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A Better Place for Electric Cars

Shai Agassi's Better Place is teaming with Renault and Nissan to make electric cars a reality in Israel

In the first program of its type, Israel, two auto companies, and an electric vehicle startup on Jan. 21 announced they will roll out a system for enabling mass use of electric vehicles in Israel. Renault and Nissan NSANY will convert conventional cars to run on electric motors and the startup, Better Place, will sell the cars and operate a network of charging locations and battery replacement stations. The technology and business model face long odds in replacing the gasoline engine. But the project will draw lots of attention, given the hundreds of millions of dollars and high-powered partners behind it.

The partners are expected to begin test operations late this year or early next year, and organizers hope to have tens of thousands of electric cars operating in Israel in 2011. They hope that once the program is running smoothly, the total costs of owning one of these cars will be as much as 50% less than for owning a comparable gasoline-powered car.

But it will be difficult to succeed on a grand scale. While the scheme gets around the current driving-distance limitations on all-electric vehicles—mostly a function of existing battery technology—industry insiders are skeptical that anyone can put together a profitable network of electric service stations. The batteries involved are expensive and complicated to swap in and out. "The Agassi project seems more like a pipe dream than a viable high-volume opportunity," says Menahem Anderman, president of Total Battery Consulting, which consults with major automakers and startups on battery issues.

Nissan and Renault Playing Catch-up

The high-risk plan came together through an unusual collection of business and government leaders. Former software executive Shai Agassi, chief executive of Better Place, conceived the plan. He was formerly a top executive at German software giant SAP (SAP). Israel President Shimon Peres got behind it. Israel Prime Minister Ehud Olmert initiated policy and tax changes to favor green vehicles. Carlos Ghosn, chairman of Renault and Nissan, saw it as a stepping stone into alternative-fuel cars. And Idan Ofer, chairman of holding company Israel Corp., the largest oil refiner in Israel, backed the project with more than $100 million of the $200 million in the first round of funding for the project.

Until now, Nissan and Renault had been among the laggards in alternative-fuel research. While rivals Toyota and Honda pioneered hybrid technologies, Nissan and Renault held back. Now, the two companies are placing bets on all-electric technology. In fact, Ghosn says that as a result of this project the Nissan-Renault Alliance has made electric autos its top priority. The companies expect to initially produce electric cars for Israel and other countries by adapting some of their current models, and to eventually introduce new models designed from the ground up to run on batteries. "This is a unique situation," Ghosn says of the Israel project. "It's the first mass marketplace for electric cars under conditions that make sense for all the parties."

Israel sees a shift away from gasoline engines as vital to its economic and security. To encourage the purchase of green vehicles, the country just boosted the sales tax on gasoline-powered cars to as much as 60% and pledged to buy up old gas cars to get them off the road. "I believe Israel should go from oil to solar energy," says Peres. "Oil is the greatest problem of all time—the great polluter and promoter of terror. We should get rid of it."

Acting Like a Mobile-Phone Carrier

Agassi's focus is providing the business and physical infrastructure needed to make electric cars a viable alternative to today's vehicles. He plans to operate Better Place much like a mobile-phone carrier, selling cars in packages that include monthly service fees. The company will operate networks of charging locations in parking lots and garages, and it has a design for car-wash-like battery changing stations, which will swap out a spent battery for a charged one to extend the range of the cars beyond 100 miles. The whole system, called a "smart grid," will be coordinated by networking software developed by Agassi's programmers.

Agassi is impatient to get on with the project. "This is just the starting line," he says.

Hamm is a senior writer for BusinessWeek in New York.

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