Will Project Better Place really work?

Many people in the electric vehicle arena are very familiar with Project Better Place.  In short, the firm intends to circumvent the problems caused by the expensive batteries needed for EVs by employing a battery swap, or lease model, to charge users for their mileage rather than upfront capital costs of batteries. These next generation batteries can and do cost anywhere from 40-60% of the vehicle. Therefore eliminating the cost of the batteries can significantly enhance the economics associated with electric vehicles bringing many more models within financial reach of consumers in addition to solving the range anxiety issue of EVs.

Better Place has remarkably engineered a swap out system using robotics and advanced software. Most importantly, the swap can occur in about a minute, less than the time typically needed to fill a gas tank- see the demonstration here: Better Place Battery Swap
Better Place will also offer charge and ancillary services, but the focus is on the battery swap process.

My question is- what happens to the business model when batteries improve? For example, LiIon batteries currently cost in the $500-$800/kwH range but are expected to decrease about 30% within several years. One company, EEStor, claims to have a product in planning that is about $120/kwH and offers a 300 mile range. Better Place does have a working partnership with A123 Systems. (This emphasis on batteries is why investor interest and attention is given to such an important sector as discussed here.)

The company addresses this issue directly from their website: “The $1 billion per year being invested into lithium-ion battery research, with an increasing proportion going into automotive applications will lead to further advances in battery performance (including power, range, charge time, lifetime, and cost). While the industry has recognized lithium-ion to be the best battery chemistry solution for EVs right now, Better Place is ultimately chemistry-agnostic and willing to adopt new battery technologies as they emerge.”

Ok, but don’t consumers prefer to avoid a swapping process if possible? If cost is improved, why is there a need to lease rather than buy? If range is improved, what other technical hurdle is there that Better Place can help solve? To pose these questions, we need to assume that the billions of research being poured into battery technologies have a positive effect. While nothing is a certainty, the size, scope and diverse nature of firms participating in this technology race give the assumption support that battery technology will inevitably improve in cost, range and charge times. With this assumption in mind, what window of opportunity does Project Better Place have to capitalize on a temporary need? Is the firm destined for failure unless the business model is changed significantly? Project Better Place has an innovative idea that successfully solves several challenges today; the real question however is how management will evolve along with battery technologies in the future.

Your comments on this question are highly encouraged below.

Sources: Thomas Weisel Partners, LLC, “Race for the Electric Car” Report, March, 2009
Jacob Securities, Equity Research, Zenn Motor Company September, 2009

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