battery
swap business model is still viable. He is clearly not open to other points of view.

All that is left of this billion dollar experiment is about 1400 cars and dead charging
stations in some parts of Israel, and many ruined lives of customers and investors.

What do you think of the Better Place story? How do you think a company like Flipkart
with a billion dollars might take a wrong step? Share your thoughts below!

Why did BetterPlace fail, while Tesla looks to be


succeeding?

As a Tesla owner, and having had some contact with BetterPlace management during it's
early stages, I will offer the somewhat enlightened amateur's opinion. Your mileage may
vary.

While there are undoubtedly a million factors that contributed to the seeming success of
Tesla and the demise of BetterPlace, the one I will focus on is on the complexity of
establishing a new market.

As expensive and hard as it was for Tesla to build the Roadster and the Model S, they
(particularly Elon Musk -- think Steve Jobs level of control) had the ability to decide all of
the critical elements of the product themselves. No committees, just a benign despot. This
speeds things up a lot. And they focused first on creating their name by building a proof of
concept car that was unique, fast and sexy as hell and selling it to a very price-insensitive
but clearly defined market of what a senior exec at Ferrari described to me (speaking of their
own customers) as "rich guys."
For Roadster buyers, it was a super hot yet unique sports car. Being "green" was gravy, but it
paved the way for the company to prove what could be done.

When they shipped the Model S they had the traction to sell out their production long in
advance. Also note that from what I can piece together, Tesla would have almost certainly
failed if they hadn't lucked into the NUMMI plant acquisition at such a killer price and level
of relative turn-key capability. As it was, before the IPO, they were dangerously low on cash.
They would have certainly run out of money long before building the alternative site in
Carson. But I digress.

BetterPlace (BP), by comparison was trying to create an EV infrastructure, driven by a more


ecologically-oriented value proposition. Before they could even begin to convince consumers
to buy the car (which is all Tesla really had to do) BP had to lobby and get investment from
communities and governments willing to stick their necks out for a long-shot good
cause. They also had to convince car manufacturers to make vehicles that would accept
their battery standard. This is a huge deal, and on its own may have been enough to kill
them because it dictated so much about the design and performance characteristics of the
car. Years ago, the last time I checked, there were very few BP models planned, and the one
I saw from Renault made the Prius look sexy.

I could go on, but add to that all the issues that Tesla is still confronting (range anxiety,
product unfamiliarity, service / repair infrastructure) and you can the the overwhelming
challenge that a cat-herding save-the-earth positioned company like BetterPlace
faced. Even a seemingly superhuman, telegenic Founder/CEO like Shai Agassi could only
keep the hope and promise up for so long.

The simple answer: batteries and chargers got better and OEMs need variety in the shape of
the battery pack.

Every year, some company (often Tesla) makes an announcement that their vehicle's
charging time has decreased. Tesla's supercharger network, for example, can give you 100
miles of range for a 15 min charge. As battery technology improves, charging times will
decrease. Charging technology is also improving fast (cheaper, safer, etc...)

But the big nail in the coffin for BetterPlace was the chicken/egg problem. There were not
enough cars to support the creation of many stations, and there were not enough stations to
encourage the sale of cars. They could not convince enough OEMs to make cars that used
their battery pack because it was too limiting to the overall shape, look/feel, and
performance of the vehicle.

The cost of the swap stations was also an issue of course.


As I explained in the EVA/DC Facebook group, there are 3 basic types of electrical energy
storage (by this I mean direct storage, not via a third party medium like petroleum or
hydrogen): Capacitors (UltraCaps), Electrically Rechargeable Batteries (Lead Acid, NiCad,
NiMH and various Lithium-based technologies) and chemically rechargeable/recyclable
batteries (such as alkali batteries). The Capacitors, especially Ultracaps have very high
power curves so they make the most sense in bursty applications such as Regenerative
Breaking and Charging where you want to store a lot of electrical energy fast but don't want
to overheat your battery; the ultracaps act as a buffer for the battery, storing a lot of energy
fast then slowly dissipating it into the battery at a rate that won't waste a lot of the energy in
heat due to a battery's resistance to being charged too fast. Rechargeable Batteries have
decent Energy Density and Specific Energies, especially with Lithium, so they're well-suited
for Electric Vehicles who need a lot of power over an extended period while
driving. Combine that with the convenience of overnight charging and you can see why
rechargeable batteries like in the Tesla Model S are a much better model than a filling-
station like situation where the batteries are used, depleted and then replaced. Why go
through the hassle of replacement when it takes 10 seconds to plug in your car when you get
home every night and you have enough electricity in the morning to get you through your
day? Finally, you have the recyclable batteries, which can be reused but need some
chemical/manufacturing aspect to do it. This type of battery, as just pointed out, isn't ideal
for the average, everyday commuter. So BetterPlace's business model was flawed in that it
expected users to keep swapping batteries on a daily or weekly or even monthly cycle which
is far more inconvenient than the 10 seconds a day it takes to plug in a car. However, where
this business model *does* have potential is in the form of a third tier of energy storage for
an Electric Vehicle. In that respect you can imagine a daily commuter uses his EV to travel
to and from work every day, using his pack during the day then filling it back up at
night. But now she has to travel out of town on business. She could just plan to stop every
100 mi for 3-6 hours to get electricity. (Though with a Model S Supercharger network and
the larger and very expensive batteries this EV can go much farther and charge much
quicker than an average EV like the Nissan LEAF, Focus Electric, Smart ED, Th!nk City or
iMiev, but where as all those cars to varying degrees are affordable to the average American,
the Tesla Model S most certainly is *not*!) Alternatively, one could use a filling station
model for longer trips. In this scenario, our heroine simply goes to a standard fueling
station where they attach an Auxiliary Battery to her car for her trip with a 1,000 mi
extension capacity (say about the equivalent of a 300 kWh battery and an average usage of
3.3 mi/kWh during her trip). She then pays a rental fee for this battery. Once she reaches
her destination, she visits a filling station at the remote location and then has the mechanic
remove the now depleted battery extender, getting back her rental deposit. Inside the shop,
they chemically recharge the battery, or send it to a local factory that will. When she returns
home, she does the same thing. This, to me, is a viable model for BetterPlace, especially in a
world where most EVs are hamfisted with only 6.6kW or less charging capacity or have a
Betamax/VHS DC Fast Charging technology like CHAdeMO, J1772DC or Tesla, none of
which are compatible with the other. And as each is trying to develop their own
infrastructure you're going to see wasteful overlap and unnecessary gaps in that
infrastructure. This is where a BetterPlace model would fit. But in a place like Israel, where
people rarely drive more than 100 miles, the rechargeable option is sufficient; it's only in
large countries like the US, Canada, Russia, China, Brazil and India where a supplemental
charge, be it via DC Fast Charge or chemically rechargeable batteries, makes sense. But
BetterPlace never set up shop in any of these larger countries. So they failed. No surprise
here. Looks to me like a failed business model on their part. Oh, well.

Better Place: what went wrong for the electric car


startup?
After selling fewer than 750 cars in a major initiative in Israel and losing more
than $500 million, the company's experience shows that electric cars are still
not ready for primetime
Renault Better Place car and charging point seen in Tel Aviv. The much-hyped
company has failed to deliver on its promises. Photograph: carlos van
as/Demotix/Corbis

If you want to sell electric cars, Israel looks like a great place to start. Its a
small country, with most people clustered around Tel Aviv and Jerusalem.
Gasoline costs more than $7.50 a gallon, and oil revenues help support Israels
Arab foes. So its easy to understand why Shai Agassi, an entrepreneur who
was born in Israel and made a fortune in Silicon Valley, chose to launch
his Better Place electric-car company in Israel, while preparing plans to
expand in Europe, Australia, Japan, China, and the U.S.

Whats harder to understand is why things have gone so badly. Better Place,
which staked out its position in the electric car market with an innovative
battery-swapping technology, has sold only about 750 cars in Israel, while
piling up losses of more than $500 million. Agassi was forced out of Better
Place in October, his successor as CEO quit in January, and the company has
put its global rollout on hold. Better Place needs to raise more money this
year, and that wont be easy, insiders say.

Start-ups often stumble, of course, but Better Places woes raise questions that
matter to anyone who cares about electric cars and their future in a low-
carbon economy. Has Better Place sputtered because of its own mistakes, or
are the companys difficulties a sign of the broader challenges facing electric
cars?

To find out, I spoke to company officials, industry experts, and electric-car


executives at rival automakers. And to get a sense of the Better Place driving
experience, I took a test drive in the companys all-electric Renault Fluence EV
during a recent trip to Israel, traveling 120 miles round-trip from Tel Aviv to a
kibbutz in the Negev Desert.
Agassi, a hard-charging, charismatic software executive, launched Better Place
in 2007 with a bold goal: To help end the global auto industrys reliance on oil.
Since then, Better Place has raised about $850 million an astonishing figure
for a start-up from such sophisticated investors as HSBC Group, Morgan
Stanley, General Electric, Vantage Point Capital Partners, and the
conglomerate Israel Corp., its biggest shareholder.

When analysts from Deutsche Bank took a close look at Better Place in 2008,
they wrote that the companys unique business model could lead to a
paradigm shift that causes massive disruption to the auto industry, and
said the company has the potential to eliminate the gasoline engine
altogether. Renault-Nissan agreed to manufacture 100,000 electric cars,
tailored to Better Place specifications.

At Better Places battery-switching stations, a depleted battery is replaced with


a fully charged one in about five minutes.What got many people (including
this writer) excited about Better Place was Agassis unorthodox solution to the
two big problems with electric cars: You cant drive them very far without
recharging, and they are expensive to build because the battery adds $10,000
or more in costs. David Jones, Better Places vice president of business
development, put it bluntly when we met: Gas cars are convenient and
affordable. Electric cars prior to Better Place are neither of those things.
Theyre not convenient. Theyre not affordable.

The Better Place solution is to literally separate the battery from the car. To
make refueling convenient, Better Place invented automated battery-switching
stations; they deploy robots that slide under the car, remove a depleted
battery, and replace it with a fully charged one in about five minutes. These
battery-swapping stations work faster than chargers; the company has built 37
of them across Israel. By retaining ownership of the battery, Better Place is
able to reduce the sticker price of the car, and upgrade the battery as the
technology improves.

Like wireless phone companies that discount their hardware and make the
money back by selling minutes, Better Place reduces the price of the car and
charges its owners a monthly fee for the battery and electricity, based on how
many miles they travel. The economics make sense, at least in theory, because
electric motors are more efficient than internal combustion engines; buying
electricity for an EV is the equivalent of buying gas for about $1 a gallon, says
the Electric Drive Transportation Association, an industry group.
In fact, leasing a Better Place car in Israel costs about 20 percent less than a
Toyota Prius or Honda Insight hybrid, the company says. The economics of
the electric car are fundamentally better, long-term, says Mike Granoff, a
senior executive at Better Place. In his heyday, Agassi liked to tell people that
Better Place would eventually be able to give cars away, and still turn a profit.

But such rosy projections never came close to materializing. One of the
unexpected things to go wrong was that the company didnt get much help
from Israel. Although Shimon Peres, the former Israeli president, was
an enthusiastic Better Place supporter, Israel unlike the U.S. provides no
subsidies to EVs.

Local authorities, whose permission was needed to build battery-switching


stations, put up unexpected roadblocks, slowing progress, company officials
said. And when employers provide the cars to their workers, which is a
common practice in Israel, the workers pay a usage tax that reflects the full
value of the car, including the battery, undermining Better Places effort to
drive down costs.

Another shortcoming: Better Place assumed that other automakers would


build vehicles that are compatible with its battery-swapping technology, but so
far only Renault has done so. The only Better Place car available is the
Fluence, a family sedan thats too big for some drivers and too small for
others. Marketing has been another challenge: The company is asking its
customers not only to embrace a new technology, but an unfamiliar business
model that is hard to explain. Then, just as positive word-of-mouth about the
company began to spread last year, Agassis departure cast a pall over the
enterprise.

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 Places
development, said John Gartner, an electric car expert with Pike Research.
He said battery swapping might make sense for taxis or fleets, but not on a
broad scale.

My test drive with Better Place was a mixed bag. On the round trip from Tel
Aviv to the Negev, I had to switch batteries twice, going slightly out of my way
both times. Thats far from ideal. On the plus side, the battery-switching
station, which resembled an automated car wash, worked perfectly: I was in
and out in about five minutes, without having to leave my car. And I loved the
instant torque and the quiet of the Fluence EV.
Better Place customers seem to be satisfied, too. We are all so
overwhelmingly happy with the service and the car, an owner known as Brian
of London wrote in a blog post after a recent meeting of owners organized by
the company; not surprisingly, the feedback was positive.

Although their numbers are small, electric vehicle owners worldwide are
generally happy with the new technology. In the U.S., for example, the Chevy
Volt has topped Consumer Reports annual owner satisfaction survey two
years in a row. The Volt overcomes range anxiety by adding a small gasoline
engine to its electric drive train, while the all-electric Nissan Leaf depends on a
network of public charging stations. All the companies offer home chargers to
their owners.

According to Gartner, the issues at Better Place wont affect electric cars
elsewhere. In the U.S., sales of the Chevy Volt, Nissan Leaf, and Tesla Model S
are all growing, albeit off a very small base. While the payback period for
some EVs today is too long, we are still in the early days of the industry, he
says.

Better Place executives, including Agassi and Evan Thornley, who briefly
succeeded him as CEO, say theres nothing wrong with the companys strategy.

I continue to believe that the Better Place vision is both accurate and
commercially sound, and trust that whatever shortfalls we suffer are correctly
seen as errors of execution not of strategy, Thornley wrote to employees when
he left. Mike Granoff told me that a million things didnt go right, but that
Better Places approach still makes sense. The company sold more than 100
cars a month in January and February, accounting for about 0.5 percent of all
sales in Israel. In December, only 23 were sold.

Others, though, say the Better Place story underscores the fundamental
challenge facing the electric car. Without battery-switching, pure electric cars
have a limited range and they take a long time to recharge.

The gasoline fuel tank is a pretty phenomenal storage device for energy, says
Brett Smith, an industry analyst with the Center for Automotive Research.
The battery may never really compare, at least not in the next 20 years.

Then again, whatever their flaws, theres no doubt that electric cars generate
what economists call positive externalities. Theyre good for the
environment and for a nations security because they reduce dependence on
oil imports. Thats why the Obama administration, which set a goal of getting 1
million electric vehicles on U.S. roads by 2015, has thrown its support to
electric cars, providing about $2.5 billion in loans and grants to electric-car
manufacturers and battery makers, as well as $7,500 in tax credits to electric
car buyers.

But the administration, as well as the industry, has yet to provide a clear
answer to a simple question about electric cars and companies like Better
Place: What, exactly, is the consumer problem that EVs are trying to solve?
Are they about saving money in the long run, not having to worry about rising
gas prices, reducing the environmental impact of driving, or just enjoying the
ride? Put another way, if electric cars are the answer, whats the question?

A Broken Place: The Spectacular Failure Of The Startup That Was Going
To Change The World

With almost $1 billion in funding and ambitions to replace petroleum-based cars with a network of
cheap electrics, Shai Agassis Better Place was remarkable even by the standards of world-changing
startups. So was its epic failure. A 21st-century cautionary tale.

So this is the car. Im standing outside a shopping mall somewhere in Tel


Aviv, Israel, as Guy Pross shows me his ride.THE CAR: The Renault Fluence
Z.E. was the only vehicle to work with Better Places electric car infrastructure.

The silver Renault sedan has four doors, five seats, and a body design that
makes it look a bit like a fat Honda Civic. Under the hood, though, the normal
1.6-liter internal-combustion engine has been replaced with a compact 70-
kilowatt electric motor, a conversion overseen by Renault and a local
company named Better Place. Instead of a gas tank, an enormous lithium-ion
battery pack lives between the trunk and the back seat. Inside the vehicle,
Pross directs my attention to the coup de grace: the center console, where, in
addition to all the familiar interior features of a mid-range carthe ugly radio,
the climate-control dialstheres a little joystick with some strange-looking
buttons. This is where the cup holder used to be, he says, referring to the
standard version of the Renault. In its place, Pross twirls a dial that Better
Place installed to control a futuristic navigation system called Oscar (OS plus
carget it?), which was designed to help drivers find charge spots and predict
whether or not they had enough energy to complete their journey. Its really
slick, he says.

He hands me the keys, I stick them in the ignition, and twist. Theres a beep,
the air-conditioning fans start to hum, and then nothing.
Is it on? I ask.

Pross nods, grinning. I hit the pedal and the car jumps forward, emitting a
high-pitched whir. We scoot out of the parking lot and I begin weaving, only
slightly recklessly, through Tel Avivs notorious traffic. Im filled with that sense
of energy and possibility that one sometimes feels when driving a fast car. Its
not a Tesla, says Pross, referring to Elon Musks company. But its close.
And it costs a lot less.

The range on the Better Place cars battery is only 80 miles or so, but the
company created a charging infrastructure here in Israel that included
hundreds of public electrical outlets. In addition, robots were installed at
dozens of service stations that could extract the used battery from underneath
the car and replace it with a fresh one in about five minutes. The idea was to
put an end to so-called range anxiety, which has long been offered as an
explanation for why electric cars have failed to catch on with consumers. With
the Better Place network, a driver could easily navigate from, say, Tel Aviv to
the resort town of Eilat, a little over 200 miles away, with only 15 minutes or so
in stops.

The technology worked, customers were satisfied, says Pross, who in


addition to being this particular cars owner was a Better Place employee from
2008 until the bitter end, the companys bankruptcy declaration in May 2013.
He sounds heartbroken. It would have been a revolution.

Better Place was born to be revolutionary, the epitome of the kind of world-
changing ambition that routinely gets celebrated. Founder Shai Agassi, a
serial entrepreneur turned rising star at German software giant SAP,
conceived Better Place on a Davos afternoon in 2005 when he asked
himself, How would you run a whole country without oil? Four years later,
onstage at the TED conference, Agassi, a proud Israeli with a bit of a Steve
Jobs complex, wore a black turtleneck and promised, with the confidence of a
man who has known the future for some time but has only recently decided to
share his findings, that he would sell millions of electric vehicles in his home
country and around the world. He implied that converting to electric cars was
the moral equivalent of the abolition of human slavery and that it would usher
in a new Industrial Revolution.

This was science fiction, but Agassi presented it as fact, as if just by


announcing his company he had already built it. It was Shai math, as his
employees would come to call it. And it was intoxicating. The TED crowd gave
Agassi a long standing ovation.
Agassi got virtually every meeting he ever asked forwith world leaders,
celebrities, and CEOs of some of the worlds largest companies. The press
anointed him the creator of a Next Big Thing. (Fast Company included Agassi
on its 2009 Most Creative People in Business list.) Money from investors
came fast and in big waves, roughly $900 million, and it seemed like it would
never stop flowing. Until, suddenly, it did.

How did a company with so much going for it stumble so badly? Agassis
grand vision gave Better Place life, but according to former employees,
investors, and board members, that same grand vision also ultimately
destroyed it. Entrepreneurs are frequently told not to drink their own Kool-Aid
which is to say, to remember that the stories they tell about how their products
will save humanity are just that.

Privately, they are cautioned to focus on the small things; to make more
money than they lose; to cut costs when needed; and, when necessary, to
pivot to a more promising business. The caution seems especially important in
a culture that increasingly celebrates startups, threatening to confuse their
mythmaking with reality. Agassi made great Kool-Aid and then drank it all
himself.

Everything we needed to go right went wrong, says one former employee.


Every cost on our spreadsheet wound up being double, every time factor took
twice as long. There was profligacy, marketing problems, hiring problems,
problems with every conceivable part of the business. There was questionable
oversight by the companys board of directors. There was bad luck. And there
was hubris.
There was nothing normal about Better Place, says Pross. It was
spectacular. Shai always said, If we go down, well make a lot of noise.'

Agassis startup lived fast and died young, and left almost nothing behind
beyond the car that Pross and I are sitting in. Better Place sold fewer than
1,500 vehicles. Its swap stations, located next to gas stations and near
highway on-ramps, closed last year. Their once-gleaming white walls, inspired
by Apples design, are increasingly caked in dirt.

Better Place is a tragicomic case study of the limits of innovation, the


difficulties of getting consumers to embrace new technology, and the perils of
believing your own bullshit. What follows is the story of how that happened: a
step-by-step guide to the most spectacularly failed technology startup of the
21st century.
Better Places battery-swapping stations were projected to cost no more than
$500,000 each; they cost $2 million. Theyre now shut down.
STEP 1: DECLARE VICTORY

Shai Agassi was born in 1968, the year after his native Israels Six-Day War,
and grew up in suburban Tel Aviv in relative privilege. His father, Reuven, an
Iraqi-Israeli engineer, was a distinguished military officerrising to the rank of
colonel in the Israel Defense Forcesand later a telecom executive. Shai was
at least as ambitious as his dad, learning how to program with punch cards as
a 7-year-old in the mid-1970s, and then enrolling in Israels prestigious
Technion university at age 15. After serving his mandatory military service, he
launched a series of small-enterprise software companies with his dad. In
1995, Agassi moved to the Bay Area as part of a consulting assignment with
Apple. The Apple manager killed his project, though Agassi would come to
see this as the first of many signs of his own technical acumen. You may
have heard of the technology my team recommended, Agassi wrote on
LinkedIn last year. It was called the Internet.

Agassis particular genius was in selling new products. The confidence he


has in what hes telling you is incredible, says Joe Paluska, who served as
Better Places chief marketing officer and is now the global chair of technology
at the PR giant Edelman. Agassi stayed in Silicon Valley, developing a
product that allowed large companies to create internal web portals. HP,
Universal Studios, and Wells Fargo would become clients, and in 2001, SAP
acquired the startup, called TopTier, for $400 million in cash.

Agassi, then 32, quickly became one of SAPs young guns. He assumed the
role of head of global product development from the companys cofounder
Hasso Plattner, overseeing a team of 10,000 engineers and settling easily into
the role of jet-setting corporate executive. He was this young hotshot, says a
former confidant. He was going around telling everyone he was going to be
CEO.

In 2005, Agassis hotshot status got a boost thanks to an invite to join


the World Economic Forums under-40 group, Young Global Leaders. This is
where he first got interested in alternative energy, and he plunged into
researching new forms of transportation with Andrey Zarur, a fellow young-
man-of-Davos who was at the time CEO of BioProcessors, a venture-backed
biotech company. The men worked nights, weekends, and on transcontinental
flights, casting a very wide net. Shai said, Lets focus on cars, and lets focus
on Israel,' Zarur recalls. We looked at things that would make you laugh. Air
cars, slot cars on electric rails, everything.

After 18 months of work, Agassi and Zarur had a draft of a white paper, titled
Transforming Global Transportation, that would quickly become famous, at
least on the conference circuit. The paper is both detailed and, like much of
Agassis career before and since, ridiculously over-the-top. It compares the
duos vision, to, among other things, Thomas Edisons lightbulb, James Watts
steam engine, Henry Fords Model T, John F. Kennedys Apollo program, and
the Internet. Every social transformation requires the bravery of Churchill,
the vision of JFK, the determination of Reagan, the rare ability to galvanize a
country or the world to take the right step for a greater cause, Agassi and
Zarur wrote. We are standing on the verge of such an event.

At that moment, the electric-car industry consisted almost solely of Elon


Musks Tesla Roadstera two-seater sports car that started at $100,000,
making it a novelty product for the likes of the Google cofounders Larry
Page and Sergey Brin. Agassi wanted to sell modest family cars that would be
inexpensive for the average commuter. At minimum, these cars would be able
to handle at least 30 miles of commuting per day, with the option to quickly
refuel for longer trips rather than having to wait overnight for a charge. The
plan was to persuade world leaders in a handful of countries to create tax
incentives and generous subsidies for electric cars. Because of Israels tense
relationship with its oil-producing neighbors and Agassis ties to his home
country, the land of milk and honey held special appeal as a starting place.

The white paper that birthed Better Place compares its idea to the invention of
the lightbulb, the steam engine, the Model T, and the Internet.

Before leaving SAP, hiring any employees, or apparently taking a single


meeting with a potential partner, Agassi went public with his idea. In
December 2006, he gave a presentation in Washington, D.C., at the
Brookings Institutions annual Saban Forum to an audience that included,
among others, former President Bill Clinton and former Israeli Prime Minister
Shimon Peres. The heavyweights loved Agassis idea. In a series of
conversations that Agassi would later recount, Clinton suggested he consider
giving the car away for free; Peres urged him to start a company. A few days
later, Agassi would tell Fortune, I quit my job at SAP. This may have been
an early instance of Shai math; Agassi actually resigned on March 28, 2007,
his departure coinciding with Hasso Plattners decision to name one of
Agassis reported rivals deputy CEO.
The Saban Forum ignited peoples imaginations. Agassi conducted dozens of
meetings in Israel with government officials over the following months. Then in
early 2007, at the World Economic Forum in Davos, Switzerland, Peres
brokered a meeting for Agassi with Carlos Ghosn, CEO of Nissan and
Renault. At the time, Ghosn wanted to leapfrog Toyotas dominance in hybrid
vehicles by going electric. The two hit it off, according to an account of the
meeting in the 2009 book Start-up Nation, and a tentative partnership was
struck. Ghosn suggested that they might build 50,000 cars a year; Peres
suggested twice that.

It seems likely that Ghosn and Peres were simply spitballing. After all,
100,000 cars in Israel would be half of the new-car market, in a country where
the top car brand, Hyundai, has only 15% market share. Tesla Motors, at the
time the only significant electric-car manufacturer, had taken reservations for
only a few hundred Roadsters. But Agassi seemed to take it seriously,
telling Time the following year that Israel would eliminate new sales of
gasoline cars by 2015. At TED in February 2009, he suggested that the
Renault cars would enter the market in 2011, in mass volumemass volume
being 100,000 cars.

Agassi never actually said Better Place would be selling 100,000 cars at
launch, but he left observers with that impression. In September 2009, when
Agassi finalized his deal with Ghosnwho declined to comment for this story
Better Place formally committed to order 100,000 Renault cars between 2011
and 2016 for sale in Israel and Denmark. Thats wildly aggressive but not
wholly delusional, and it let Agassi keep his magic number of 100,000 as a
talking point. He would often tell the story of an encounter he had at the
Frankfurt Motor Show after the announcement. Wait, did you say youd sell
100 cars or 1,000? an attendee asked. Agassi smiled and said, No, its
100,000.

The number let Agassi reinforce Better Places wide-eyed optimism as a


crucial selling point: He dreamed big while others sold toys. That was the
difference between us and the rest, says Ziva Patir, an early employee. They
created city carstiny subcompacts like Daimlers Smart electric vehicle. We
wanted to get rid of oil.

STEP 2: LAUNCH EARLY , LAUNCH OFTEN

One of Agassis first investors was Michael Granoff, a politically minded


venture capitalist whod come to see electric cars as a solution to Israels
continuing struggles with terrorism. Granoff, who would later join Better Place
full time, handling investor relations and policy advocacy, introduced Agassi to
Idan Ofer, then chairman of Israel Corp., a formerly state-owned holding
company controlled by his family since 1999. The Ofers are controversial in
Israela clan of pseudo-oligarchs who in the wake of the countrys
liberalization of its once socialist economy, bought a stake in a government-
owned shipping company for what some considered a low price. (Spokesmen
for Ofer and Israel Corp. declined to comment for this story.)

Agassi and Granoff met Ofer in his office in the spring of 2007. The pitch
lasted an hour or so. Agassi hunched over Ofers desk as he spoke, staring
intently. He explained that Better Place would follow the model of the cell-
phone industrygiving the hardware (in this case, a car) to consumers at a
subsidized price and making money by selling subscriptions to a network of
charging spots. He suggested that Better Place could be the worlds first
trillion-dollar company. Ofer was polite, but he didnt seem particularly
interested. I remember being certain that nothing would come of it, Granoff
recalls.

Stephen Colbert, right, to Agassi: Lets cut to the chase here: Will this car get
me laid? Nope.
Agassis central thesisthat people wanted to buy car service the way they
buy phone servicewas flawed. Nobody loves their wireless carrier, says a
Better Place designer. They love their iPhone.

At the end of the meeting, Ofer asked if he could have a copy of Agassis
white paper and then walked the two men to the elevators. As Agassi and
Ofer shook hands to say goodbye, Ofer leaned in and said in a low voice that
Israel Corp. was in. Put me down for a hundred, he said. As in, $100 million.
Agassis charisma had carried the day.

The deal would get even bigger in the coming months. Ofer added $30 million
from his personal fortune. Granoffs fund, Maniv Energy Capital, joined the
venture firm VantagePoint and Morgan Stanley in a $200 million financing
round. It was, as Agassi would often brag, one of the largest seed rounds in
history.

Agassi celebrated the investment with a press conference that October. A


team of publicists from Hill+Knowlton, the A-list PR firm, organized a lavish
event at New Yorks Essex House on Central Park South. Publicists were
brought in from Israel to manage the Hebrew-speaking reporters, and a
branding consultancy created a 3-D animation that showed cars pulling into a
swap station and being charged in parking spots. I didnt know why we were
launching so early, says an investor who attended the event. At the time, the
company had just a handful of employees. The whole thing was weird.

Three months later, Agassi did it again, hosting a second launch event in
Israel, during which he told reporters that Better Places cars would be priced
roughly half that of the gasoline model today, despite the fact that Better
Place and Renault had yet to agree on pricing.

Agassi had effectively committed to a business model before he had even


settled on a name. (At the time, the startup was called Project Better Place;
Agassi would formally shorten it in 2008.) Shai is a friend and an amazing
guy, says Gadi Amit, founder of NewDealDesign, whose firm designed Better
Places charge spots. One of his flaws is that he tends to overrationalize
things and he misses cultural and human connections. Amit points out that
Agassis central thesisthat people wanted to buy car service the way they
buy phone servicewas flawed. Nobody loves their wireless carrier, Amit
says. They love their iPhone.

STEP 3: THINK LOCALL Y AND GLOBALLYALL AT ONCE

A reasonable argument can be made that the enormous investment round led
by Ofer was actually the seed of many of Better Places problems. If Shai had
raised $50 million instead of $200 million, it would have forced us to focus,
says Patir, who joined Better Place in early 2008 and served as VP of policy.
Instead, Agassi had the money to think about anything, and anywhere, he
wanted.

Employees called Better Place the highlight of their careers. It was a beautiful
dream to dream; people got hooked, says one. It was only later that youd
see the redundancy, the arrogance.

Though Better Place at the time was only set up in Israel, Agassi already had
global plans. If the government of Poland created a new policy for electric
vehicles, I had to make sure they created a policy for battery exchange, says
Patir, who managed a 10-person team.

That a senior executive was required to lobby Polish lawmakers on behalf of a


revenue-free startup that didnt yet do business in Poland might sound
ridiculous. It was just the beginning. Agassi hired separate groups of
managers in Israel and the United Statesas well as in Denmark and
Australia, where the company was planning to expand. The Danish and
Australian enterprises were nominally independent from Better Places global
organization, partially raising their own funding from such local partners as
DONG Energy, Denmarks giant utility.

Demonstration projects were planned in China, Japan, and Hawaii. This


convoluted structure was reflected in the R&D organization led by a former
SAP colleague, Barak Hershkovitz, who created the Oscar navigation system.
The R&D team was based in Israel, but reported to Agassi in Palo Alto. The
corporate structure proved so complex that Agassi hired a team of
management experts in Palo Alto, led by a former Boston Consulting Group
veteran, to keep the whole thing straight. Better Place was never a startup,
says Shelly Silverstein, an early human-resources employee. It was built from
the beginning as a conglomerate.

Better Place also paid above market. Everyone wanted to work for us, says
one Israel-based executive. Normally when you have this kind of company
meaning a mission-based startupyou dont have to pay the highest wages.
But we did.

You dont see the wasted money when youre in the middle of it, Silverstein
says. She, along with nearly everyone I met who once worked at Better Place,
told me that her time there was the highlight of her career. People were
motivated by the vision: It was green, it was sustainable, and it was a little bit
Zionist. It was a beautiful dream to dream; people got hooked. It was only later
that youd see the redundancy, the arrogance, she says.

The one group of people Agassi seemed in no hurry to hire were actual
managers with car-industry or infrastructure-building expertise. We had no
automotive experts, explains one person familiar with the inner workings of
the company. Nobody whod done a car in their life.

Agassis head of automobile partnerships, Sidney Goodmanthe man in


charge of making sure that Renault built cars with batteries that could be
easily swappedwas a former SAP business-development executive whod
served in the army with Agassi. (Goodman declined to comment for this
article.) The guy in charge of building the battery-switching stations was a
relatively green SAP account man, who by all accounts had no experience
working on an energy project or a real-world construction project. But he had
one credential no one else could boast: He was Agassis baby brother, Tal.

There were two objectives in the white paper: to eliminate range anxiety and
to deliver cars cheaply, says Zarur, Agassis coauthor on Transforming
Global Transportation, and, eventually, a Better Place board member. In
hindsight, we deviated from that mission. And all the bad blood and the
backstabbing and whatever else was the result of that.

STEP 4: PROMISES, PROMISES

In August 2008, Agassi appeared on the cover of the September issue of


Wired magazine. Inside, the writer Daniel Roth described a meeting in which
Agassi and his senior teamwhich included his brother, sister, and father
batted around ideas about how the companys charge spots would work. They
landed on the notion of using a robotic arm to plug in the car. This is think
different,' Agassi said, quoting the Apple slogan. In 2008, we put the cable in
the unit, in 2010 we use an arm, in 2012, theres a smart arm that connects
automatically. For the home unit, the users get a pull cable for free, or they
pay $500 and they get autoconnect. Itll cost $250 to build, and well sell it for
$500.

This little scene, presented as evidence of Agassis quirky brand of genius,


was, in fact, pretty much totally insane. Even today, a basic wall-mounted
charger with a cable sells for $700; the kind of robotic arm Agassi proposed, if
it could have even been built, would probably have added thousands of
dollars to the cost. (The idea of a robotic arm was, not surprisingly, quickly
abandoned.)

Agassi indulged similar flights of fancy for Wireds benefit. He shared with
Roth a text message he sent to a carmaker about his plans to sell cars in
Denmark: Ill be offering $20,000 cars in a market where youre selling
$60,000 cars. How many have you planned to sell in 2011 in Denmark?
Because I recommend you take them off your plan.

Leave aside for a minute that Agassi was publicly insulting a company with
which he might one day need to partner. Look instead at the numbers: Electric
cars were nowhere near as cheap as Agassi was claiming. His deal with
Renault would require Better Place to pay close to $32,000 for every car and
battery that was delivered. Even if Renault had offered its car at a substantial
discount, its hard to discern how Agassi arrived at that $20,000 figureand
even harder to understand why it was taken seriously. The car would
ultimately retail for $37,000 in Denmark, not including the cost of the battery;
in Israel the after-tax price would be roughly $35,000, plus $12,000 for the first
four years of access to Better Places charging and swap-station
infrastructure.
I asked former executives and employees whether this discrepancy was a
result of Agassi being out of touch with reality. The answer, in this case, was
no. Agassi privately conceded to Better Place executives that the Renault deal
was a bad one, but he was attempting to play a game of poker with the entire
auto industry. What Shai had in mind was that once we get a second car
company, we could renegotiate with Renault, says someone who was privy to
pricing discussions. Better Places second car deal, the thinking went, would
force Ghosn to come back to the table begging for new terms. Because
Shais an optimist, he was willing to sign anything Renault put in front of him.
He didnt think the price was an issue; it was an interim number.

Unfortunately, many of the traits that made Agassi a great futurist made him a
terrible negotiator. Carmakers, especially German ones
like Daimlerand BMW, tend to be conservative, and Agassis attempts to force
them to adopt Better Places model caused them to recoil. Shai correctly
wanted to create a situation where the automakers would move quickly to
electric, says Amit Yudan, Better Places Austria-based business
development manager. The carmakers are used to a totally different
ecosystem. Somebody from another industry trying to treat them as an equal
partner is not in their DNA. Another insider puts it more bluntly: If we hadnt
been such assholes, BMW would have agreed to do a swappable-battery car,
he says. Instead, they gave us the finger. [Agassi] pulled the same shit with
Mercedes.

Perhaps Agassis most promising lead was with General Motors, which had
recently embraced the idea of electric vehicles. Michael Granoff, the investor
who had introduced Agassi to Idan Ofer, managed to score a meeting at the
Renaissance Center in Detroit in 2008 for Agassi and his top car executive,
Sidney Goodman, with a group of GM executives. The GM employees were
skeptical, especially of Agassis projections for the uptake of electric vehicles.
It took the Toyota Prius 15 years to get to 1.5% market share in the U.S., and
the Prius is a hit, says someone who represented GM in the meeting. You
have to have a very compelling value proposition to get people to sign up.
Theyd started with ideology.

A more immediate problem was the fact that the Chevy Volt, which was
nearing its production date, would not be compatible with Better Places
battery-switching infrastructure. The Volt featured a T-shaped battery,
meaning that it couldnt easily be swapped out by Better Places planned
service stations.
But GM had a counterproposal. Would Better Place consider managing a
network of charge spots for the Volt? It likely wouldnt be a profitable
businessVolt was designed to have a backup gasoline engine, after allbut it
might kindle a relationship. I thought: Lets just do it, Granoff recalls. Itll be
fantastic, and well move them toward our model. Agassi dismissed the idea
out of hand. Youll never build this, he said of the Volt. Its a stupid car. How
are you going to sell your $40,000 car against my free car?

A free car? Granoff panicked. This was not part of the plan. The idea of a free
car had been one that Agassi and other Better Place executives had toyed
with as a thought experiment. If battery prices continued to fall if electric car
production ramped up eventually perhaps maybe possibly a
company could give consumers a free electric car, charging $500 a month for
access to the battery and charging network in the same way that wireless
carriers gave away phones and made up the cost by charging for usage.

A free car was a notion you take for a spin on a Davos afternoon. It wasnt an
idea that was ready for the Renaissance Center. Agassis decision to float it
during the meeting, says Granoff, was a complete absurdity.

The GM executives were nonplussed. If its free, why dont you just swap the
car instead of the battery? one asked.

Thats a stupid question, Agassi said, infuriated.

As they walked out, Agassi told Granoff, The next meeting we have, itll be at
our headquarters and well have a bigger market cap.

STEP 5: DISRUPT THOS E CLOSEST TO YOU

Agassis self-confidence was in some sense understandable. In 2008, clean


tech was considered to be the hottest investment opportunity in the world,
Better Place was one of the new sectors stars, and GM and the rest of the old
economy seemed on the brink of collapse. That October, as the United States
searched for answers amid both the financial meltdown and the presidential
campaign, Agassi delivered a speech in which he offered to build the 44th
president a Better Place network across the U.S. for a cool $100 billion. Two
months later, while the incoming Obama administration debated how to
handle a flailing auto industry, The New York Times Thomas Friedman
devoted a column to lauding Agassi, saying, What I find exciting about Better
Place is that it is building a car company off the new industrial platform of the
21st century, not the one from the 20ththe exact same way that Steve Jobs
did to overturn the music business. He implied that the government would be
better off giving any money earmarked for saving Detroits auto industry to
Better Place.

Agassis 2009 TED Talk argued that the right moral decisionabandoning oil
would produce great prosperity.
We spent $60 million to build something that TomTom sells for $29.95, says
a former board member of the Better Place navigation system. We thought
we could do everything better.

Agassi had long seen himself as a Steve Jobslike figure; now the most
prominent writer at The New York Times had decreed it so. The failure of GM,
and the public reaction to it, made him think he was a prophet, says
someone who was close to Agassi at the time.

The U.S. government did not take Friedmans advice. In mid-2009, GM filed
for bankruptcy, selling itself to the U.S. government in a $50 billion bailout.
The Department of Energy did offer loan guarantees to several ambitious
clean-tech startups, including Tesla Motors, but it declined to give Better
Place any of the funds earmarked in the economic stimulus package for
electric-vehicle infrastructure. The government didnt discover flaws that other
investors missed. Rather, Better Place had yet to partner with a carmaker
whose vehicles were available in the United States, hurting its candidacy.
(Discussions would resume with the resurrected GM, but they never led to a
firm deal.)

The perceived snub from the U.S. government seemed to rattle Agassi.
Although he continued to successfully woo private investorsin January 2010,
he announced a second investment round of $350 million, which gave the
company a $1.25 billion valuationhis behavior became erratic.

Agassi went on vacation to Israel in the summer of 2009, disappearing from


the Palo Alto office for much of the rest of the year. Then, in February 2010,
Agassi emailed his Palo Alto staff to inform them that hed decided to relocate
to Israel. He also began telling people that he had separated from his wife and
now had a girlfriend, Tami Chotoveli, the owner of a luxury watch company
who had apparently been moonlighting as his personal coach. Several former
employees say that Agassi brought Chotoveli to meetings and hired some of
her friends to top positions. Better Place had hardly been a meritocracy before
Agassis return to Israel, but now, says one former employee, There was a
watering down of the management team and a level of cronyism. (Chotoveli
declined to comment.)

Meanwhile, Agassi had a falling out with his VP of operations Aliza Peleg, the
non-family member at the company to whom hed seemed closest. Nobody
could manage Shai, really, but Aliza had been an incredible counterpoint and
a sounding board, says a senior executive. In mid-2010, Agassi forced Peleg
out after accusing her of communicating behind Agassis back with Alan
Salzman, a board member from one of Better Places investors,
VantagePoint. (Salzman declined to comment; Peleg did not respond to
interview requests.)

That was around the time he started to go nuts, says a person with
knowledge of the machinations of the board. Employees left behind in Palo
Alto were horrified by Agassis behavior. Efforts to diagnose him were
something of a secret parlor game among certain disgruntled workers. One
told me that he later sought out excerpts from the DSM, the psychiatric
manual, in an effort to categorize Agassis state. He decided that his absentee
boss suffered from a narcissistic personality disorder. Every box was ticked,
he says. The DSMs clinical definition of narcissism includes has a grandiose
sense of self-importance, is preoccupied with fantasies of unlimited
success, and shows arrogant, haughty behaviors or attitudes.

The sudden move to Israel was in some ways logical for the businessBetter
Place had an annual $7 million travel budget, according to a former employee,
and Israel would be its launch marketbut it alienated many senior -
employees. More than half of the original Better Place leadership teamthe
grown-ups, as they were knownwould eventually leave in the wake of
Agassis exodus. This included CFO Charles Stonehill and the general
counsel, David Kennedy, who both left in 2011. Neither man would be
immediately replaced. (Stonehill and Kennedy did not return requests for
comment.) It would take Better Place, a company with hundreds of millions of
dollars in capital and plans to file for an IPO, nearly two years to appoint a
new CFO. Peleg was never replaced.

Meanwhile, Agassi brought his own brand of divisiveness to the Tel Aviv
offices. At the global headquarters, which was on a different floor than the
Israeli headquarters, he built himself a glass cube of an office. The luxury in
the global office was amazing, says Shelly Silverstein, the HR exec. It was
petty, but they had stuff we didnt have. We only had cookies from Israel; they
had Nature Valley granola bars and Coke Zero. It didnt feel like one
company. A rumor circulated that Agassi had spent more than 5,000 Israeli
shekels$1,500on a coat rack.

STEP 6: THE ANSWER TO A HIGH BURN RATE? A HIGHER BURN RATE

To the outside world, Better Place still preened in 2010. The company opened
a visitor center in a Tel Aviv industrial park that February. Built inside a giant
converted oil-storage tank, it was a poetic expression of Agassis ambition to
replace fossil fuels with something clean and modern. The attraction, which
was being dismantled when I visited earlier this year, featured a mile-long
track where customers could test-drive a prototype car and a theater with 30
vintage car seats, a giant wall-size screen, and a hologram machine that
projected a life-size Shai Agassi. One last, slightly mystifying feature: a
futuristic rotunda, not unlike the war room in Dr. Strangelove, in which
customers stood in a circle and played with personal touch screens that
showed the planned locations of Better Places switch stations.

The launch of the Better Place car was still two years off, but the visitors
center, which cost the company at least $5 million to build, was nonetheless
quite a draw. More than 100,000 people went on toursgrade-school classes,
tourists, and dozens of U.S. congressmen, senators, and governors. Some
30,000 sat down with a Better Place salesperson to pick a color and fill out a
form stating their intent to purchase a car whose price had not yet been
announced.

Unlike Tesla, though, which had asked early customers to secure their spot
with a deposit of $5,000 or more, Better Places reservations were not binding.
Except, perhaps, in Agassis mind. In a 2011 interview with the tech news site
GigaOm (whose founder, Om Malik, is now Fast Companys technology
columnist), Agassi publicly claimed that inventory was sold out for nearly two
years. Employees told me that Agassi made similar boasts on internal
conference calls. Shai was giving these talks with wrong numbers, says
someone who worked in the companys marketing division in Israel. We knew
they were too optimistic, but it was very hard to convince him.

In reality, Agassis projections were falling far short. Agassi had assumed that
the car would cost roughly half the price of a typical gasoline car and would
have a range of at least 100 miles. Instead, batteries were delivered with a
range of closer to 80 miles, and the terms with Renault meant he was selling
an unsexy family car for about the same price as a nice sedan like the
Mazda3 or the Toyota Corolla. (Not to mention that customers were asked to
spend an additional $3,000 or so a year to rent the battery and pay for the use
of charging and swap stations.) There was a bit of Shai math going on there,
says Evan Thornley, CEO of Better Places Australian subsidiary. If there
were 100,000 cars on the road tomorrow, his economics would have been
right. But the time frames he talked about for selling cars were crackers.

Meanwhile, the cost to build out Better Places charging network had
ballooned. The original spreadsheets that Agassi and the Palo Alto founding
team had assembled called for swap stations to cost approximately $500,000
each. So, building 40 stations in Israel would cost about $20 million, while 20
in Denmark could be built for about $10 million. Ultimately, however, each
switch station cost at least $2 million, meaning that Better Place would have to
sell many more cars and driving subscriptions to pay for its pricey
infrastructure. Because it was so expensive, we needed more customers,
says Patir, the former VP of policy. Given this, Agassis bullishness could
charitably be seen as a way to stoke the companys momentum into sales.

That would be very charitable indeed. Better Place could have also drastically
cut costs and conserved cash. Sales and support could have been
outsourcedor, given that there was no product, simply shut down. It could
have bought off-the-shelf charging stations from GE instead of designing
proprietary ones. The program to develop the Oscar navigational system
could have been scaled down. We spent $60 million to build something
that TomTom sells for $29.95, says a former board member. We were
building our own charge spots and call centers. We thought we could do
everything better.

By the spring of 2011, just five quarters after closing $350 million in financing,
Agassi had to start fundraising again. The goal had been to raise another
$350 million at a $2.75 billion valuation. But all Agassi could get was $200
million at a $2.25 billion valuation. The November 2011 press release cited
GE and UBS as investors, but people involved with the round say their
contributions were minimal. Almost all of the money came from existing
shareholders. The general public was like, Wow, this is a rocket ship,' says
one. But the bloom was off the rose, and the financial community knew it.

By the time Better Place would finally have a car for sale, in January 2012, the
companys daily burn ratethat is, the amount of money it was losing each day
on operating expenses like sales, R&D, salaries, and payments to suppliers
exceeded $500,000.
STEP 7: WHEN ALL ELSE FAILS, GO SCORCHED EARTH

Better Place sold just 100 cars in its first two months, mostly to employees.
The press and the public were expecting a low-priced car, says a marketing
executive. Agassi promised to ramp up sales once the cars technical kinks
had been worked out. But the reality was a PR disaster.

In June, with sales still slow and cash running out, the board of directors
convened for its regular meeting. At one point, Agassi was asked to leave the
room and Zarur, Agassis original collaborator, proposed that the board
assume responsibility for hiring an operations chief and a CFO. According to
people who were present, the board agreed, and Ofer, the largest individual
shareholder and the companys chairman, promised to inform Agassi. By that
point it was clear in our minds that this was not sustainable, says an insider.
The only way we could keep Shai in the company was if he became a
figurehead. They were taking the company away from him.

Shortly thereafter, Agassi spent the day at Ofers house and managed to talk
him out of it. Idan went wobbly, says a senior executive. Shai said, Over my
dead body,' says a board member. Ultimately it was over the dead body of
the company. When Alan Salzman, who had been Agassis loudest critic on
the board, learned what had happened, he resigned in disgust.

Ofer went on vacation following his visit with Agassi, sailing the Mediterranean
on his new yacht, Better Place, reportedly a $10 million, 165-foot sloop.
Agassi, meanwhile, accused Zarur of betraying him. Sometime later, Zarurs
biography on the Better Place website was rewritten to downgrade his
contributions to the company.

On September 28, 2012, Agassi emailed the board, asking for a safety net, a
bridge loan that would allow the company to make payroll and pay suppliers.
For months, hed been negotiating to raise even more money. There was a
deal for about $56 million in debt from the European Unions investment bank,
most of which was earmarked for Denmark, and there was talk of a possible
$50 million project in California and a $100 million deal to build a network in
the Netherlands. But the money hadnt come through, and without additional
funding from current investors, the company would be insolvent in a matter of
weeks.

Agassi had finally overplayed his hand. Israel Corp., though controlled by
Ofer, had been a public company since 1982, meaning that Better Places
books were audited as part of Israel Corp.s regular fiscal reporting. So Better
Places dismal sales and massive losses were now a matter of public record.
Insiders say that Ofer, who had been the companys most passionate
defenderoften to the point of willful blindnessbecame angry. Idan realized
he was being manipulated, he realized hed been made a fool of for five
years, one says. Shai went from being the person he loved most to the guy
he hated most.

Days later, Ofer proposed that Agassi step down as CEO and become
chairman. Agassi said no; Ofer would have to fire him outright. So Ofer did.
An electric car with a switchable battery is the future, Agassi wrote in an
email to the company on October 2, 2012, announcing his departure. I will
think of you every morning, as I enter my electric car, start it, and smile as I
see Oscar come up to greet me. Agassi continued to drive his Better Place
car but never returned to the offices.

In what was perceived as either an act of blind faith or perhaps a face-saving


move, Ofer led one final $100 million financing round and turned over the tiller
of this sinking ship to Thornley, the Australian CEO. The financial
management was in such a mess, Thornley says. We had suffered from a
lack of management discipline. Thered been a lack of accountability.

As the new CEO, Thornley saw the full effect of that lack of accountability.
Agassi, with the boards consent, had allowed many of the companys
suppliers to insert high minimum orders and cancellation penalties into its
contracts. This created more than $100 million of off-book liabilities. Canceling
the billing-system contract aloneAgassi had purchased the software from
Amdocs, which primarily serves large telcos with millions of customerswould
cost the company $80 million.

These runaway expenses meant that Better Place would have to quickly sell
as many as 30,000 cars in Israel just to break even. But by November 2012,
the company had sold just 500 cars there. There wasnt a snowballs chance
in hell we could have gotten to positive cash flow in Israel, Thornley says.
The only path that existed would have been to raise more capital and expand
to other countries. By the time the books closed on 2012, Better Place would
record an operating loss of $386 million. The board fired Thornley in January
2013.

Dan Cohen, a close associate of Ofers, took over. He shut down operations
in Australia and announced that the company would only focus on Israel and
Denmark. (Upon hearing this news, Daniel Roth, now a LinkedIn executive,
sardonically acknowledged on Twitter that his Wired story, The Future of the
Electric Car, should be amended to add, But Probably Not.) A few hundred
more cars were soldmostly on corporate leases, and mostly because Better
Place guaranteed to buy back the cars after the leases were over.

Those guarantees would be worthless by May, when Better Place declared


bankruptcy. The company and its affiliates in Australia and Denmark had
raised almost $1 billion. They had only put around 1,400 or so electric cars on
the road by the time the court-ordered liquidation started that spring.

Some former employees and customers blame Better Places failure on the
board of directors, and especially Idan Ofer. According to that argument, the
board could have allowed the car more time on the market, could have made
more of an effort to enforce sensible financial controls, and could have fired
Agassi at least a year earlier.

It seems likely that after the bankruptcy is settled, investors, including Ofer,
will have lost every penny they put in. Agassis 12% stake in the company is
now worthless; his patent for a battery-exchange station will wind up being
owned by someone else; and the company he poured so much of his life into
is dead. Meanwhile, those customers who purchased cars are left with a hard
lesson in what it means to be an early adopter. We didnt know how bad the
state of the company was when we bought the carwe just really believed in
the vision, says Brian Blum, a Jerusalem-based freelance writer and father of
three who bought a Better Place car in August 2012. Its a real shame,
because the car drives so well. I try to be positive.

STEP 8: SHOW NO REMO RSE

I first contacted Agassi about this story nearly a year ago, in June of 2013. We
corresponded many times in the months that followed, as I tried to convince
him to go on the recordvia Facebook, email, phone calls, and eventually
during an in-person meeting at a seaside caf outside Tel Aviv. The answer
was always the same. Agassi steadfastly refused to explain his tenure at
Better Place or to confirm or deny allegations of erratic behavior and poor
management. Its a great story, he wrote in his first Facebook message to
me in June. But Im in no position to interview right now, for obvious reasons.
Shortly before press time, he agreed to respond to my reporting, but only in
writing. In the end, he simply replied that Shai Agassi declined to comment
for this story.

Agassi may see this dark time as a kind of wilderness period before he
emerges again with another world-changing idealike the one Steve Jobs
went through after being fired by Apple in 1985. I wouldnt count Shai out,
says Saul Singer, coauthor of Start-Up Nation and a friend of Agassis. Im
sure hell find a way to reinvent himselfto try to find the next big thing. Whats
funny is, hell be forced to do it leanand thats okay.

Indeed, Agassi has not completely left the public stage: Last August he wrote
a four-part, 8,000-word series on the future of cars for LinkedIn. In the posts,
he argued, still dwelling perhaps in the realm of Shai math, that Detroit should
offer a mass-market electric car for less than $10,000 and make up the money
by creating a charging network. Much of the piece seems straight out of his
original white paper, but Agassi didnt mention his old company. It was as if
the past seven years hadnt happened.

Agassi isnt the only person who feels that his idea will outlive the infamy of
his startup folly. Many of his former employees, even those who have clearly
come to despise their old boss, still treat that white paper by Agassi and Zarur
as a near-sacred document. They believe that Agassis fundamental insight
was world-changing and will eventually come to pass. In 10 years we
probably couldve gotten there, says Thornley. The tragedy of the company
is that we were trying to accelerate the trend toward electrification and we
may have retarded it.

Maybe not. While Better Place was being sold for scraps, Tesla Motors, which
pursued a strategy that Agassi had long derided as overly cautious and small-
minded, delivered its 25,000th car. Perhaps more significantly, the company
has added nearly 100 so-called supercharger stations in the U.S. and Europe
since late 2012. The stations can deliver 170 miles worth of battery capacity
in a half-hour charge. The networks look a bit like what Agassi long imagined.

Teslas Model S car, it turns out, has a swappable battery. Musk never
seemed to put much stock in that technology, but he had the intellectual
flexibility to allow that Agassi might have been right about a few things. In
June 2013, just three weeks after Better Places bankruptcy filing, Musk
hosted an event in which someone drove a Tesla onstage and a contraption
below the stage swapped its battery in 90 seconds. The plan is to roll out a
handful of battery-switch stations this year between Los Angeles and San
Francisco. Customers will be able to choose between a free charge or a paid
swap.

Teslas next task will be to build a gasoline-free mass-market car. The Model
E, as its being called, will be a $35,000 family sedan. It is slated for a 2017 -
release, 10 years after Agassis launch. Teslas successand that of any other
electric-car companywill likely depend on how well they absorb the lessons
of Better Places failure.