Start-up Nation

“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.