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Better Place CFO Charles Stonehill describes the grand plan of his venture-backed company to be a major factor in the move to battery-powered vehicles.
Kate Plourd, CFO.com | US
March 13, 2009
The venture-backed firm Better Place has a vision of how the electric-car business — that most historically stalled of industries — will finally reshape the automobile landscape in the next decade.
Two years after the company was born under the guidance of former SAP executive Shai Agassi, Better Place's CEO, it sees the future of transportation as all-electric, rather than hybrid. Further, it expects that so many more drivers will buy these vehicles, powered by rechargeable and removable batteries, that the electric car will turn today's carbon-emitting gas-guzzler into the dinosaur that we've long suspected it is.
The role of Better Place in this new industry will be what CFO Charles Stonehill calls "the seller of electric miles," vaguely similar to the way wireless communication companies provide minutes to cell-phone users. Auto-powering lithium batteries, like the ones that will be provided inside new cars, could be recharged or easily switched out — flashlight-style — for fully charged units that could be purchased from Better Place, as part of an "electric mileage plan." Under that scenario, drivers of electric cars would prepay for a number of electric miles per month or year, along with battery switchout or recharging support, and service at "charge stations" that Better Place would build and operate in cities around the world.
Palo Alto, Calif.-based Better Place is currently developing the technology for building its envisioned electric-recharge grid in partnering cities and countries. The plan calls for charge points to eventually be installed in locations, including parking lots and public parking spaces, where drivers could charge their electric battery for trips less than 100 miles, the current maximum distance battery technology allows electric cars to travel.
For longer trips, drivers generally would use the battery switching stations that would be built along highways and roads. There, a swap would be made for their original battery , thus avoiding the long recharging process that electric batteries otherwise need. Better Place also envisions providing software that would serve as an "operating system," notifying drivers how much electricity remains, and where the closest recharging or battery-switching station is located.
This year, 100,000 charging spots will be built in Better Place's first test-market country, Israel, where the company already is paired with Renault-Nissan for electric vehicles that are compatible with Better Place's technology in the next few years.
The company's credo is that the support of governments — from national to municipal — is vital to creating the infrastructure needed to support electric vehicles. Leaders in Denmark, Japan, Australia, and Ontario, along with the San Francisco Bay Area and Hawaii, also have committed to supporting public and private investment in building Better Place grids. Last November in California, for example, the mayors of San Francisco, San Jose, and Oakland announced the goal of turning the Bay Area into the nation's electric car capital. Lending support to the overall effort, President Obama has made green initiatives and energy efficiency goals of his administration.
Managing the finance operations for Better Place, and managing its vision, is former investment banker Stonehill, an Oxford University graduate who formerly was nonexecutive chairman of Panmure Gordon & Co. PLC in London, and before that global head of capital markets for Lazard Freres, head of investment banking for Credit Suisse First Boston, and head of European equities and equity capital markets for Morgan Stanley.
Stonehill now has the task of overseeing Better Place's capital-raising operations in this extraordinarily tough market for securing financing. Despite the challenges, he believes there are bright spots -- starting with the demand the company expects for all-electric autos. According to a worldwide survey from Continental Automotive, 45.8 percent of motorists are at least interested in buying an electric car.
Here is an edited version of our interview with Stonehill.
What is the business model that Better Place envisions to serve electric-car drivers?
Most importantly, we need to build the infrastructure that will allow people to regularly charge up their cars with more electric miles. They'll do that at charge points at their homes, offices, and other public places where they park their cars, such as garages and parking spaces on the streets. For a journey longer than the range of the electric miles in their car, they will have to do exactly what they do [today] when they go to a garage and fill up with more gas.
They'll have to effectively get more miles by exchanging their depleted battery for a charged battery at one of our switch stations. So they will drive into a switch station, remove the battery from the car, put in a fully charged battery, and go off again in what we believe will be less time they would normally spend filling up their car at a gas station.
Car makers will obviously need to build cars with removable batteries. We will build the stations and other charge points, and provide technology that we will install in cars to alert people where they need to go to charge their car or exchange their battery. There will be a significant amount of software in the car that will help them have a complete driving experience.
What does the pricing model for providing electricity to cars look like?
When someone buys a car, they will sign a multi-year contract, just as with a cell phone. Like that model provides a guaranteed amount of talk time for a monthly contract, we will give our customers a guaranteed amount of electric travel miles for the amount they're paying. There will be various types of contracts, including the possibility of unlimited driving.
Where does Better Place stand along the path to achieving these goals?
The company came into being in terms of its initial seed-capital raising just over a year ago, with a round of $200 million. Since then we have begun to deploy, or prepare to deploy, in Israel, Denmark, Australia, Hawaii, the San Francisco Bay Area, and Ontario. And we are in discussions with a large number of other countries and areas.
Uur initial markets are Israel and Denmark, where we have operating companies and management teams. In Denmark we have worked with DONG, the state oil and gas utility, to raise around $133 million. We are preparing an expected rollout for a mass market in 2011 and 2012. We will be going back to a broader market in Denmark and in Israel in the near future.
We will begin to install 100,000 charge spots in Israel in 2009. Our auto partner is Renault-Nissan, which will be helping us get cars to market in the next couple of years. The idea is that in each of our markets the infrastructure will be in place before electric vehicles come to market. It's the same model as the cable, cell-phone, and other industries where you had to build the infrastructure before you could switch the lights on.
From the number of incoming inquiries, I would say the investor interest is very, very large. But we are not actually in the process of going out to investors in the United States. The $200 million we raised included financing from U.S.-based investors Morgan Stanley and VantagePoint Venture Partners, as well as overseas investors, such as Israel Corp.
Do you have any competitors?
No one else is doing exactly what we're doing. Certainly, we would welcome competition, because we believe that the more competition there is, then the faster the adoption of the electric vehicle will occur.
Today our competition is other forms of electric vehicles -- for example, ones that don't have removable batteries, which are limited by their range. But the real competition today is the gasoline-burning car that most people drive. Electric vehicles, which we are absolutely certain will be a mega-trend in personal transportation in the next 10 to 15 years, are in their infancy. The car manufacturers are preparing electric models, such as what we saw at the Detroit auto show earlier this year. Also, governments are aggressively seeking to incentivize consumers to buy electric cars and support their car industry as it makes the shift from gasoline-burning, carbon-emitting cars to zero carbon cars. This is a mega-trend that is in its early stages.
An important point of our business model is that when we establish our Better Place charge points we will seek to allow any electric vehicles to charge themselves throughout our infrastructure.
Kind of like how gas stations operate?
Yes, but the difference is that a Better Place customer will have prepaid, and will be enjoying the benefits of the contract term, whereas another customer will be a roaming customer.
How do President Obama's stimulus package provisions supporting energy efficient technology, and his overall goals to expand green projects, affect Better Place?
We understand that there are significant funds being allocated for energy-efficient technologies and battery technologies, although that is still yet to be deployed and given out for the most part. But we also expect to see the States become actively involved in the sponsorship of environmentally friendly businesses and in what we call carbon-free transportation in their regions as well.
Almost the entire auto industry is on the ropes right now. How does that affect Better Place's efforts and the need for auto companies to manufacture electric cars?
Clearly, most of the carmakers in the world are being forced to redraw their business plans and figure out survival strategies or make significant cutbacks in their expenditures. It's also clear that every car manufacturer sees the prospect of consumers wanting to make the switch to electric vehicles. Within the constraints of their available capital, we see a very high degree of focus on the reconfiguration of production lines to new technology. But these constraints are very real in these economic times, and whether it's with government support or not, each of these car companies does have to make hard decisions.
We were talking recently to one of the major [original equipment manufacturers], who confirmed that the one production line they did not intend to make any cutbacks in was the electric vehicle line.
You spent 30 years in investment banking. What led you to make this career move?
Better Place has a reputation and a strong following those who have always been attracted to new technologies and new markets. I was aware of Better Place and [CEO Shai] Agassi, and I began talking a few months ago about the need to bring some financial expertise into the company. Now that we're operating in multiple different countries around the world we need to have a financial plan to work in tandem with the roll out plan.
What are your challenges ahead?
The main challenge is not the proposition, which I think people find extremely attractive. The main challenge is the dysfunctional capital markets.
What skills from your investment banking career do you expect to benefit you in this role?
One is my experience in raising capital in many parts of the world, and working with governments and private sector companies all over the world. We are in a business that's going to take us all around the world, where we will have to raise money along with private-sector and government-sector partners to build the required infrastructure.
Do you drive an electric car yourself?
I haven't yet moved to Palo Alto, but it's my intention to. I would love to drive an electric car, and I've been waiting anxiously to buy one with a range-extendable battery. I drive a motor bike currently.