Why did Israel's promising electric carmaker fail?

TEL AVIV (JTA)—It was supposed to be the car of the future, a near-silent, battery-powered vehicle that would wean the West off its dependence on Middle Eastern oil and save the environment in the process.

And an Israeli company seemed destined to build it.

Better Place, founded in 2007 by the exuberantly confident entrepreneur Shai Agassi, was trumpeted as the king of Israeli startups, a company that would keep the air clean and the streets quiet while saving money for its users.

Six years and more than $850 million in venture capital later, the dream lies in tatters.

On May 26, Better Place declared bankruptcy, its management transferred to a liquidator and the future of its 38 battery switching stations in Israel thrown into peril. Thousands of vehicles built specifically for the company’s network sit unsold in lots, their future uncertain.

“We stand by the original vision as formulated by Shai Agassi of creating a green alternative that would lessen our dependence on highly polluting transportation technologies,” said a statement from the company’s board of directors. “The technical challenges we overcame successfully, but the other obstacles we were not able to overcome, despite the massive effort and resources that were deployed to that end.”

Better Place had raised hopes that someone had finally figured out how to bring an electric vehicle into mass usage. The company appeared to have hit on an innovative solution to problems that had long bedeviled electric carmakers: limited range, lengthy recharge times and consumer reluctance to shell out big money for an experimental technology.

The company adopted a model similar to the cell phone industry: Drivers would pay a monthly fee for access to a network of stations where they could swap batteries in about the amount of time it would take to fill a tank with gasoline. Customers also could charge their cars at home for free.

Agassi was the face of the company, a relentless booster who was named to several lists of the world’s most influential people. But what is arguably the highest-profile flop in a country legendary for successful startups comes as no surprise, those familiar with the company’s operations say.

Former employees, customers and industry experts paint a picture of a company that grew too big, too fast, built a car too expensive and impractical, and chafed under management with a penchant for burning through cash.

“I don’t think Better Place failed due to a mistake in technology,” said Sam Solomon, a venture capitalist and the chairman of Mobideo Technologies, which sold charge-station software to Better Place. “It ran too fast with too much. They did not get enough of a critical mass in a single market in order to demonstrate success.”

The company’s downward spiral began last year; Better Place lost more than $450 million in 2012. Agassi was ousted as CEO in October, and the company would go through two more chief executives before falling under control of a state-appointed liquidator.

Israel was the company’s principal market, its system seemingly well suited to a country where most drivers stay within a densely populated central region and the price of gas is high.

Investors believed in Agassi’s vision, buoying him with $850 million in funding. Even before the Israeli venture launched, Agassi had started a second network in Denmark and was planning others—in Australia, the Netherlands, China, Japan and the United States, in San Francisco and Hawaii.

Solomon said it was Agassi’s first and possibly biggest mistake, that the company should have focused on Israel before going global.

“What he needed to do was focus on a small core success,” said Solomon, who drives a Better Place car. “He basically ran it like a big company when he had to run it like a lean startup. It was way over-expanded. He was trying to run too many projects at once.”

Agassi exuded confidence, predicting that by 2010 there would be 100,000 Better Place cars on the road. The actual number turned out to be zero. The first charging station was opened in 2008, but the cars, manufactured by the French company Renault but sold by Better Place, were not available for purchase until 2012. And instead of building a compact car meant to travel short distances, Better Place offered only a family sedan.

“They needed a smaller car built for cities, a cheaper car,” said Yoav Kaveh, an automotive columnist for Haaretz.

Better Place sold fewer than 1,000 cars in Israel. And when sales hadn’t picked up by the end of 2012, the board cut spending and replaced Agassi, who is not speaking to the media.

But one of his defenders, former Better Place director of policy Yariv Nornberg, said Israel could have done more to help the venture get off the ground by providing tax credits for electric car drivers. Denmark offers a $40,000 tax break to promote electric cars.

“We could have expected better from the public interest,” Nornberg said. “Things would have looked different if there was more help for the user.”

Better Place’s 38 switching stations in Israel may close by June, but some customers say they’ll still happily drive their cars, which they say provide a cleaner, quieter and smoother ride. Without the stations, they will have to charge their cars at home.

“The service I’ve had up until now makes it a complete replacement for a petrol car,” said Brian Thomas, who bought his car a year ago. “It’s so quiet and fast and nice to drive.”

Despite the setback, Nornberg still sees a bright future for the electric car industry. Better Place, he says, was ahead of if its time. And even though it failed commercially, it succeeded in getting battery-powered rubber to meet the road.

“It’s not about buying the gadget,” he said. “It’s another means of transportation that’s better for the general public.

“The dream is not over. It’s only the beginning.”