Just a few weeks remain until Better Place LLC begins its commercial marketing in Israel, and a few key pieces of this company's complex puzzle are still missing. No one can deny what the company has achieved so far; in a relatively short period of time, Better Place has succeeded in becoming a technological reality, a complex model comprising electric cars and charging infrastructure. The cars are coming off the assembly line in Turkey at this moment, battery replacement stations are being built in Israel and Denmark, and the support and service infrastructure is ready to be launched.
But this success still does not explain how the company convinced several large investment bodies to finance the realization of this vision with hundreds of millions of dollars in a period that has seen two global economic crises, one of which we are still experiencing. With all due respect to the few thousand or even tens of thousands of cars that Albar and Eldan have succeeded in passing onto on their leasing customers, the Israeli market cannot explain why a giant like HSBC Holding plc (LSE: HSBA; HKSE: 005; NYSE, Paris: HBC) is investing eight figure amounts in a company that is valued at NIS 2.5 billion and that has yet to earn even one cent.
At least some of the puzzle pieces fell into place following our in-depth visit last week to the Israeli Better Place headquarters at the Afek Industrial Park in Rosh Ha'ayin, to view the electric car command and control center and the management of the charging infrastructure developed by the company. The eye-opening visit dispelled some of myths about the project.
Not a car company
The Renault Fluence ZE electric car is the company's ambassador worldwide, and the object that is attracting most of the public attention. The car has a steering wheel, brakes, and an acceleration pedal, and it drives the same way a car with a regular motor drives. It does require the driver to adapt to a different driving regime and way of charging up energy, but the same could be said about a sports car or an all-terrain military vehicle. This is a vehicle that can educate smart customers, and create a legitimate niche in the market. Its success depends on oil prices: if the price of oil goes back to $120-150 per barrel and all that is necessary for this is a few more proclamations by the US Secretary of Defense Better Place and Renault will probably have a hard time meeting demand.
But if we look at the bigger picture, the Fluence ZE, with all due respect, is no more than what techies call proof-of-concept. Its aim is to prove that the idea of an electric car with quick-change battery capability and battery replacement stations is attainable.
Actually, Better Place's infrastructure and management systems were originally planned to service several types of cars produced by different manufacturers. This means its business potential is not in its ability to market specifically electric cars, but to become a supplier of services for the global automobile industry, offering management services and readily available battery charging solutions to automobile manufacturers that join the industry in the future.
This solution has the potential to be a huge money-maker for two reasons: Firstly, most car manufacturers' business model is "make it and forget about it". The manufacturers want to sell cars using traditional sales channels, without having to deal with charging stations around the globe.
A number of the large carmakers around the world are still trying to develop their own management systems, but they are far behind schedule. Toyota, for example, has begun a joint trial with Microsoft that is aimed at developing a next-generation telematics software platform to control electric car charging that would connect to a charging infrastructure and be marketed globally. Toyota aims to complete development by 2015.
Better Place's solution already offers centralized command and control, that with help of sophisticated algorithms can predict the car's energy consumption in real time, and can direct the driver to the appropriate charging station. The system even integrates traffic reports, and takes into consideration congestion on the way to the charging station.
The car sends regular reports regarding the physical condition of the car, and as a bonus, also controls the technical applications that are sent to the driver. Anyone who wishes to send a new application to the driver is required to pay an entry fee. The three year advantage in development is significant, and it would not be surprising if more than one manufacturer expresses interest in this system.
The second potential for revenue is the ability to keep in contact with the cars for the entire duration of its life, and not just the first three or four years. Today, when a car's warranty expires, and it is bought by a second owner, it is considered a "lost car" by the manufacturer. The manufacturer / marketer of the car has no control over its servicing and parts replacement, and the potential to create additional revenue from it dramatically lessens as the car ages.
Better Place's control system is like a Catholic marriage. The car can go through four owners and ten years of driving on the road, but will remain 100% connected to the management and control system and bi-directional information will continue to flow. Assuming that the shelf life of an electric car in the used car industry is similar to that of a regular car, this is a treasure trove for the automotive industry.
Not an Israeli company
Better Place has an Israeli subsidiary, and its R&D center is in Israel, but the same could be said about Intel. Better Place was designed as a global company, and as far as it is concerned, the Israeli market is an experiment on a scale of 1 to 100 or even to 5,000 for its global plans.
The big money is in giant markets like China and the US, and the scale for the control and command solutions that Better Place developed is indicative of this more than anything else. The system was originally designed to operate similar to a cloud computer: it enables one control center to control in real time hundreds of thousands of electric cars in use around the world. Better Place's server farm is located in Madrid, and the company is currently managing from Israel its fleet of cars and charging stations in Denmark. In the same way, it will be possible in the future to manage the fleet of electric cars in Israel from a control center in India.
Better Place's production line of robotic battery replacement centers is another hint at the company's global intentions. The stations are built in a modular fashion so that they can be quickly installed in large numbers all over the world. All that needs to be done is to dig a hole, connect the necessary infrastructure, and set up the inside of the station with the materials that arrive from a joint production center (not from Israel). Actually, obtaining the regulatory permits is the longest part of the process in setting up the stations. In countries where permits for digging and connecting infrastructure are granted faster, such as China, the construction process of each station could last only a few weeks, reducing costs greatly.
The possibility of translating the Israeli model on a much larger scale is a strong business advantage, which is probably what lured the global giants.
Important byproducts
The control and command center that Better Place has developed has at least two byproducts, each of which affects markets much more lucrative than the automotive industry. The first one is a smart and dynamic solution for the accurate management in real time of "mobile and fixed assets" which for now is limited to cars, but in the future will include industrial equipment and even homes which will be able to be controlled remotely on a large scale. The technology is called smart grid, and it is the focus of industrial businesses throughout the world who are all hurrying to develop it. Better Place's system is already operating in full interface with Denmark's electric company, and apparently will with Israel too in the future. The market for these systems alone is estimated at tens of billions of dollars a year.
And we must not fail to mention the military sector, which has also invested tens of billions of dollars in the development of systems that can operate vehicles remotely and weapons systems with electric and hybrid propulsion platforms. These applications might still be far from completion, but these are the types of innovations that global investors are searching for.
Published by Globes [online], Israel business news - www.globes-online.com - on February 15, 2012
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