Start-up Nation (2 page)

Something about coming from an embattled sliver of a country—home to just one one-thousandth of the world’s population—makes
Israelis skeptical of conventional explanations about what is possible. If the essence of the Israeli condition, as Peres
later told us, was to be “dissatisfied,” then Agassi typified Israel’s national ethos.

But if not for Peres, even Agassi might not have dared to pursue his own idea. After hearing Agassi make his pitch for oil
independence, Peres called him and said, “Nice speech, but what are you going to
do
?”
¹

Until that point, Agassi says, he “was merely solving a puzzle”—the problem was still just a thought experiment. But Peres
put the challenge before him in clear terms: “Can you really do it? Is there anything more important than getting the world
off oil? Who will do it if you don’t?” And finally, Peres added, “What can I do to help?”
²

Peres was serious about helping. Just after Christmas 2006 and into the first few days of 2007, he orchestrated for Agassi
a whirlwind of more than fifty meetings with Israel’s top industry and government leaders, including the prime minister. “Each
morning, we would meet at his office and I would debrief him on the previous day’s meetings, and he’d get on the phone and
begin scheduling the next day’s meetings,” Agassi told us. “These are appointments I could never have gotten without Peres.”

Peres also sent letters to the five biggest automakers, along with Agassi’s concept paper, which was how they found themselves
in a Swiss hotel room, waiting on what was likely to be their last chance. “Up until that first meeting,” Agassi said, “Peres
had only heard about the concept from me, a software guy. What did I know? But he took a risk on me.” The Davos meetings were
the first time Peres had personally tested the idea on people who actually worked in the auto industry. And the first industry
executive they’d met had not only shot down the idea but spent most of the meeting trying to talk Peres out of pursuing it.
Agassi was mortified. “I had completely embarrassed this international statesman,” he said. “I made him look like he did not
know what he was talking about.”

But now their second appointment was about to begin. Carlos Ghosn, the
CEO
of Renault and Nissan, had a reputation in the business world as a premier turnaround artist. Born in Brazil to Lebanese
parents, he is famous in Japan for taking charge of Nissan, which was suffering massive losses, and in two years turning a
profit. The grateful Japanese reciprocated by basing a comic-book series on his life.

Peres began to speak so softly that Ghosn could barely hear him, but Agassi was astounded. After the pounding they had just
received in the previous meeting, Agassi expected that Peres might say something like, “Shai has this crazy idea about building
an electric grid. I’ll let him explain it, and you can tell him what you think.” But rather than pulling back, Peres grew
even more energetic than before in making the pitch, and more forceful.

Oil is finished, he said; it may still be coming out of the ground, but the world doesn’t want it anymore. More importantly,
Peres told Ghosn, it is financing international terrorism and instability. “We don’t need to defend against incoming Katyusha
rockets,” he pointed out, “if we can figure out how to cut off the funding that launches them in the first place.”

Then Peres tried to preempt the argument that the technology alternative just didn’t exist yet. He knew that all the big car
companies were flirting with a bizarre crop of electric mutations—hybrids, plug-in hybrids, tiny electric vehicles—but none
of them heralded a new era in motor vehicle technology.

Just then, again about five minutes into Peres’s pitch, the visitor stopped him. “Look, Mr. Peres,” Ghosn said, “I read Shai’s
paper”—Agassi and Peres tried not to wince, but they felt they knew where this meeting was heading—“and he is absolutely right.
We are exactly on the same page. We think the future is electric. We have the car, and we think we have the battery.”

Peres was almost caught speechless. Just minutes ago they’d received an impassioned lecture on why the fully electric car
would never work and why hybrids were the way to go. But Peres and Agassi knew that hybrids were a road to nowhere. What’s
the point of a car with two separate power plants? Existing hybrids cost a fortune and increase fuel efficiency by only 20
percent. They wouldn’t get countries off oil. In Peres and Agassi’s view, hybrids were like treating a gunshot wound with
a Band-aid.

But they had never heard all this from an actual carmaker. Peres couldn’t help blurting out, “So what do you think of hybrids?”

“I think they make no sense,” Ghosn said confidently. “A hybrid is like a mermaid: if you want a fish, you get a woman; if
you want a woman, you get a fish.”

The laughter from Peres and Agassi was genuine, mixed with a large dose of relief. Had they found a true partner for their
vision? Now it was Ghosn’s turn to be worried. Though he was optimistic, all the classic obstacles to electric vehicles still
remained: the batteries were too expensive, they had a range less than half that of a tank of gas, and they took hours to
recharge. So long as consumers were being asked to pay a premium in price and convenience, clean cars would remain a niche
market.

Peres said that he’d had all the same misgivings, until he had met Agassi. This was Agassi’s cue to explain how all these
liabilities could be addressed using existing technology, not some miracle battery that wouldn’t be available for decades.

Ghosn’s attention shifted from Peres to Agassi, who dove right in.

Agassi explained his idea, as simple as it was radical: electric cars
seemed
expensive only because batteries were expensive. But selling the car with the battery is like trying to sell gas cars with
enough gasoline to run them for several years. When you factor in operating costs, electric cars are actually much cheaper—seven
cents a mile for electric (including both the battery and the electricity to charge it) compared to ten cents a mile for gas,
assuming gas costs $2.50 a gallon. If the price of gas is as high as $4.00 per gallon, this cost gap becomes a chasm. But
what if you didn’t have to pay for the battery when you bought the car and—as with any other fuel—spread the cost of the battery
over the life of the car? Electric cars could become at least as cheap as gasoline cars, and the cost of the battery
with
the electricity to charge it would be significantly cheaper than what people were used to paying at the pump. Suddenly, the
economics of the electric car would turn upside down. Furthermore, over the long run, this already sizable electric cost advantage
would be certain to increase as batteries became cheaper.

Overcoming the price barrier was the biggest breakthrough, but it wasn’t sufficient for electric vehicles to become, as Agassi
called it, the “Car 2.0” that would replace the transportation model introduced by Henry Ford almost a century ago. A five-minute
fill-up will last a gas car three hundred miles. How, Ghosn wondered, can an electric car compete with that?

Agassi’s solution was infrastructure: wire thousands of parking spots, build battery swap stations, and coordinate it all
over a new “smart grid.” In most cases, charging the car at home and the office would easily be enough to get you through
the day. On longer drives, you could pull into a swap station and be off with a fully charged battery in the time it takes
to fill a tank of gas. He’d recruited a former Israeli army general—a man skilled at managing complex military logistics—to
become the company’s local Israeli
CEO
and lead the planning for the grid and the national network of charging/parking spots.

The key to the model would be that consumers would own their cars, but Agassi’s start-up, called Better Place, would own the
batteries. “Here’s how it works,” he later explained. “Think cell phones. You go to a cell provider. If you want, you can
pay full price for a phone and make no commitment. But most people commit for two or three years and get a subsidized or free
phone. They end up paying for the phone as they pay for their minutes of air time.”
³

Electric vehicles, Agassi explained, could work the same way: Better Place would be like a cellular provider. You would walk
in to a car dealer, sign up for a plan based on miles instead of minutes, and get an electric car. But the buyer wouldn’t
own the car battery; Better Place would. So the company could spread the cost of the battery—and the car, too—over four or
more years. For the price consumers are used to paying each month for gas, they could pay for the battery and the electricity
needed to run it. “You get to go completely green for less than it costs to buy and run a gas car,” Agassi said.

Agassi picked up where Peres had left off on another question: Why start with Israel, of all places? The first reason was
size, he told Ghosn. Israel was the perfect “beta” country for electric cars. Not only was it small but, due to the hostility
of its neighbors, it was a sealed “transportation island.” Because Israelis could not drive beyond their national borders,
their driving distances were always within one of the world’s smallest national spaces. This limited the number of battery
swap stations Better Place would have to build in the early phase. By isolating Israel, Agassi told us with an impish smile,
Israel’s adversaries had actually created the perfect laboratory to test ideas.

Second, Israelis understand not only the financial and environmental costs of being dependent on oil but also the security
costs of pumping money into the coffers of less-than-savory regimes. Third, Israelis are natural early adopters—they were
recently number one in the world in time spent on the Internet and have a cell phone penetration of 125 percent, meaning lots
of people have more than one.

No less importantly, Agassi knew that in Israel he would find the resources he needed to tackle the tricky software challenge
of creating a “smart grid” that could direct cars to open charging spots and manage the charging of millions of cars without
overloading the system. Israel, the country with the highest concentration of engineers and research and development spending
in the world, was a natural place to attempt this. Agassi actually wanted to go even further. After all, if Intel could mass-produce
its most sophisticated chips in Israel, why couldn’t Renault-Nissan build cars there? Ghosn’s response was that it would work
only if they could produce at least fifty thousand cars a year. Peres didn’t blink, and committed to an annual production
of one hundred thousand cars. Ghosn was on board, provided Peres could make good on his promise.

Agassi was caught between three possible commitments. He needed a country, a car company, and the money, but to get any one
of them he first needed the other two. For example, when Peres and Agassi had gone to then prime minister Ehud Olmert to secure
his commitment to make Israel the first country to free itself from oil, the premier had set two conditions: Agassi had to
sign on a top-five carmaker and raise the $200 million needed to develop the smart grid, turning half a million parking spaces
into charging spots, and building swap stations. Now Agassi had the carmaker, and it was time to fulfill Olmert’s second condition:
money.

Still, Agassi had heard enough to believe that his idea could take off. Stunning the tech world, he quit his job at
SAP
to found Better Place. (It took four conversations to convince the
SAP
management that he was serious about quitting.)

But investors around the globe were not jumping at a plan that involved reimagining some of the largest, most powerful industries
in the world: cars, oil, and electricity. Plus, since the cars were useless without the infrastructure, the charging grid
would have to be developed and deployed
before
the cars were released in significant numbers. That meant spending most of the $200 million to wire the entire country up
front—an enormous capital expenditure that would make investors’ heads spin. Ever since the tech bubble had burst in 2000,
venture capitalists were much less venturesome; no one wanted to spend tons of money up front, well before the first dollar
of revenue showed up.

Except for one investor, that is—Israeli billionaire Idan Ofer, who had just made the largest ever Israeli investment in China
by buying a major stake in the Chinese car manufacturer Chery Automobile. Six months before, Ofer had also bought an oil refinery.
So he knew a thing or two about the auto and oil industries. When Mike Granoff, an early American investor in Better Place,
suggested tapping Ofer, Agassi said, “Why would he help me put him out of his two newest businesses?” But Agassi had nothing
to lose.

Forty-five minutes into their meeting, Ofer told Agassi he was in for $100 million. He later increased his stake by another
$30 million and told his Chinese auto team he wanted it to build electric cars.

Agassi raised the $200 million, making Better Place the fifth-largest start-up in history.
⁴
With Israel in place as the first test case, others were quick to follow. As of this writing, Denmark, Australia, the San
Francisco Bay Area, Hawaii, and Ontario—Canada’s most populous province—have all announced that they will join the Better
Place plan. Better Place was the only foreign company asked to compete in developing an electric vehicle system for Japan,
a highly unusual step for the historically protectionist Japanese government.

Among the many skeptics is Thomas Weber, the Mercedes research and development chief. He said that in 1972 his company had
actually built an electric bus with a swappable battery, called the LE 306, and discovered that changing a battery could cause
electrocution or fire.

Better Place’s answer has been a working battery swap station. Using one is like pulling into a car wash. Only, once the driver
pulls in, a large rectangular metal plate—much like the lifts at the back end of moving trucks—rises up from underneath the
car. The car then retracts the thick two-inch metal hooks securing the enormous blue battery, releasing it so it rests on
the plate. The plate moves back down, drops the spent battery in a charging station, picks up a full battery, and lifts it
into place under the car. Total time for the completed automated swap: sixty-five seconds.