Behind the Bust of Israel's Billion-dollar Startup

Why did Better Place — Israel's revolutionary electric car firm — crash? A journalist, who bought a car from the doomed firm, investigates

Reuters

It was just under 10 years ago that Israeli electric car startup Better Place announced the funding of its $200 million Series A round. Wired magazine called Better Place “the fifth-largest startup of all time.” By the time it declared bankruptcy, the company had raised nearly a billion dollars.

What a difference a decade makes.

My family was among the first customers to buy one of Better Place’s all-electric Renault Fluence Z.E.s. We had visited the company’s high-tech Visitor Center in the summer of 2012, took a quick test drive and we were sold. The car punched all the right buttons: It was good for the environment, it would save us money, it was powerful and quiet, and the robotic battery switching stations were just so cool.

When the company fired its CEO Shai Agassi a few days before our car was due to be delivered, we became justifiably worried. But we convinced ourselves that Better Place knew what it was doing. Idan Ofer, the company’s first and main investor, injected another $100 million. The new CEO, Evan Thornley, was a startup legend in Australia and a well-respected manager. Surely, the company could be turned around.

But when Better Place filed for bankruptcy just eight months later, I wondered: Had I done my due diligence? As a journalist, that’s what I do. Had the signs of a company about to implode been visible if only I’d known where to look?

Over the years since Better Place’s bust, everyone seems to have their personal theories about what went wrong. The car wasn’t attractive. It was too expensive; it was not expensive enough. The battery switching stations were ahead of their time; they were already antiquated before they were even launched. It was management’s fault. It was the board of director’s fault. Better Place raised too much money; it didn’t raise enough.

The truth is: Everyone was right, and everyone was not quite right.

The crash of Better Place was not the result of any single factor. Rather, it was in many ways a perfect storm of unexpected changes that upended the company’s business plan and assumptions, combined with some flat-out bad luck and an unbending commitment to a singular vision (battery swap).

But when change hits a company like it did Better Place, do you pivot like your company’s life depends on it, or do you double down on the dogma, staying the course? At what point do you acknowledge that the original business plan no longer works and that you have to recalibrate?

What were the changes that rocked Better Place? There were 10 main ones I discovered in the course of my research.

1. The public expected a free or at least an inexpensive car, but Renault charged Better Place such a high price to receive the Fluence Z.E., that Better Place was left with only the thinnest of profit margins and customers derided Better Place as greedy.

2. The driving range for the Fluence Z.E. was 25% less than Better Place had anticipated when planning its network, resulting in some poorly located switch stations and increased “range anxiety” for drivers. (That’s the fear that you’ll run out of juice before you reach the nearest charge spot or switch station.)

3. The battery switch stations cost six times what Better Place’s spreadsheets had accounted for. The charge spots cost more than 10 times the original estimate. Cost overruns were endemic.

4. Customers balked at the original monthly subscription package. Once the numbers had been adjusted downward to customers’ approval, there was too little revenue to cover Better Place’s internal expenses.

5. There was only one type of car, and it wasn’t a hit. Better Place had hoped to sign on multiple car manufacturers but couldn’t gain any traction. And customers didn’t like the Fluence Z.E.—it was too big, too boxy and had a tiny trunk.

7. There was no incentive for electric. The majority of five-seat sedans in Israel are provided as corporate perks and come with free gas. Where’s the consumer benefit for switching to electric in such a market?

8. Better Place was religious about battery switch. But the electric car world was standardizing on the less complicated and less expensive fast-charge model.

9. The Better Place value proposition was based on ever-rising gasoline prices compared with low electricity costs. But the price of oil worldwide has plummeted.

10. Investment dried up. Better Place staffers were sure that Idan Ofer would never shut off the funding spigot, but the billionaire eventually had no choice.

The bottom line: No matter how smart you and your team are, or how well planned your business, unexpected change is the only certitude.

A thousand drivers in Israel were stuck with a crippled car with limited range and no way to swap in a fresh battery. Many continue to drive the Fluence Z.E. to this day; others have given up and moved back to gas. Hopefully we can all learn from the billion-dollar bust of Better Place, so that the next revolutionary company to come out of Israel will understand better when to steer in a different direction and when to hit the brakes entirely.

Brian Blum’s book “Totaled: The Billion-Dollar Crash of the Startup That Took on Big Auto, Big Oil and the World” was published this month.