The electric Exxon


There’s nothing hugely new in this week’s New York Times Magazine profile of Shai Agassi and his quest to kill the internal combustion engine, but some aspects of his scheme clicked a bit better for me on this reading.

Agassi helms Better Place, a start-up that has raised gobs of money and signed tons of partnership deals to set up networks of electric car-charging stations and automated battery-swapping stations. Better Place’s innovation is to remove the most expensive and problematic part of the electric car — the battery — from the purchase equation. You buy the car, Better Place owns the battery, and they make money by charging you for the electricity to power your vehicle.

Here’s the part that clicked for me on this go-round: you know who had a really good year last year, in the midst of an economic collapse and global recession? You know who posted record profits, while all three of the major American automakers scrambled to prove that they were viable businesses? Exxon, that’s who.

Sure, those billions in profits had a lot to do with the high price of oil in the earlier part of the year, but the fact is, it’s really nice to make money every time someone drives a car. Selling cars is a pretty terrible business these days, but collecting a per-mile usage fee? That’s a fine business indeed.

Better Place’s model hinges on the fact that the per-mile cost of driving an electric car is so much lower than the per-mile cost of driving a gasoline-fueled car. So the company can give away the battery for free, charge you less on a per-mile basis for fuel than you’re presently paying, and still reap dandy profits. Everyone comes out ahead (except the oil companies), which is how technological innovation is supposed to work.

After reading the Times profile, I re-read Joe Romm’s critique of Better Place’s model. It strikes me as a lot less compelling than it did the first time around. Romm’s mistake, I think, is in viewing the battery-swapping stations as critical to Better Place’s success, rather than just a way to address people’s (probably exaggerated) fears of running out of juice.

To be sure, the company has a huge hill to climb, but the obstacles to their success are mostly the usual, prosaic ones: Better Place is trying to build a new market on top of unknown consumer demand using slightly ahead-of-its-curve technology that has huge capital costs. Such is the nature of entrepreneurial risk. I hope it goes well for them.

If you want more details, here’s Agassi pitching the basic idea at TED. The video is about 19 minutes long, and it moves briskly.

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  1. Ian Green

    I wrote a paper that incorporates this electric charging and battery swapping concept, but in an “open-source” rather than a proprietary format. My paper also adresses the utility grid and other energy sources. What’s different about my paper is also that it enables us to switch from combustion to electric engines without the government (which is broke) paying for it. Instead, people who continue to use combustion engines will be paying for it. Check it out at If you like it, I could really use some more publicity for this solution.

  2. Jason

    Good summary, however they don’t give away the battery for free, the own the batteries. Every time someone buys a Better Place car, they buy it along with a subscription for charging and Better Place buys the battery for the car.
    This is what enables the battery switching system – if the consumer owned the battery, they would not want to swap this very expensive component of their car for a different one of unknown quality / position in lifecycle.
    This way, the consumer doesn’t have to worry about the battery at all – Better Place takes care of everything.

  3. Jarrod

    It should ideally work the same way as the Blue Rhino propane tank swap works. You take the car in with empty battery, they give you a new or fully inspected, charged battery in its place. You pay for the battery once, but then only for the juice. Blue Rhino’s model (not sure if it’s ‘their model’ really) has virtually eliminated propane filling stations.

  4. Geoff

    I’ve been intrigued by the Better Place model since I first heard about it a couple of years ago. At the same time, I don’t quite understand their profit model. The analogy to swapping out propane tanks breaks down when you consider that a propane tank probably costs no more than 10x the value of the fuel it contains, while the battery pack for the GM Volt will apparently cost roughly 5000x the value of the electricity it stores. Multiply times customers and add an inventory of extra battery packs for swapping out, and that’s a heck of a lot of working capital to have tied up in a business that fundamentally can’t charge much more than around $0.06/mile, based on the fueling cost of a competing conventional hybrid running on $3 gasoline. I’d love to know what I’m missing.

  5. Adam Stein

    I haven’t run any numbers myself, but it seems from the TED talk that Shai is expecting some pretty aggressive improvements in the cost and performance of his batteries. Of course, these will accrue to plug-in hybrids as well, but I’m not sure he regards these as his chief competition (rightly or wrongly). Also, perhaps he’s counting on the lower fixed cost of his cars (which don’t include expensive batteries) to allow him to build in a higher variable cost for fuel (which people are already used to paying).
    Basically, I don’t know how this whole thing pencils, but it’s an intriguing bet.

  6. david jenkins

    Wait a second what about all of the good work and philanthropy that the “Terrorists” at “BIG OIL” do? How will they be able to donate so much to charity and restore the coastlines that their drunken ship captains crash in to? Also how will they afford to influence government policy and drag law suits on until they have to settle for pennies on the dollar (eg Valdez Alaska). This is not fair at all