The Electric Car Acid Test
Just over a year ago, on Dec. 31, 2006, Shai Agassi settled into a leather couch in the office of Ehud Olmert to meet with the Israeli Prime Minister. Agassi, then a top executive at German software giant SAP (SAP), had come to pitch the idea of his native Israel reducing its dependence on oil by replacing gas-powered cars with electric ones. Olmert liked the concept but laid down a steep challenge: He wanted Agassi to raise hundreds of millions in venture capital and get an auto industry CEO on board before he would pledge his support. "You go find the money and find a major automaker who will commit to this, and I'll give you the policy backing you need," Olmert said.
Within a year, Agassi had pulled off everything Olmert had asked. He raised $200 million in venture capital and, with help from Israeli President Shimon Peres, persuaded Carlos Ghosn, the chief executive of Renault and Nissan (NSANY), to make a new kind of electric car for the Israeli market. On Jan. 21, Agassi, Olmert, Peres, and Ghosn unveiled the novel project, under which Agassi's Silicon Valley company, Better Place, will sell electric cars and build a network of locations where drivers can charge and replace batteries. Olmert has done his part, too. Israel 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.
Agassi contends that Israel is just the start. He hopes to expand his business into several other countries over the next few years, with China, France, and Britain among the potential markets. Ultimately, he believes that his company and others like it could shake two pillars of the global economy, the $1.5 trillion-a-year auto industry and the $1.5 trillion-a-year market for gasoline. "If what I'm saying is right, this would be the largest economic dislocation in the history of capitalism," says Agassi.
The odds of Agassi succeeding on a grand scale are incalculably long, especially when you consider his background. Up until last year, the 39-year-old had spent his entire career in the software industry, first as an entrepreneur and most recently as a leading contender for the CEO job at SAP, the world's third-largest independent software company. He had no experience with energy or autos. Industry insiders are skeptical that anyone can put together a profitable network of electric service stations, because batteries are expensive and complicated to swap in and out. "It seems more like a pipe dream than a viable proposition," says Menahem Anderman, president of Total Battery Consulting in Oregon House, Calif., which consults with major automakers and startups on battery issues.
Yet soaring oil prices and the threat of global warming give Agassi an opening. Governments worldwide, like Israel, are getting more serious about reducing their dependence on oil and are more concerned about the effect of carbon emissions on climate change. And the auto industry is placing large bets on alternative power vehicles like never before. At the North American International Auto Show in Detroit last week, Toyota Motor (TM) announced a plug-in hybrid vehicle, and startup Fisker Automotive unveiled its Karma hybrid sports car.
Agassi does bring a new perspective to the alternative fuel world. The trouble with traditional electric cars is that they can go only 50 or 100 miles and then they need to stop for hours to recharge their batteries. Hybrids overcome the mileage limitations, but only by burning gasoline. One of Agassi's unconventional ideas is to separate the battery from the car. That will allow drivers to pull into a battery-swapping station, a car-wash-like contraption, and wait for 10 minutes while their spent batteries are lowered from the car and fully charged replacements are hoisted into place. Better Place will build the service stations, as well as hundreds of thousands of charging locations, similar to parking meters.
Agassi's other unusual idea is for Better Place to operate as something akin to a mobile-phone carrier. He plans to sell electric cars to consumers at a relatively low price and then charge them monthly operating fees. The total cost of owning an electric car, including the up-front price and ongoing operating expenses, is expected to be less than that of a conventional car. At first, consumers will buy cars directly from Better Place, though later they could buy them from auto dealers with a Better Place service plan. Agassi hopes to begin testing the system by the end of this year and have tens of thousands of electric cars on Israel's roads by 2011.
The approach has won Agassi support from some unlikely corners. Idan Ofer, chairman of Israel Corp., a leading refiner of oil in Israel, is one of his biggest backers even though Agassi's technology could cut into demand for gasoline. "If I didn't do it, somebody else will," says Ofer. "What's the point of fighting something that's inevitable?"
Still, Agassi has plenty of hurdles to overcome. Right now, Better Place has fewer than 20 employees in Silicon Valley and Israel. He must hire fast and raise the money to pay for the battery replacement stations, charging facilities, and the batteries themselves, which cost about $10,000 a pop. He plans to raise capital separately in each country where he operates. A lot of the basic details still have to be worked out, too, including the up-front price of the cars.
It's been a whirlwind year for Agassi. While his wife and two children live in Silicon Valley, he has spent the past 12 months in airplanes, hotels, and conference rooms. He sleeps three to four hours a night. There's no telling where he will turn up next: New York, Paris, Jerusalem, or Dalian, China. Last September, Stephan Dolezalek of VantagePoint Venture Partners, one of Silicon Valley's largest venture firms and a Better Place investor, was in New York and got an e-mail from Agassi at 2 a.m. Curious, Dolezalek asked where he was. It turned out he was in the lobby of Dolezalek's hotel conducting a late meeting.
Agassi has lived his entire life on fast-forward. Born in Israel, he soon moved with his parents to Argentina, but was back in Israel entering college at age 15. Three years later, he was struck by a car while crossing a Tel Aviv street, and his yearlong recovery stretched out his computer science education and truncated his mandatory military service. Still, he had started four tech companies by the time he joined SAP in 2001.
The roots of Agassi's electric vehicle obsession go back two years. He was running SAP's global product development department of 10,000 engineers when the World Economic Forum selected him as a member of its Young Global Leaders organization. The goal that year was to make the world a better place. Agassi volunteered for the climate change committee. There, he met his sidekick for the next year, Andrey J. Zarur, then chief executive of a biotech startup, who had earned a doctorate from the Massachusetts Institute of Technology in environmental sciences. Quickly, the two decided to try to come up with new ideas for addressing global warming.
It was at a YGL conference in late 2006, in chilly Iceland, that Agassi got his breakthrough idea. He and Zarur, a Mexican of Lebanese descent, had volunteered to make a presentation, but they didn't have a topic yet. Sitting in the Vox bar in Reykjavik's Hilton Nordica drinking chamomile tea, Agassi suggested they propose replacing every car in the world with an electric car. "Is this crazy, or can it be done?" Agassi asked. "It's crazy," Zarur answered, "but it can be done." They stayed up late into the night creating a financial rationale for the switch based on oil prices and the cost of vehicles, and made their presentation in the morning.
Over the next two months, the pair spent all of their spare time studying the economics and technologies of electric vehicles. They concluded that new schemes set forth by others violated some of the basic laws of physics.
Instead, they favored technologies that already existed and gradually put together the ideas that became the Better Place business.
At this point, though, their project was still a pie-in-the-sky exercise. They prepared a white paper, "Scenarios—The End of Oil," and presented their findings to anyone who would listen. It was at a gathering of American and Israeli leaders in Washington in December, 2006, that their effort began to shift from a science project to a true potential business. Peres, the former Israeli Prime Minister and now President, was in the audience and was struck by Agassi and Zarur's ideas. "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." Within two weeks, at Peres' urging, Agassi was talking to government and business leaders in Israel, where he landed the fateful meeting with Olmert. (Zarur ultimately didn't stay the course, moving instead into venture capital.)
While Olmert held the power, it was Peres who quickly emerged as the godfather for Agassi's project. He helped broker meetings with automakers at the World Economic Forum's annual meeting in Davos. During a snowstorm last Jan. 26, he volunteered his hotel suite for meetings with car company executives. First, a vice-chairman at one Japanese automaker listened to the presentation and was cool to the idea. But then Ghosn came in, and he had precisely the opposite reaction. He invited Agassi to talk things over with operational executives at Renault.
What got Ghosn excited was Israel's willingness to slash import taxes for green vehicles and alter domestic sales taxes in ways that would make the economics of the plan work. "This is a unique situation," says Ghosn. "It's the first mass marketplace for electric cars under conditions that make sense for all the parties." As a result of getting involved, the Nissan-Renault Alliance has made electric autos a top priority. Initially, the companies expect to produce electric cars for Israel and other countries by modifying existing models, but eventually they plan to introduce new models designed from the ground up to run on batteries developed by Nissan.
Immediately after the Davos meetings, Peres urged Agassi to take on Project Better Place as his own business. Agassi was in line for the CEO job at SAP, but Peres challenged him to change course: "In your young life, there's nothing better you could do." A few days later Hasso Plattner, SAP's chairman, called Agassi to say CEO Henning Kagermann had signed on for two more years. Since that would push back Agassi's opportunity to move into the CEO spot, he saw it as a sign that he was free to leave and pursue other career paths. He quit on the spot, though two months went by before his departure was final.
Agassi's legacy at SAP could signal how well he'll perform in his new gig. Plattner was upset when he left. He had depended on Agassi to help stir up a stolid German company, and Agassi had done just that—proposing radical new technology initiatives, which were at times resisted by longtime employees in Germany. Plattner said he regretted Agassi's departure: "Shai moved us out of the dot-com bust to safe waters with a technology strategy that set up the success we're seeing now." Other SAP managers had chafed under Agassi's aggressive style. Their critique: He was long on vision but less good at getting things done. If true, that could torpedo Better Place. But Agassi denies it, pointing to his major initiative at SAP, a product called NetWeaver, which provided the infrastructure for weaving together hundreds of software applications that corporations use to run their operations. NetWeaver grew from zero to $1 billion in revenues in just three years.
When Agassi left SAP, he didn't decide at once on running Better Place. He gave himself 100 days to consider all offers. And he had many, including opportunities to run large technology outfits. But he was stuck on the electric vehicle project. He thought about what he wanted to accomplish in his life.
He felt strongly about the need for a peaceful resolution to Middle East conflicts, and he figured that one way to reduce tensions was to reduce dramatically the world's dependency on oil. He had chosen Project Better Place as the name for his project because of the challenge to the Young Global Leaders a year earlier to try to make the world a better place. He couldn't think of anything more important he wanted to do.
By spring, Agassi was refining his business ideas. Those years at SAP gave him a unique perspective on overcoming the hurdles to widespread electric vehicle adoption. He saw that the vehicles needed an infrastructure comparable to NetWeaver to make them viable. On a 10-hour flight from Tel Aviv to New York, he laid out the core business model for Better Place.
During the summer, he concentrated on raising money. His big break came during a meeting with Israel Corp.'s Ofer last June. Agassi was in Israel to raise money from the country's leading industrial families. One of Agassi's allies, investor Michael Granoff of Maniv Investments, a New York company that concentrates on alternative energy investing, arranged a meeting on June 12 in Ofer's office on the 23rd floor of the Millennium office tower—with a panoramic view of the coast. Agassi laid out the economic rationale for electric vehicles and explained his business plan. As he wrapped up, Ofer quipped to one of his colleagues: "I guess we'll have to sell the refineries."
Agassi couldn't guess where the conversation would go next. He had to rush to a meeting with Peres, but Ofer accompanied him down to the lobby. As they said their goodbyes, Ofer leaned forward and delivered some stunning news: "I'm going to invest in this, and I'm going to be your biggest investor. I'll put in $100 million." A flabbergasted Agassi didn't know how real the pledge was, but when the initial round of $200 million in funding for Better Place came together last October, Ofer kept his word. Agassi lined up a wide range of other investors, including investment bank Morgan Stanley (MS).
In December, Agassi saw his dream come one step closer to reality. With his backers in place and the company's launch scheduled, he took a test drive in a Renault that his employees had converted to run on electricity. The modified Renault Mégane is capable of going from zero to 60 in eight seconds and has a top speed of 130. Agassi and his beaming father, Reuven, tooled around a Tel Aviv suburb for half an hour.
Better Place now has talks under way with about a dozen other countries. Agassi hopes to pilot the project in a few countries this year and begin mass deployments in 2011. He's optimistic that he'll be able to defy the odds, but he's also realistic enough to know there are many difficult days ahead. "There will be a very loud splat when I hit the ground," he says, "or there's going to be a revolution."