Another EV startup failure and what this means for the industry

by Sandy Tung

This is not a story about Fisker. This is Better Place, the battery-swapping startup that was set up in Israel in 2007 and was deemed the next big thing. Six years on, having raised over $850 million from huge corporations such as HSBC Group, Morgan Stanley, General Electric, Vantage Point Capital Partners, and Israel Corp, CEO Shai Agassi was forced out in October 12, his successor quit in January, and the startup has lost over $500 million. But first - why battery swapping?

The battery issue for EVs is a big one. Although battery life has improved by quite a bit since the first EV, its price and lifetime still makes the value of an EV depreciate quicker than its conventional counterpart. Why go for an EV knowing full well that your vehicle will be worth so much less than a regular car in a few years time?

There have been attempts to get around this, with Renault and Daimler AG selling electric cars and leasing out its batteries, so that the electric car (the electric Smart, in this case) would only cost 16,000 Euros (approx. $20,000), with the battery leased out at around 60 Euros per month ($80).

All this had been preceded by the hugely innovative Better Place, who pioneered battery swapping for vehicles in Israel. Instead of taking hours to charge your vehicle you simply drive up to a station (much like a gas station) and get your battery swapped in around five minutes. Lauded with praises, Deutsche Bank even suggested the business could lead a "paradigm shift" causing "massive disruption" to the car-making industry, and could even make gasoline vehicles obsolete. Renault-Nissan even agreed to 100,000 vehicles tailored to Better Place specifications. So much for success, then, as Better Place seems to have stalled and have delayed plans to roll out internationally.

Why has the business lost over $500 million in a country where gasoline costs a hefty $7.50 a gallon (hefty by US standards) and where most citizens live clustered around two main cities (Tel Aviv and Jerusalem)? Analysts suggest that the company had actually not done anything wrong, just that the time was not ripe for such an innovative idea. To strike at the heart of it, the world may not yet be ready for a paradigm shift like the gasoline fuel tank did decades ago. Until something that revolutionary comes along, the battery may not be able to compete, at least, not until its capabilities are much improved.

Better Place, like Fisker, is not the only EV startup to have hit hard times. Have we just hit a bump in the road, or is the EV destined to be a failure? Good ideas may take time to catch on, but the truly brilliant ones shift paradigms and change the way we live, which is exactly what the modern ICE engine did. And for the moment, EVs are not quite on the same level. But perhaps I speak too soon, for this year EV car sales are already increasing, and are predicted to be much higher than previous years. If we look at it from another perspective, they are actually doing quite well.

If you look at the figures, EVs are doing just as well as hybrids when they first came out. In its first year, Toyota's Prius and the Honda Insight sold a total of 19,244 units, whereas in the first year of the EV, the Leaf and Chevy's Volt (not technically a full EV, but is a plug-in) sold 17,345 units. In the second year the hybrids sold 20,300 versus the 33,300 EV units. It should be noted that half of all Volt sales were in California, where owners are incentivised to drive their Volts which are eligible for a Carpool Line sticker, which makes things much easier in the car-clogged state. EVs have had a tough time on the market - when the first hybrids came out, they kind of sneaked up on everyone. It was a cool new gadget, but expectations were low. But so much hype began building up for plug-ins that when it did not become an instant superstar, people became disappointed.

Ford Focus Electric and Mitsubishi's i-Miev have already joined the Leaf and the Volt this year. Plenty of other carmakers are putting their plug-in models on the market next year, with Cadillac, Honda, BMW and Audi jumping on the proverbial bandwagon. Not to mention Tesla, which has an insanely long wait list, but hopefully would become a little shorter soon, as the company recently announced they were to increase production to 20,000 units per year.

Sales are increasing, and this is not because the auto industry is expanding, because it is not (at least, not quickly). As gasoline prices continue to increase, the EV looks increasingly more attractive. And this is the case around the world. Nissan Leaf sales are quickly picking up, setting a record for March. According a recent report by Pike research, "sales of plug-in EVs will grow at a compound annual growth rate of nearly 40% over the remainder of the decade, while the overall auto market will expand by only two percent a year," estimating that 3.8 million EVs will be sold annually by 2020.

Sales will continue to increase, as the prices of the EVs are now coming down, not because of tax incentives, but because of actual economics. Enough cars have been sold to drive manufacturing costs down so that those of us who aren't quite as adventurous as the trend-setters can now afford one. The price of the Leaf has been dropped from around $36,000 to just $28,800, with GM announcing a similar price cut for the Volt. Of course, tax credits are still available so you might even get it for as low as $18,000, which is really not bad at all.

Yes, there have been some bumps along the way. Quite a few, in fact. But as it stands, EVs aren't actually doing too badly at this stage of its development. The first real EV only hit the market three years ago, and only in the past year hasn't come up against any real competition within its category. It will take time for it to establish any sizeable market share, and looks like they are already doing that. The EV hasn't quite made its mark yet, but give it a few years before you decide whether it is here to stay or not.

And now onto the bigger question - most of these plug-ins run on electricity provided by the national grid (unless you own a big house with solar panels, ie. not me). When is the grid going green? Because as long as these cars are running on electricity produced largely from coal, it's not really going to help lower emissions significantly.

Note: A previous version of this article appeared on The Energy Collective.

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