Ghosn’s attention shifted from Peres to Agassi, who dove right in.
Agassi explained his idea, as simple as it was radicaclass="underline" electric cars seemed expensive only because batteries were expensive. But selling the car with the battery is like trying to sell gas cars with enough gasoline to run them for several years. When you factor in operating costs, electric cars are actually much cheaper—seven cents a mile for electric (including both the battery and the electricity to charge it) compared to ten cents a mile for gas, assuming gas costs $2.50 a gallon. If the price of gas is as high as $4.00 per gallon, this cost gap becomes a chasm. But what if you didn’t have to pay for the battery when you bought the car and—as with any other fuel—spread the cost of the battery over the life of the car? Electric cars could become at least as cheap as gasoline cars, and the cost of the battery with the electricity to charge it would be significantly cheaper than what people were used to paying at the pump. Suddenly, the economics of the electric car would turn upside down. Furthermore, over the long run, this already sizable electric cost advantage would be certain to increase as batteries became cheaper.
Overcoming the price barrier was the biggest breakthrough, but it wasn’t sufficient for electric vehicles to become, as Agassi called it, the “Car 2.0” that would replace the transportation model introduced by Henry Ford almost a century ago. A five-minute fill-up will last a gas car three hundred miles. How, Ghosn wondered, can an electric car compete with that?
Agassi’s solution was infrastructure: wire thousands of parking spots, build battery swap stations, and coordinate it all over a new “smart grid.” In most cases, charging the car at home and the office would easily be enough to get you through the day. On longer drives, you could pull into a swap station and be off with a fully charged battery in the time it takes to fill a tank of gas. He’d recruited a former Israeli army general—a man skilled at managing complex military logistics—to become the company’s local Israeli CEO and lead the planning for the grid and the national network of charging/parking spots.
The key to the model would be that consumers would own their cars, but Agassi’s start-up, called Better Place, would own the batteries. “Here’s how it works,” he later explained. “Think cell phones. You go to a cell provider. If you want, you can pay full price for a phone and make no commitment. But most people commit for two or three years and get a subsidized or free phone. They end up paying for the phone as they pay for their minutes of air time.”3
Electric vehicles, Agassi explained, could work the same way: Better Place would be like a cellular provider. You would walk in to a car dealer, sign up for a plan based on miles instead of minutes, and get an electric car. But the buyer wouldn’t own the car battery; Better Place would. So the company could spread the cost of the battery—and the car, too—over four or more years. For the price consumers are used to paying each month for gas, they could pay for the battery and the electricity needed to run it. “You get to go completely green for less than it costs to buy and run a gas car,” Agassi said.
Agassi picked up where Peres had left off on another question: Why start with Israel, of all places? The first reason was size, he told Ghosn. Israel was the perfect “beta” country for electric cars. Not only was it small but, due to the hostility of its neighbors, it was a sealed “transportation island.” Because Israelis could not drive beyond their national borders, their driving distances were always within one of the world’s smallest national spaces. This limited the number of battery swap stations Better Place would have to build in the early phase. By isolating Israel, Agassi told us with an impish smile, Israel’s adversaries had actually created the perfect laboratory to test ideas.
Second, Israelis understand not only the financial and environmental costs of being dependent on oil but also the security costs of pumping money into the coffers of less-than-savory regimes. Third, Israelis are natural early adopters—they were recently number one in the world in time spent on the Internet and have a cell phone penetration of 125 percent, meaning lots of people have more than one.
No less importantly, Agassi knew that in Israel he would find the resources he needed to tackle the tricky software challenge of creating a “smart grid” that could direct cars to open charging spots and manage the charging of millions of cars without overloading the system. Israel, the country with the highest concentration of engineers and research and development spending in the world, was a natural place to attempt this. Agassi actually wanted to go even further. After all, if Intel could mass-produce its most sophisticated chips in Israel, why couldn’t Renault-Nissan build cars there? Ghosn’s response was that it would work only if they could produce at least fifty thousand cars a year. Peres didn’t blink, and committed to an annual production of one hundred thousand cars. Ghosn was on board, provided Peres could make good on his promise.
Agassi was caught between three possible commitments. He needed a country, a car company, and the money, but to get any one of them he first needed the other two. For example, when Peres and Agassi had gone to then prime minister Ehud Olmert to secure his commitment to make Israel the first country to free itself from oil, the premier had set two conditions: Agassi had to sign on a top-five carmaker and raise the $200 million needed to develop the smart grid, turning half a million parking spaces into charging spots, and building swap stations. Now Agassi had the carmaker, and it was time to fulfill Olmert’s second condition: money.
Still, Agassi had heard enough to believe that his idea could take off. Stunning the tech world, he quit his job at SAP to found Better Place. (It took four conversations to convince the SAP management that he was serious about quitting.)
But investors around the globe were not jumping at a plan that involved reimagining some of the largest, most powerful industries in the world: cars, oil, and electricity. Plus, since the cars were useless without the infrastructure, the charging grid would have to be developed and deployed before the cars were released in significant numbers. That meant spending most of the $200 million to wire the entire country up front—an enormous capital expenditure that would make investors’ heads spin. Ever since the tech bubble had burst in 2000, venture capitalists were much less venturesome; no one wanted to spend tons of money up front, well before the first dollar of revenue showed up.
Except for one investor, that is—Israeli billionaire Idan Ofer, who had just made the largest ever Israeli investment in China by buying a major stake in the Chinese car manufacturer Chery Automobile. Six months before, Ofer had also bought an oil refinery. So he knew a thing or two about the auto and oil industries. When Mike Granoff, an early American investor in Better Place, suggested tapping Ofer, Agassi said, “Why would he help me put him out of his two newest businesses?” But Agassi had nothing to lose.
Forty-five minutes into their meeting, Ofer told Agassi he was in for $100 million. He later increased his stake by another $30 million and told his Chinese auto team he wanted it to build electric cars.
Agassi raised the $200 million, making Better Place the fifth-largest start-up in history.4 With Israel in place as the first test case, others were quick to follow. As of this writing, Denmark, Australia, the San Francisco Bay Area, Hawaii, and Ontario—Canada’s most populous province—have all announced that they will join the Better Place plan. Better Place was the only foreign company asked to compete in developing an electric vehicle system for Japan, a highly unusual step for the historically protectionist Japanese government.