Electric cars are all the rage in Israel

On a hot September afternoon near Tel Aviv, Shai Agassi is taking his father, Reuven, out for a spin. Standing around in the heat is a crowd of onlookers waiting for their turn to ride in Agassi Jr’s new electric car. There’s a general buzz about the place.

This is an exciting moment. The big car we are watching, made by Renault and called the Fluence, looks like a conventional saloon of the kind favoured by Israeli families and businesspeople. In fact, it’s the vehicle with which Agassi, his investors and the French carmaker hope to bring battery-powered, zero-emission driving to the Israeli masses. We are watching the first public outing of two production-ready versions of the car.

Agassi, a boyish 42, founded and runs Better Place, the company which built Renault’s market for the electric version of the Fluence. We are at his visitors’ centre, just off a motorway and opposite the headquarters of Israel’s spy agency, Mossad. This site used to store the country’s fuel reserves, and the symbolism of housing an electric-vehicle venture here is not lost on this oil-importing nation dependent on hostile neighbours to run its two million cars. (As one Israeli puts it, “We buy their oil, and they repay us in another form – kinetic energy, rockets!”)

With the support of Israel’s government, Agassi’s company is proposing a radical solution to the country’s petrol problems. Better Place is wiring Israel with tens of thousands of spots where electric cars such as the -Fluence can plug in and recharge or – on longer trips – have spent batteries replaced at roadside forecourts. The batteries will be swapped for recharged ones in less than five minutes. Software developed by the company will send cars to the nearest charging point – and manage the demand that these cars will put on the power grid.

Better Place may be a new company, but electric cars have been a great idea for more than a century. At the dawn of the automobile age a century ago, battery power was a contender for marketplace dominance, alongside the combustion engine and steam power. About one-third of all vehicles were electric in America’s three biggest cities in 1904. Electric cars were cleaner and quieter than petrol ones.

However, when cheap oil was discovered in Texas, it brought down petrol cars’ running costs. By the 1920s, mass production of petrol models such as the Ford Model T had driven electric cars off the roads. As recently as the 1990s carmakers including General Motors and Toyota produced electric vehicles (EVs) in response to California’s tough emissions laws, but kept volumes low as they lost money on every car they made. Buyers struggled with the cars’ short driving ranges and frequent need to recharge.

Agassi’s battery-switching on forecourts will, he claims, make running an electric car as hassle-free as stopping off at a petrol station. In setting up a countrywide network of recharging stations, Better Place aims to make the Jewish state – already known for making water flow in the desert and incubating more than its share of high-tech firms – the world’s first nationwide laboratory for electric cars.

Agassi was born in Israel, but made his name in California at the software giant SAP before founding Better Place in 2007. He agrees to let me shadow him for two days as he prepares to roll the project out next month with the launch of a test scheme for the electric cars and their recharging network. Better Place hopes to launch nationwide a year from now.

“This is the Model T of the new age,” Agassi says as we look at the Fluence. “It’ll be like Henry Ford said 100 years ago: ‘You can have any colour you like, so long as it’s green.’” Whenever I see him presenting to investors, journalists or prospective customers, he tells a compelling story about oil dependency, air pollution and the best way to promote mass uptake of electric cars – a problem that he claims Better Place has solved.

He had the foresight, or good luck, to launch Better Place just when industry buzz over vehicle electrification was beginning to build up. He conceived the idea at a workshop session for young leaders organised by the World Economic Forum, then outlined his vision for battery-swapping electric cars at a 2007 presentation at Washington’s Brookings Institution, in which he claimed to have devised a way to run a country without oil. This riveted the attention of Israeli President Shimon Peres, who remains a key backer of the company and has described Agassi as “a brilliant man”. Agassi took his idea back to his home in Silicon Valley, where he set about setting up the company (its headquarters are in Palo Alto).

Agassi proposes to bring speedy, innovative thinking to the car industry – a world dominated by conservative family shareholders, where product cycles take the better part of a decade, and where the combustion engine has reigned unchallenged for a century.

Renault, whose CEO Carlos Ghosn is betting his company’s future on electric cars, gave Agassi’s business crucial support by promising to supply 100,000 electric Fluences by 2016 to Israel and Denmark – where Better Place is also installing a nationwide network. To put this in perspective, there are just a few thousand electric cars now on the road in north America and Europe.

Patrick Pélata, Renault’s chief operating officer, calls Agassi “a bold guy who knows how to get things done”. Electric-car enthusiasts like Agassi, Ghosn and some financial analysts say they have the making of a mega-trend – but there are still many sceptics. Toyota, the industry’s largest producer, thinks that pure electric cars will never be more than urban runabouts, and is investing primarily in hybrids like its Prius, which have a combustion engine for long trips.

Impressively, though, Agassi persuaded investors to pledge hundreds of millions of dollars for an untested and arguably risky business model in two financings in 2007 and 2010 – just as the credit crunch tipped carmaking into its deepest crisis in decades. “A lot of people have big ideas, but he’s got the ability to act on them,” says Anthony Bernbaum, global head of direct principal investments at HSBC, which took a 10 per cent stake in Better Place earlier this year. “He has a great balance of strategic vision and execution and detail.”

Better Place has drawn 15,000 people since February to its visitors’ centre, where prospective customers are ushered into a converted water tank, then treated to a slick sales presentation. They are shown the core of the company’s technological proposition: a switch system that decouples the car’s battery from underneath, and replaces it with a recharged one. On the day I was there, two visitors from Shanghai took the tour, one of whom got on his hands and knees to look under the car, and took photographs. China, now a bigger car market than the US, is viewed in the industry as the one market that will tip (or sink) global demand for electric cars.

Agassi claims, credibly, that people will only buy electric cars in numbers if they are as inexpensive and easy to drive as conventional ones. Better Place’s innovative battery-swap will, he says, allow it and Renault to market electric cars that look like conventional vehicles, rather than glorified golf carts.

Israelis like big cars, and the Fluence is roomy enough for five adults. “It’s a real car,” says Fabrice Izzillo, a Renault engineer, as he invites me to take the wheel at the visitors’ centre. He and three colleagues had that week tested the Fluence’s ability to withstand Israel’s late-summer heat on a 40°C-plus, four-and-a-half-hour drive to Eilat on the Red Sea.

Unlike the Prius or Honda Insight hybrids – squat hatchbacks whose offbeat design advertises their eco-credentials to other drivers – the Fluence is a classic three-box sedan, the shape children choose when drawing a car. The only sign that it is electric is its lack of an exhaust and front and rear lamps outlined in electric blue, a bit like the frames of designer glasses.

But when you turn the ignition and drive away, the car is silent save for the sound of its air-conditioning and the wheels on the road. When I step on the pedal, the car zooms forward, with the torque of a large-engined luxury car, minus the noise. Sarwant Singh, an industry analyst with consultancy Frost & Sullivan, speaks of the “delight factor” in driving electric cars, and I agree that if the obstacles to electric cars can really be overcome, this could prove to be the cars’ trump card.

After driving the Fluence, I move to the back seat as Agassi takes his father around the test track. He tells him to step on the pedal. “Go fast! It’s a sports car – go all the way!” The car reaches at least 100 kilometres per hour (62 miles per hour) on one of its trips along the test track’s straight, and can accelerate up to 135kmph (84mph

Performance aside, cost has always been a dealbreaker for EVs. Most car buyers, whatever they say about the environment, have been unwilling to pay a penny more for lower-emission cars than conventional ones – sales of hybrids slumped in the downturn and still account for barely 2 per cent of industry sales.

But electric cars look poised for a renaissance, thanks to the step-change in technology and some heavy pump-priming from governments around the world. All of the industry’s major carmakers, from the luxury producers BMW and Mercedes-Benz to Ford and Renault’s French rival Peugeot, will over the next three years launch cars powered by lithium--ion batteries with enough capacity to power most commuters to work and back.


This will begin shortly with the launch of two models – Nissan’s Leaf, produced by Renault’s Japanese alliance partner, Nissan, and due to go on sale in December in the US and Japan, and General Motors’ Chevrolet Volt, slated for production by the end of 2010. Better batteries will allow the Leaf and the Fluence to drive about 100 miles, or 160km on a single electric charge.

Britain’s cash-strapped coalition government has axed much spending pledged by its predecessor but has spared a planned car subsidy: from 2011 early buyers of low-emission cars will receive up to £5,000. In the US, Barack Obama’s administration devoted billions of dollars of stimulus loans to electric cars and batteries, and will give a $7,500 tax credit to people who buy cars such as the Volt and the Leaf.

Yet even with these sweeteners, carmakers are still puzzling over ways to make electric cars commercially viable. They will be expensive. Manufacturers will have to provide long warranties on the batteries – or, like Better Place, retain ownership of the batteries themselves. If they don’t sort the battery issue, they will risk seeing the cars’ resale values plummet: the performance of batteries is improving quickly, so how many second-hand users would buy an electric car with last year’s battery inside?

Israel is an ideal test-ground for what Better Place claims is an “all-in solution” for mass adoption of electric cars. About the same size as Wales or New Jersey, the country is small enough for the company to feasibly build a dense national recharging network.

On the day before i test-drove the fluence, i joined a small group of fellow guests in the auditorium at the visitors’ centre. On the door is a sign saying “The Solution”. On a seat recycled from a scrapped 1995 Mazda Lantis, I sit alongside Dafna Agassi, the CEO’s sister, who is heading his marketing effort in Israel. (Agassi’s brother Tal is the company’s head of global infrastructure deployment).

Agassi made the film as a marketing tool for prospective customers, but it condenses the same pitch he has successfully made to investors and the Israeli and Danish governments. The film begins with images of carefree people relaxing on a beach, getting married, and buying their first car, before moving into a montage of more worrying images: burning oil wells in a desert, a stranded polar bear, houses underwater after Hurricane Katrina. Agassi’s image appears on two small teleprompter-type screens alongside the big one. “We’ve all become slaves to the price of oil”, he intones. “The economic effect of cars can’t be measured just as the cost of gasoline or the cost of cars … look at the cost of deaths, the cost of sickness, the cost of climate change.”

It’s powerful stuff, but Agassi had more than a good story when he raised money for Better Place: he had solid entrepreneurial credentials under his belt, having founded or cofounded with his father several companies including Top Tier Software, which he sold to SAP. Investors pledged $200m for Better Place at its 2007 start-up, one of the biggest capital raisings of its kind. Israel’s government pitched in by slashing the high taxes it levies on conventional cars – up to 72 per cent – to 10 per cent for zero-emission ones.

Better Place’s biggest shareholder was, and remains, the Israel Corporation, the holding company of the Ofers, one of the country’s richest families. With interests in shipping, entertainment, and the country’s biggest refinery, it owns 30 per cent of Better Place.

A well-dressed, intense man, Idan Ofer, 55, is the chairman of Better Place. He has a 23rd-floor office with a sweeping view of Tel Aviv and the Mediterranean. No sooner have I come in than he says “look behind you” – and I turn to see a petrol tank in the corner. “That’s what I do”, he says. His office also has one of Better Place’s white-and-blue car-charging posts. “This is what I hope to be doing”, he says.

The props may be there to make a point, but Ofer could not have planned the live footage playing on his large-screen TV, transmitted via a business news channel. It shows the skyline of Hong Kong cloaked in heavy smog. “If this bothers people, especially in China and India as they make progress with car ownership and population, electric cars are going to be here much faster than you assume.”

Ofer asks me my opinion of electric cars. I say that I believe the day will come when most cars have batteries on board that powerful enough to do most or all the work of engines – but this would probably take decades. Ofer replies: “If you were the FT’s correspondent in 1985 on mobile phones, you would have said the same thing: ‘It will take a couple of decades’. Since then, technology has moved at exponential rates.”

He allows that there have been powerful forces in the car industry resisting electrification, including Toyota: “They have this hybrid technology which they have excelled in. Of course they want to keep it – so did Microsoft with Windows until others came along.” Better Place, he assured me “is going to be a very large business”.

Renault and Nissan’s CEO Ghosn, electric cars’ biggest booster, predicts they will account for 10 per cent of industry sales by 2020. But most analysts and carmakers predict sales will grow more slowly. Volkswagen’s CEO Martin Winterkorn said in March, even as he announced a major plan to develop EVs, that they and hybrids would only account for 3 per cent of its sales by 2018.

JD Power, the industry consultancy, estimates plug-in cars will make up just 3 per cent of the market in 2020. Germany’s carmakers, masters of the petrol engine, have been latecomers to electric cars, as has their government. However, Angela Merkel recently announced measures aimed at getting 1m electric cars on the country’s roads by 2020.

Agassi has assembled what looks like a formidable team in Israel. Better Place’s head of local operations is Moshe Kaplinsky, a burly action man who formerly served as deputy head of the Israeli Defence Forces. “I came to this project mainly because of a deep understanding of Israel’s dependence on oil”, he tells me, describing a visit to Palo Alto during which Agassi persuaded him to join the firm. “That’s what caught my heart and mind when I first met Shai and heard about this project.” Kaplinsky is drawing on his military background as he locates and builds the company’s Israeli infrastructure and trouble-shoots what he calls “extreme scenarios” – how the network would cope, for example, if a major event in Israel causes a sudden surge in demand for its services there.

In January, Agassi raised another $350m from existing shareholders and the investment arms of HSBC, Morgan Stanley and Lazard. He is certainly a persuasive salesman. And whatever you think about electric cars, it is difficult not to endorse his vision of reducing the amount of oil we use in transport. “Walking is not an option”, Agassi’s filmed image says at the conclusion of Better Place’s visitors’ presentation. “This is a new era of transportation. We’re ready, the car is ready, the system is ready; the question is: are you ready to switch?” The film ends with swelling, Hollywood-style music.

“Sold!” I say to Agassi’s sister Dafna. “Nice film”.

“Sometimes people clap at the end,” she says.

Better Place, despite having a name that sounds like a tree-hugging think tank, is a business – and an upstart in the world’s most intensely competitive big industry. Whatever his aspirations to improve the planet, Agassi – who owns about 16 per cent of the company – has a strong personal stake in its success.

After viewing the presentation and trying the cars, visitors who express interest in buying are directed to salespeople called “switchers”. The company says that it has signed up just over 5,000 customers and – more importantly – secured commitments to switch to electric cars from over 150 corporate fleets controlling 55,000 vehicles. (About 60 per cent of the 200,000 cars sold annually in Israel go to commercial fleets).

Better Place’s progress will be watched closely elsewhere: in addition to the nationwide deployment planned in Denmark, the company has regional projects in Ontario, Canberra, Hawaii and the San Francisco area, some of which are due to expand later. Crucially, Better Place also has a foothold in China, where Chery Automobile – a rising carmaker that has a joint venture with the Israel Corp – recently agreed to develop battery-switch technology with it.

Agassi’s more challenging task is selling Better Place’s switch technology (which Renault calls “quick-drop”) to other carmakers. While the company and its backers see its technology as profoundly clever, critics say it is costly and complex. Most drivers who want battery-powered cars, they say, will opt for hybrids or wait until electric cars deliver the range they need.

“I think it’s an extremely capital-intensive business model,” says Arndt Ellinghorst, head of European automotive research with Credit Suisse, who saw Better Place on an investor trip last year. “It might work in an isolated market separated from the rest of the world, like Israel, but will it work in Europe? Will other carmakers join them?”

Sarwant Singh also has his worries: “I really doubt the battery-swapping model will work,” he says. “It only appeals to a couple of specific segments”, such as taxi fleets.

Thus far Renault is the only major carmaker to have announced plans to produce cars with swappable batteries, although Agassi has held extensive talks with others. GM, much like Toyota with its hybrids, reckons that drivers of electric cars will suffer “range anxiety” – worries about running out of power with nowhere to recharge. It is including a petrol-powered generator on the Volt that keeps the car’s electric motor running when its battery runs low. Nissan’s Leaf will be pure-electric – like the Fluence – but Renault’s alliance partner has not signed on for battery switch. It is studying quick charging, so a car’s battery can be recharged in as little as 15 minutes, obviating the need for “quick-drop”.

Some carmakers are suspicious of a company that they fear will capture some of the money they make serving customers in the years after purchase, and effectively turn cars into commodities. Better Place plans to charge a monthly fee for its services – the sort of business model used by mobile telephone providers. Agassi and Peres have both in the past spoken of cars even being offered in the future “for free” – but Better Place now confirms the Fluence will be sold to customers at a comparable price to a conventional car.

Renault, which teamed up with Better Place in Israel and Denmark largely as a way to ensure big sales volumes of early electric cars, plans to go it alone elsewhere. “We believe that most customers in Europe will be commuters”, Pelata, the company’s COO told me. “They are OK to buy the car, and then we will rent them the battery with two or three different fees” – the cost will depend on how much they drive.

I sit inside another Fluence for a demonstration of battery switch. Better Place is testing the system ahead of its planned initial deployment of about 56 stations around Israel. (The company will offer all its customers a personal charging spot at home and work.) For a driver the system is, as I had been told, as easy as a visit to a filling station. The driver switches the car to neutral, turns off the ignition, and I feel the car rise as it is lifted. The old battery is taken out, then a battery is lifted from a rack alongside and latched into the bottom of the car.

On the same day I ride the Fluence, I interview Agassi, putting to him some of the scepticism in the industry about decoupling and shunting around heavy batteries. (The Fluence’s weighs about 250 kg). He is patient with my questions, which, I suspect, he hears a lot. “It scares the industry like any change scares the industry”, he says. “The analysts are still looking at a switchable battery car as if it were competition to an electric vehicle, but it’s competition to a normal car.”

But isn’t battery swap an expensive solution to a problem that market forces and technological change will solve themselves? “We’re building a network on day one that can serve 100,000-plus cars”, he says. The price of the network, he said, amounts to “about seven days of gasoline – seven days of gasoline to get a country off oil.”

He says that the same ratio applies to every country in Europe. “We can get France, the UK, Germany off the use of oil for seven days’ gasoline. We can prove that”.

To confront some of the scepticism, in April Better Place opened a switch station in Tokyo that is keeping three taxis running around the clock. There the time needed for battery switch is 59 seconds. The station has a glass wall, and is a minor tourist attraction.

Agassi’s company is sceptical about quick-charging, which it says is not as quick as it sounds: the car’s battery needs to be cooled first, or risk becoming degraded over repeated charges. Better Place also points out that it would put greater demands on the power supply; one of the company’s key constituencies, in Israel as elsewhere, is the utility companies. Utilities will need to manage the requirement for power that millions of electric cars will create.

Agassi’s model appears to have resonated in China, where the government is launching electric car pilots in five cities. In July, a government conference on electric cars endorsed battery swapping and slow charging as the way to recharge electric vehicles and plug-in hybrids in the future. “If China goes electric, it doesn’t matter if Merkel will only have a million electric cars on the road by 2020,” Agassi says.

Concluding the interview, we walk out to the visitors’ centre, which Agassi calls “the biggest dealership on earth”. He says that about 250 people pass through its door daily; as we stand there, about three dozen people are waiting for the tour.

“Do you see this?” he asks me, in sales pitch mode again. “This is every automakers’ dream – they would love to see something like this in their dealerships.

“I’m getting this here – and half of them are signing up”. With that, Agassi is off to another meeting.

John Reed is the FT’s motor industry correspondent

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