You might call them swapping stations, battery cell replacement stations, charging stations or any combination of the above. The important thing is, we will be talking about them soon: there’s a $400 million startup company, and billions of dollars in capital set aside by its partners, who are all banking on it. Their idea? The future, as they see it, is one where drivers will be provided with ultra-cheap cars and then billed by the mile/kilometer as they move around. Or perhaps they might choose to buy a contract that comes with a set number of miles, depending on their personal needs, and pay extra if and when they go above this agreed upon amount — yes, it sounds very much like the same business model that cell phone providers employ.
The startup entity behind this model is called Better Place, and the man at the helm is Shai Agassi. Agassi’s ambitious propsal includes installing a network of charging stations where customers can swap the old batteries from their cars with new batteries. Sophisticated software will allow the company to determine when electricity prices are at their lowest, at which point the old batteries will be recharged. At peak hours when demand is high, they will be able to sell excess power back into the grid. The third party to this electricity arbitrage will be the buyer, who according to Better Place will benefit from the low cost of electricity when compared with gasoline. Additionally, the waiting time to switch batteries will be minimal, as Better Place has engineered a robot capable of performing the task in under a minute.
The whole scheme, and especially the prospect of having a hassle-free battery swap, will require massive standardization. This is where Better Place’s partners come into play. Agassi has formed an agreement with Renault-Nissan, who will be spending about $600 million to build electric versions of its existing vehicles. The expected deployment date is 2011, and in the meantime Better Place, along with several energy companies, will be constructing the electric infrastructure. Stations are already spring up in Japan and Israel, and investors plan on raising $1 billion (Australian) to construct a similar network in Australia.
We are so used to thinking of our cars as necessary capital expenditures with maintenance costs and a fixed life. Our mobile phones, on the other hand, are largely subsidized by telecom companies who offer contracts or pay-as-you-go deals. In the latter scenario, more of the driver’s costs are deferred, and they vary according to his or her needs.
This business model, however, does seem to have its drawbacks. Consumers will have to adopt the mindset of their car becoming a standarized accessory, rather than a symbol of self-expression. Additionally, the prospect of having to visit a charging station each time you want to “refuel” is daunting and might be hard to accept — Designing the vehicles with the ability to plug-in at home will go a long way to solving this. Another problem is basing the pricing model off the distance that the driver travels: this might create an incentive for customers to “steal” power from their batteries, transferring it out to another battery perhaps, and simply swapping at a station for free. However, if Better Place were to switch to pricing for the charge in their batteries instead of mileage, it would make it difficult to implement charge-at-home functionality (unless a tamper-proof “meter” were placed in the car). And finally, the cost of building the infrastructure will be extremely high, yet without plenty of swapping stations available, it would be hard for a driver to justify signing up.
Mr. Agassi and his company already have a lot of believers despite the large hurdles facing them. Whether his model succeeds or fails, it will have lasting implications for the auto industry. We will continue to keep an eye out here for the latest related developments.