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Summary:

It might seem far off, but electric car infrastructure startups such as Coulomb Technologies and Better Place may soon foster opportunities for the classic “two guys in a garage” model of entrepreneurship in Silicon Valley in order to find a place in the often capital-intensive development […]

It might seem far off, but electric car infrastructure startups such as Coulomb Technologies and Better Place may soon foster opportunities for the classic “two guys in a garage” model of entrepreneurship in Silicon Valley in order to find a place in the often capital-intensive development of green car technology. The way IBM Energy & Utilities VP Allan Schurr sees it, companies aiming to build the hardware for vehicle-charging technology are likely to follow the model of cell phone companies, handing off most of the software work — for managing things like payments, charge point availability and reservations — to outside developers.

“Coulomb really wants to manufacture stuff. If others focus on the software,” Schurr said, then the Coulomb team can work on refining its manufacturing business. Schurr, who spoke with us yesterday at the Opportunities in Grid-Connected Mobility Conference in San Francisco, thinks this will be a growing area of opportunity for bootstrapped and seed-funded tech startups.

Even Better Place, with Shai Agassi — the former No. 2 at enterprise software giant SAP — at the helm and what spokesperson Julie Mullins describes as “a huge engineering contingent working in-house” doesn’t build all its own software. When we visited the Better Place headquarters earlier this year, Sidney Goodman, VP of automotive alliances, said, “We’re not developing everything from scratch.” The company is tight-lipped about this piece of its model, and Goodman offered only that Better Place is “using existing enterprise systems out there.” Mullins told us today:

While we’re not ready to fully disclose our software plans, what I can tell you is that the electric car is largely a consumer electronic device driven by software. This is where Shai’s background at SAP and the strength of our R&D team (many of whom come from SAP) is helpful.

Schurr emphasized that a tech giant like IBM has an important role to play once plug-in vehicles get beyond the pilot phase, starting in 2011 and especially after 2020, when he expects to see plug-in cars coming onto the grid in significant numbers. He said IBM, which has several smart charging projects in the works, looks for small companies with innovative technology that it can help “harden” and scale up for mass scale deployment. Startups with limited resources and experience may be able to handle the pilot stage of plug-in vehicles, he said, but “20 million vehicles is not the same problem.”

  1. pepe porras Friday, June 5, 2009

    Better Place business model is basically binding you to a monthly subscription plan for several years in exchange to have access to subsidized cars and to their charging network. Basically, you can charge your Batter Place battery at home (through their adaptor), at public spaces and finally swapping the battery when needed (once in a while).

    Why their interest in batteries? They are expensive, have some risk of degradation and a huge risk of obsolescence. But it is the only single means to retain you in the system for years with no other choice except paying monthly plan. Once you have made the downpayment for the car (without batteries), you could only be with them, as if you want the car to run you can only use their privative battery and charging system. Basically you make a downpayment for an expensive car frame, and if you want to drive you can only use them at the price they set.

    They are trying to exploit the consumer natural trend to put a lot of attention on downpayment (they subsidize it), and not so much on operating cost. Obviously they are not subsidizing anything. You will pay for the subsidized car and for the full battery, on your monthly plan. And you will use a similar model of battery until it is fully amortized (if not, BP would have to bear a loss due to early amortization).
    What will be the difference with a normal electric car purchased from an automaker? Only that with BP you can swap battery in the rare exceptions you will go for a trip further than 100miles. The rest is exactly the same, as you will be recharging at home or at work (with their adaptor or plug) with both systems, and the automaker guarantee will cover the battery. It is worth for a consumer to be trapped on a monthly scheme for just having once in a while the need to go further than 100 miles? My impression is that battery developments will leave this business model obsolete in less than 5 years.

    Without taking into consideration technical challenges (standards, fast-charging, longer range batteries, etc.), customer behavior, other competitors actions,etc. I have assumed that everything will work fine in the best possible scenario ($8 a gallon of gas and $10k government subsidy to new electric car purchases) and I have run the numbers for Israel project (for which we have a good aproximation of infraestructure costs given by Better Place) taking into account the most favourable assumptions. Main assumptions have been: Price of batteries ($15,000) reduces 3x in 10 years, batteries last 7.5 years, price to consumer is $0.25 per mile (this is high, given that they have shown in some presentations $0.08 per mile), amortization life of 5-9 years for batteries and 25yrs for infraestructure, SG&A 20% and no other cost, 10% extra capacity for swapping stations, the company is selling 25% of the energy in the whole fleet batteries, which is wind electricity paid at 6cents, at peak hour prices of at least 10cents.

    The required investment (including batteries and infrastructure and excluding cars) for a potential 300,000 users in Israel in ten years is about $4.1 billion. First net profit ($17 million) is not seen until Year 2019. The burden of operative profit is taken by amortization of batteries (and partially infrastructure). In sum the company would breakeven minimum until 2025-2030. Mr. Agassi has stated that with 20,000 users he will break even, but it makes no sense at all. How BP got $200 million in seed capital from VCs, having this financial profile and the huge list of technological and competitive risks? No clue.

    I have tried to listen without passion to BP speakers. They speak about big concepts, nice ideas, exploiting the side of everybody that wants to help and be useful to the world. But a deeper analysis of the company shows:
    - They do not provide but not a single number to substantiate their concepts from an economic point of view, and the ones they provide are skewed (the infrastructure only costs 2 months of oil, 6% mor energy needed, they always use the most favourable scenarios, not the average)
    - No information about prices and plans at all (they are launching in a year!)
    - No information about financials: breakeven, total investment, profit, or anything

    In the other hand, I don’t think car manufacturers will renounce to make money with batteries (sales or leasing), or that electric utilities will give up such a juicy electric business.

    My only conclussion is that Better Place:
    - Has obtained exclusive rights for electric car network for at least 20 years. Is trying to set a privative network before others do so and then remain as the network owner and operator
    - has or is assuming to have huge subsidies
    - Is trying to gain momentum and capital and later will decide how to continue
    - Pursues other geostrategic objectives different than business
    - Is forcing its possition as intermediary when it is not really needed

    Don’t get me wrong. I believe that electric car is a solution, but I don’t agree on the way they want to implement it. I don’t feel that privative systems (or monopoly), based on a technology that evolves really fast, are a solution. My opinion is that plug-in hybrids or range-extended electric vehicles (which have a much better economic profile without the drawbacks of infrastructure or range) will help to develop a charging system, to diseminate the idea of electricity in cars and will gradually reduce the oil burden. Later in the game, electric cars, with better batteries and a charging system in place, will be ready to occupy their position.
    My forecast: Better Place will evolve to be the owner/operator of the electric car charging network, being paid a tariff by the government or having a model more close to the current gas station network (recharge and pay).
    I would be really happy to share thoughts with people that look at the electric car sector with more logic and financial sense than passion.

    Best,

    Pepe Porras

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