By on January 26, 2010

It goes without saying that it’s always good news for a business to be able to raise hundreds of millions of dollars on the financial markets. Just as important as the financial boost, such capital-raising also raises the profile of the company, presenting it as a viable investment and implicitly endorsing its underlying business plan. In the case of Project Better Place’s recent $350m funding boost however, the benefits might be largely limited to the firm’s balance book. Heavy participation by HSBC, Lazard and Morgan Stanley do help raise Better Place’s profile, but HSBC and Lazard are the only new investors in this most recent round of financing: Morgan Stanley, IsraelCorp, VantagePoint and other previous investors make up the rest of the round. This speaks to a fundamental challenge underlining Project Better Place: broadening, rather than deepening its appeal and support.

Investment in EV firms has been largely either government-led or buttressed by co-investment by battery suppliers. Or, as in the case of A123 Systems and Fisker, both. Better Place has yet to improve much on that model, as IsraelCo’s investment underlines BP’s dependence on government support, particularly in its test-markets of Israel and Denmark. Indeed, Israel’s wholehearted embrace of Better Place should probably be interpreted as an investment in national security as much as a bet on Better Place’s long-term success. As such, a re-up in funding from this partner with very limited aims (getting Israel to energy independence as quickly as possible) is no guarantee of the long-term success of the Better Place project.

After all, building EV charging infrastructures in Israel and Denmark isn’t even half the battle for Better Place. These markets are largely  insignificant to the global auto game in terms of volume and tastes, and since both nations are committed to skewing their markets to no end in order to help BP succeed locally, the local implementation of BP’s infrastructure is unlikely to be directly transferable to other global markets. That’s in addition to the soci0-geographical limitations (Israel and Denmark are compact, urbanized, developed countries) to translating local success to global results.

And make no mistake: Better Place needs global results to succeed. Due to the high costs of infrastructure construction, battery leasing schemes, and general implementation of its system, Project Better place isn’t going to take over the world by simply building a charging infrastructure. The infrastructure is a means to an end, namely the holy grail for all EV-related firms: establishing a battery and charging standard that the global industry can embrace (and pay royalties for). Better Place is likely more than willing to continue taking a loss on its Israeli and Danish projects, as long as it becomes the first major player to establish the all-important standard for EV infrastructure solutions, which would force EV entrants to their markets to adopt their battery specs (or perhaps contract to Better Place for batteries and recharging/switching).

But in order for this strategy to be effective, Better Place needs to broaden its support in addition to getting established investors to double down on the scheme. Even if the Better Place infrastructure revolutionizes the Israeli and Danish markets, consumers will be forced to choose from the vehicles Renault happens to offer, as the French automaker is the only OEM to sign on to Better Place’s standard to date. Even Renault’s sister company Nissan declined to equip its Leaf EV with BP-compatible, switchable batteries, pointing out the real challenges Better Place faces in broadening the appeal of its battery standards.

This problem is emblematic of the larger challenges of the EV market: firms like Tesla have proven that it’s possible to pull huge amounts of money for its zero-emissions products from committed EV fans with means. The ramp-up from boutique early-adopter playthings to truly mass-market transportation appliances is the fundamental challenge for EV firms going forward, especially with GM and Ford diving headlong into the EV game with plenty of US government backing. Though these first generations of electric vehicles will imperfect and challenging for their makers, they’ll be crucial in establishing dominance in the market, and therefore creating future infrastructure standards. Wider appeal is far more important in this struggle than a few backers with deep pockets.

Better Place’s CEO Shai Agassi understands the challenge, telling VentureWire “we’re in discussions with a number of [original equipment manufacturers] to bring the same technology to other car makers… this round provides great validation for [those] other OEMs.” But with Better Place stuck rolling out its infrastructure in the tiny markets of Israel and Denmark, those OEMs still have more incentive to beat Agassi at his own game than join him, and surrender the war over EV standards without a fight. Once Better Place proves it can broaden its appeal, it might well become a household name. Until then, it needs the support of a broader base of stakeholders as much as it needs new capital.

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4 Comments on “Better Place Birthwatch: New $350m Investment Brings Deeper Pockets, But Not Broader Appeal...”

  • avatar

    I think that the tipping point for BP will come from the other big, interested party to this system: electric utilities. A fundamental aspect of BP is the integration of the batteries as storage mechanisms via cell phone communications and charging networks. A driver of a BP car would contract for usage, giving BP and the utilities a baseline for planning power needs, as well as a place to store electricity generated during off-peak hours. This smoothes out demand for the utilities while locking in demand. While any EV available for the next 5 years will necessarily be an urban vehicle with access to a charging setup, I think that there is a real market possible in western countries where these conditions exist. I believe that commercial fleets are a likely market, as well as urban dwellers who could go for a ZipCar type solution to their shopping and day-trip needs. If a big utility gets behind BP in NA or Europe, I think the die will be cast. Until then, you’re right, few other mfrs will get on board with the BP spec.

  • avatar
    Greg Locock

    One thing I like about the BP model is that neither you nor they are necessarily tied to one battery technology. So if you are going to spend the week trundling around town, get a cheap as chips lead acid. If you are burning up the highway, (admittedly in 70 mile hops), get the latest technology.

    Maybe somebody will package a gas engine and tank inside a Better Place battery module. That’d be funny. or a fuel cell, in the unlikely event that that ridiculous technology ever comes to fruition.

  • avatar

    1. It is very typical that a new round of financing for a privately held company has only one or two additional investors.
    2. BP will use success in early tests in initial markets to prove the viability of the business model.
    3. Don’t forget that the BP model will enable consumers to purchase EVs for a smaller initial cost. The fact that BP charges a lease fee for the battery will be fine because it will still be less than the consumer’s previous gas cost. Lower initial cost nearly always wins. In this case, as long as there are enough battery swap stations in each geography that BP enters. There need to be enough stations so that consumers don’t worry about trip length. In the SF Bay Area, that would include trips to Sacramento, North Tahoe, South Tahoe, and potentially Los Angeles.

  • avatar

    Better Place has the right idea that electric vehicles make sense first in places with geographic limitations where recharging range is less of a disadvantage.

    Israel and Denmark seem to be naturals. Not like the average Israeli can take a road trip to Baghdad. Except for the air conditioning loads, Hawaii is another.

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