A Smart Car Dream in Israel—Not So Smart, After All?

Better Place, an ambitious electric car enterprise, pinned its hopes on Israel—but the smart car revolution imagined there has fallen flat.

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Gil Cohen Magen / Reuters

Shai Agassi, Better Place founder and chief executive, throws an ignition card over an electric car during the inauguration of a new vehicle demonstration center in the Israeli city of Tel Aviv Feb. 7, 2010.

As promised, the landscape of Israel is dotted with battery-switching stations, 27  blue-and-white buildings bearing the logo of Better Place, the most ambitious electric car enterprise in the world. The batteries are right there too, rows of lithium-ion blocks that can be lifted in and out of the rear of a four-door Renault Fluence in a bit more than the time it takes to fill up at the pump.

The only thing that’s missing is the cars — or, rather, the people who want to drive them.

In six months, Better Place has sold only 500 cars in Israel, the country that was supposed to showcase the vision of its founder, Shai Agassi, who predicted 100,000 totally electric vehicles would be on the road by 2016, sticking it to the petroleum industry and the despots it funds. Instead, Agassi is gone, forced out as CEO last month because of mounting losses seated in the hesitancy of Israeli consumers to commit.

“If it were popular, I might,” says Moshe Kretzo, 60, when asked if he would buy a Better Place car. The airline employee already owns a Honda Civic and a Hyundai SUV but was not about to take the plunge on the all-electric car, which can be re-charged when parked, or have its exhausted battery swapped for a fresh one at the company’s charging stations, toward which the dashboard computer kindly directs you. “I’ll let the other people try it,” Kretzo says. “I don’t want to be the sucker, the freier.” Another translation for the Yiddish word, known to every Jewish Israeli, is “chump.”

Israelis’ skeptical attitude about the paradigm-changing car muddies the question of exactly what’s going wrong with Better Place. Clearly Aggasi, a native of Israel who found early success in Silicon Valley, made maximalist promises. Agassi not only promised 4,000 cars would be on the road in Israel this year, and 64,000 in 2015, he predicted the electric car would surpass gas-powered vehicles by 2020, shifting $10 trillion from one industry to another in the course of a decade. On the spectrum running from enthusiastic marketing to starry-eyed prophecy, Aggasi could go from zero to 60 in four-point-three seconds.

But starting in Israel always looked like one of the soundest elements of his plan. The Jewish State is not only famed for its innovation — once it made the desert bloom with drip irrigation; today only the U.S. and China has more companies on the Nasdaq exchange — and this particular innovation plays into the country’s overarching pre-occupation with security:  An electric car would hit the Arabs literally where they live. “Ending Oil Starts Today” reads the sign at the Better Place showroom, a futuristic place where the waiting area is outfitted not with brochures, but with iPads.

And, indeed, the idea of an electric car appears to have a broad appeal here, at least judging by interviews with Israelis at the upscale Ramat Aviv mall. (Attempts to poll potential buyers at the Better Place showroom were thwarted by a lack of customers.  If the car is quiet, the showroom is quieter.)

“We do all the green things,” says a middle-aged woman who offered only her first name, Sarit. “We recycle. On camping trips we use only re-usable dishes.  We have solar water heating. We believe in it.  Does belief go anywhere?”   Not if you don’t buy.  She and her husband bought a new car six months ago, and settled on a Subaru over a Better Place sedan after her husband decided “the technology isn’t developed enough yet, and we’ll wait for the next generation,” Sarit says. “But I hope it works. It’s good for the environment.”

But the national security pitch appears to be getting no traction. In fact, the opposite may be true, the car’s local roots are proving a drawback. “I think Israelis have a thing for hating themselves and not appreciating things that come from Israel,” says Nitsan Avivi, editor of Auto magazine in Tel Aviv.  “I think Aggasi made it look so dreamy at the beginning…we were always looking for the catch.” Indeed, the Hebrew press often appears to be rooting against Better Place. A recent column in Israel Hayom, the mammoth free-circulation daily owned by Las Vegas casino magnate Sheldon Adelson, listed only reasons not to get on board. The news this week that the firm’s major backer, the privately owned Israel Corp., is investing another $67 million on top of a previous $229 million prompted a piece in the respected business daily, The Marker, urging institutional investors to intervene to halt it. “I’m telling you, it’s a real pity. I had big expectations,” Aviv Frenkel, the car critic for Channel 10, tells TIME. “And then he came out with the car. “ Frenkel says the Fluence had stiff suspension, a tiny trunk (because of the battery) and nothing to recommend it over ordinary sedans. “It has to be a shiny futuristic car, not an ordinary day to day rental.”

Nor are the finances compelling, at least in Israel.  In a 2009 TED talk laying out the concept behind Better Place, Agassi said “affordable is not a $40,000 sedan,” but that’s about the cost one of the car’s own fans reports. Better Place calculates its vehicle costs about 10 percent less than gasoline cars in Israel, where gas runs north of $8 a gallon.  The company aimed to keep costs down by selling the car without the most expensive piece – the battery, which Better Place retains, and loans to the customer. The “subscription” system is modeled on mobile phone plans: Drive less, you pay less.  And if the battery degrades over time, as they do, that’s the company’s problem.

Most of all, though, Israelis are wary of running out of juice. Better Places says the car will run at least 100 miles (160 km) before it needs to be swapped or recharged. But critics repeat rumors that the car’s range differs with terrain and weather. “And if it’s a hot day, you don’t know if you will get to Jerusalem, that is something that is contrary to the idea and the myth of a car, because you think about a car, you think about freedom,” says Frenkel.

The task of countering this barrage of negativity falls to Agassi’s replacement as CEO, Evan Thornley, who ran the company’s operation in Australia, the third country Better Place plans to roll out its network. The second is Denmark, where 15 of 18 switching stations are now in place. In both countries, Better Place will be able boast “zero hydrocarbon emissions,” because the electricity will be produced by petroleum alternatives not yet in use in Israel.

The losses, however, are prodigious.  Since its founding in 2007, the company has attracted investments totally some $750 million, and recorded losses of $490 million, including $131 million in the first half of 2012 alone.  Thornley’s plan to attract consumers is still being formulated, says Joe Paluska, the company’s VP for global policy and communications, noting the quiet commercial roll-out was repeatedly delayed by the challenges typical of a producing a “proof-of-concept” vehicle.

“We’ve moved away from a research and development organization into a more customer-oriented sales and commercial operations phase of the company,” Paluska tells TIME.  He defends the Fluence — the model Better Place is committed to purchasing 100,000 from Renault by 2016 — noting it’s the only all-electric car that seats five. But Pulaska notes that the vision of Better Place has always been “the network, stupid.” Installing a grid of switching stations across an entire nation, in order to negate the limits of battery range, was audacious, costly, and more than a little iffy. But the few customers using them say they do work. “This week in Denmark we had two four-page reviews,” Paluska says. “They rave about it.”