Project Better Place: The Back Story
By Bill Moore
Long-time EV World reader Mike Granoff hadn't slept much in the last four days, he told me late last night. He had just flown back on a non-stop, polar flight from Tel Aviv, Israel to Los Angeles, connecting to a flight that would reunite him with his young family vacationing in Utah. From the ski slopes of the Wasatch Mountains, Mike unwound and told me the back story of Project Better Place.
Only the day before, as one of the key partners in Project Better Place, he had been present for the official announcement that Renault-Nissan Alliance would begin building electric versions of the popular Renault Megane sedan. This was companied by an announcement that the Israeli government had passed very favorable tax legislation that will encourage the deployment of electric vehicles.
The road to that momentous alliance between the State of Israel, one of the world's largest carmakers and US and Israeli investors on January 21, 2007 in Israel began several years earlier at the World Economic Forum in Davos, Switzerland. Israeli-born Shai Agassi was on track to become the next CEO of enterprise software powerhouse SAP. A naturalized U.S. citizen with dual-citizenship, Agassi was a member of the "Young Global Economic Leaders"group that is part of the World Economic Forum. During the 2004 meeting in Davos, the economic and political leaders were challenged to "make the world a better place" by 2020.
According to Granoff, Agassi was moved by that challenge and spent the next couple years casting about for a personal way to make a difference. He quickly came to the conclusion that hydrogen wasn't practical and biofuels simply couldn't scale sufficiently to replace petroleum. Instead, he realized that the introduction of electric cars would produce a fundamental shift in society, breaking the world's dangerous addiction to oil, as well as tackling the problem of global warming. A rising star in the enterprise software industry, Agassi also understood that the old economic model that saw the sale of hundreds of millions of gasoline vehicles (there are now some 850,000 million motor vehicles on the road around the world) wouldn't work for electric cars.
The reason is when you buy an electric car, you buy both the car and a lifetime of energy to power it -- in the form of the battery pack -- upfront, unlike gasoline cars where you buy fuel in small, easy-to-handle increments over the life of the vehicle. The cost of the electricity being trivial compared to its petroleum equivalent. What if you separated the cost of the battery from the car using a model similar to the cellular telephone industry? he reasoned. Instead of buying a car, you would buy a transportation service, one that would provide all the functionality of a gasoline car -- including range -- while costing less.
To make the idea work, however, two key elements were essential. You would need a ubiquitous and convenient infrastructure -- in Israel's case, half-a-million charging stations -- and the ability to quickly and conveniently exchange that battery if and when needed.
Agassi was convinced his model made sense and at the Davos Forum in 2006 he mentioned the idea to Israel's now-president Shimon Peres who thought it was "brilliant," adding though that this wasn't a project for government, but for a private company. He suggested Agassi consider starting that company. The U.S.-Israeli citizen objected saying he was in line to become the head of SAP. Peres responded that Agassi needed to decide which was more important to him: a new software upgrade or the fate of the planet.
Within two weeks, Agassi had resigned from SAP.
Why Israel? I asked Mike Granoff, interrupting his narrative.
"It's a transportation island," he responded. The country is small, less than 10 miles wide at its narrowest point. All of the major urban centers are just 50 miles apart, easily within the range of a 100-mile electric car, especially where charging stations are as common as parking meters and easily found using GPS installed in the car.
Israel is also a land of "early adapters," Mike explained. Israelis had adopted cellphones long before they were in widespread us in US. Israel is also the most entrepreneurial country in the world after the United States. There are more new start-ups per capita than anywhere else on the planet; and it has a higher per capita percentage of venture capital funds than even the U.S.
Many of the cars in Israel are owned by corporations that offer them as perks for their employees, offering the opportunity to sign up a few major businesses that will provide EVs to their workers.
Finally, its tax structure encourages the introduction of electric cars. A gallon of gasoline -- all of which has to be imported -- costs US$7.00 today. The excise tax on a conventional car is 72%.
A brief news report about the meeting between Agassi and Peres at Davos caught Granoff's attention, who had been thinking along similar lines because of the writings of both EV World and Felix Kramer's CalCars Initiative, decided to contact Peres, from whom he is removed by "one or two degrees of separation" because of the relatively small population of the State of Israel, where Granoff helped establish Israel Clean Tech Ventures, the nation's first green technology venture capital firm.
That meeting led to an introduction to Agassi. It was on June 13, 2007 that Granoff arranged a meeting with Idan Ofer, the head of The Israel Corporation. Granoff told me that Agassi originally resists having the meeting, saying it was like his going to ExxonMobil. Israel Corporation is one of the country's largest investment holding companies with interests in chemicals, shipping, energy and advanced technology. A billionaire, Ofer's background also includes off-shore oil development, production and storage.
"Idan's a progressive guy," Granoff assured Agassi.
Despite Agassi's reservations, the meeting went well with Ofer quickly taking a serious interest in Agassi's Project Better Place, commenting to an associate, "We're going to have to sell our oil refineries."
By the October 29, 2007 "coming out party", the venture had raised US$200 million, half of it from Israel Corporation, the rest from private investors Granoff had lined up, along with Morgan Stanley and Vantage Point, a leading venture capital firm.
Now all the project needed was "countries and carmakers," Agassi remarked to Granoff.
Both came this past Monday in Jerusalem when Carlos Ghosn, the head of the Renault-Nissan Alliance signed an MOU officially joining the project, pledging to produce electric versions of its Renault Megane as early prototypes, as well as begin working on a ground-up EV design.
Of equal importance to the success of the project was the participation of the Israeli government which passed tax legislation that not only preserved the 72% tax on gasoline vehicles, but enacted a mere 10% tax on EVs. Granoff told me that there was a lot of skepticism that the highly fractured Israeli government would support the project. It turned out that opposition parties that usually, on principle, resist any ruling party proposals, threw their support behind this piece of legislation.
Deliberately disparate focus groups that Agassi and Granoff assembled in Israel -- people Mike characterized for me as being some of the last to adapt new technology -- all thought the idea was brilliant and wanted to know how they could be part of the beta test program.
Why not? Sign up for a five year service agreement and the company plans to give you the car for free!
That's right, free.
How, you ask? For starters, there's the high operating costs of gasoline vehicles in Israel. It costs the average Israeli US$400-500 a month to fuel their cars. In fact, Granoff pointed out that the average car in Israel is worth less than the driver pays for fuel in a year. Project Better Place will buy electricity for its network of charging stations at the commercial rate, making its profit on the difference between that $400-500 a month and the price of the electricity. In that margin should be enough revenue to give customers who sign long-term agreements their cars for free.
And then there is the battery after-market. Since Agassi's company also owns the battery, it can utilize them as additional revenue sources beyond their initial deployment in the Renault electric cars. Granoff gave me the example of a battery that after 2,000 cycles holds only a 70% state of charge. That pack would be removed from the car, replaced with a fresh one for free, and used in some other application: one example being a "boat in Hawaii."
As it grew late -- Mike thought I lived in California, a common mistake -- we began to wrap up the conversation. But I had to ask him the obvious question: Where will the electricity come from? He replied that for the time being, it will be from a combination of coal and natural gas, which is what powers Israel's national grid, itself a curious fact since the country is one of the world leaders in the development of large-scale solar reflector units used to generating electrical power. It's got a huge desert and lots of sun, but doesn't use it to produce power. Project Better Place hopes to also change that situation.
Granoff said that once the grid in Israel reaches capacity for recharging all those new electric cars, the company has made it clear to authorities that it will be willing to pay a premium for green electricity, providing an important inducement for some company to take advantage of all that Negev sunshine.
Finally, Mike wanted me to understand that Project Better Place has no intention of creating a monopoly. Agassi has adapted the Open Source philosophy when it comes to developing the technology that will manage this complex network. Granoff stressed that this movement is trying to displace a US$1.5 trillion industry and that we need to move fast. He said he and Agassi would be happy if they ended up being the smallest of the ten top global players in this emerging field.
"We welcome the competition."
There is one final comment that Mike made early on in the interview that underscores the importance of what he and Agassi, and their partners, are doing. Talking about the Monday event in Jerusalem, he quoted Israeli President Shimon Peres, who said, "Oil makes a mockery of democracy."
You have but to look at the nation's around the planet that have large oil reserves to appreciate the astuteness of that comment. Ending the planet's addiction to this substance will do more to further the cause of democracy than all the guns and good intentions of West.
blog comments powered by Disqus