Wednesday, July 01, 2009

What’s In Your Garage? Part III

Just two days before this article was submitted to the publisher, Stephen Chu, President Obama’s Energy Secretary, made an announcement that will insure that the Tesla Motors Model S sedan, described two months ago in this column, will become a reality. Tesla had requested a $465 million low interest loan from the government (that will be granted) in order to construct factories to support the production of a new four door plug-in electric vehicle that seats seven and will travel up to 300 miles on each battery charge. The anticipated price is $49,900, after a $7,500 tax credit, Production is now estimated to start in 2011 in a state-of-the- art factory that will employ some 1,000 workers.

Top University for CEO’s

Here is a fascinating and impressive statistic: Of the 100 largest companies in a particular country (not the United States), 90 of those companies are headed up by a CEO who graduated from one and the same university. In fact, the CEO’s of 70 percent of the country’s major corporations are graduates of that same university. That country, Israel, is second only to the United States with over 70 publicly traded companies listed on NASDAQ, and graduates of that selfsame university led one third of them.

While Harvard and the University of Wisconsin top the list of U.S. universities, each graduating as many as 13 who are now CEO’s of one of the 500 companies listed on the Standard & Poor’s (S&P 500) Index, that number is only two percent of the total for each school, not even close to the figures listed above. Those amazing statistics have been compiled by a University in Israel named Technion –– Israel Institute of Technology, considered to be the MIT of Israel. (For more information, google American Technion Society, or go to ats.org).

One of the most prominent and certainly the most recently publicized Technion trained CEO today is Shai Agassi (he entered Technion at age 15), a true visionary whose company Better Place was cited by Deutche Bank analysts as having an approach that could be a paradigm shift that causes “massive disruptions to the auto industry,” and which “has the potential to eliminate the gasoline engine altogether.” That’s almost the equivalent of the headline that accompanied an article in this space in March 2008 that read, “Creative Destruction –– the All Electric Car = the End of Oil?,” although the Viewpointe article preceded the Bank analysis by one month. While the timing of both of those statements might have been considered premature when published some 16 months ago, in reviewing the recent progress that Agassi has made in the development of his vision, they now appear to be understated. For those who did not read (and for those who do not remember) the original Viewpointe article, allow me to provide some new and exciting information.

The Visionary

Shai Agassi is a 41-year-old Israeli/American (he has dual citizenship) who started several software companies upon graduating from Technion, and at age 28 sold one of them to the giant German software company SAP for over $400 million. Agassi then became SAP’s President of the Product and Technology Group, and in 2007 was the leading candidate for the CEO position). While attending a workshop at the World Economic Council that year (the objective was to come up with ideas to make the world a “better place,” thus the name of Agassi’s new company), he came up with a scheme that would totally disrupt the existing automotive ecosystem thereby (hopefully) enabling the ascendance and ultimate dominance of the electric car.

Agassi’s business plan is described in the Economist as follows: “Surprisingly, Mr. Agassis’s firm [Better Place] does not make cars. Instead, his novel approach is to look at electric transport as a system in which cars, batteries, recharging points, electrical utilities, and billing systems must all work together. It is in other words, a systems integration problem of the kind he used to deal with at SAP.” Green Car Congress recounts Agassi’s concept as follows: “ The business model for the electric cars will be similar to that used by mobile phone operators. In the same way that wireless operators deploy a network of cell towers to provide an area of mobile phone coverage, Project Better Place will establish a network of charging spots and battery exchange stations to provide ubiquitous access to electricity to power electric vehicles. The company will partner with carmakers and source batteries so that consumers who subscribe to the network can get subsidized vehicles, which are cheaper to buy and operate than today’s fuel-based cars. Consumers will still own their cars and will have multiple car models to choose from.” Shortly after the World Economic Council meeting, , Shimon Peres, the President of Israel, who read Agassi’s plan, prevailed on him to leave SAP to pursue his vision with Israel as his first customer.
An Expanding Disruptive Technology

That the conclusions originally reached by Deutche Bank and my article in Viewpointe might have been understated can now be confirmed, not alone from the amazing success achieved by Mr. Agassi in persuading the top leaders in the government of Israel to adopt and implement his plan (as described in the Viewpointe article), but since that original report some 16 months ago, Mr., Agassi has had several more triumphs. This is exemplified by the fact that the Israeli connection was not a one time phenomenon –– Mr. Agassi now has working arrangements with Denmark, Australia, Japan, Hawaii, Canadian Ontario, and cities within the San Francisco Bay area, to test and/or install Better Place charging stations and battery replacement stations, along with autos supplied by Renault-Nissan.

An Economist article described Mr. Agassi as “the best salesman in the industry after Steve Jobs of Apple.” It continued, “Like the charismatic Mr. Jobs, he seems to possess a ‘reality distortion field’ that enables him to convince listeners to believe whatever he says.” (Listening to him speak reminds me very much of Barack Obama). As an example of his speaking abilities, the Economist described a speech he gave in Berlin at an annual conference of a large German business association. (In a cultural irony, here was an Israeli/American Jew addressing what you might think would be a suspicious and dubious German audience). The Economist reported, “By the end of the speech, the mood was that of a religious gathering, with enthusiastic faces, loud cheers and a standing ovation.”

Come the Revolution…

Probably Agassi’s most transformational idea is buying an electric vehicle without owning the battery. That might be considered radical except for the fact that the battery is by far the most expensive component in the car. A battery could cost between $10,000 to $20,000. Essentially, the buyer pays Better Place for the battery by purchasing a contract for the miles he or she intends to use so the initial purchase price of the car is reduced accordingly. This is similar to how you pay for a cell phone where the cost of the phone is subsidized, but the provider includes the real cost of the phone in a contract based on the number of minutes used.

That’s where the concept of battery-swapping (also called battery switching) stations comes into play. It is one of the defining factors of Agassi’s vision. In order to extend the range of electric vehicles beyond the point where a lengthy recharging session is required, a logical option would be to just replace the depleted battery with a new one, just as you would with any battery operated product. His original goal for how long it would take to replace a battery was five minutes. This was based on his statement that, “If we can’t do this in less time than it takes to fill your gasoline tank, we don’t have a company.” Apparently, if that was the only criteria for success, Mr. Agassi can proclaim “Mission Accomplished.” In mid-May, in Yokohama, Japan, Better Place revealed a working prototype of its battery-swap station that you can watch by googling “youtube-Yokohama battery switch”, (Pay attention to the timer, bottom right). It shows the mechanism switching a battery that has been depleted for a new fully charged battery in less than two minutes –– much less time than it takes to “fill-up” at a gas station

Some Doubts Prevail

Despite the logical and even elegant nature of Agassi’s overall plan, there are critics who don’t believe he can succeed. Amongst the critics and doubters are members of the existing and traditional auto companies such as Mercedes Benz and Ford. While their arguments might ultimately prove to be correct, Agassi characterizes them as being inflexible conventionalists, unwilling to recognize and accept change. Here are some of the criticisms:
  1. The concept is appropriate only for small cities and countries, not for a vast territory like the U.S.

  2. Only one carmaker Renault-Nissan has agreed to work with Better Place.

  3. As more battery makers enter the market their designs, shapes and sizes may not be compatible with the Battery Place mechanism

  4. Even if battery standardization should occur, other EV carmakers may not place the battery under the chassis.

  5. The costs involved in building hundreds of thousand of battery charging and replacement stations will be too high for Better Place to succeed.

Agassi rejects all of the criticisms and maintains that he already has enough customers signed up in Israel to insure a profit. If he is right, the auto industry will experience a sea change, the demand for oil will be reduced significantly, the level of climate warming emissions will diminish greatly, and the answer to the question, “What’s in your garage?” might very well be a Better Place product.

1 Comments:

At 11:43 AM, Blogger Jessica said...

Bob:
As the Director for the American Technion Society in South Palm Beach I want to thank you for highlighting both the Technion's achievements and impact in Israel and on the world. Today, Israel is a true economic miracle that has rapidly transformed itself into a first-world economy. And as you noted above, at the heart of this metamorphosis is the Technion and its graduates.
On the energy front, the Technion recently has launched a new interdisciplinary program called TEP (Technion Energy Project) where the university, twenty-three prominent researchers and numerous graduate students will be dedicating themselves to finding new, affordable alternative fuels, renewable energy sources and new ways to produce energy storage and conservation. While we have support from the University we are continuing to look for outside support to help fund this new initiative, build and equip labs, and sponsor graduate fellowships that will help support the research in this field. The Technion is playing a vital role in the quest for safe, green, affordable energy. With the help of outside sources, once again, they can truly make an impact in this arena.
To view a short video about the project go to: http://support.ats.org/site/PageServer?pagename=about_research_energy

Sincerely,
Jessica Feldan
Chapter Director, American Technion Society

 

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