Shai Agassi’s Quest To Build A Dominant Auto Company: A Greek Tragedy

Brian Blum, the author of Totaled: The Billion Dollar Crash of the Company That Took On Big Auto, Big Oil and the World, was kind enough to send me an advance copy of his book, and I would recommend it to students of energy, transportation, entrepreneurship and corporate leadership. It’s a rollicking good story and is well told (yes, I’m jealous), with many valuable lessons to be gleaned.

To recap, Shai Agassi was a successful software entrepreneur who wanted to better the planet and came to the conclusion that electric vehicles were the answer to a lot of problems and that battery swapping was the answer to the long charge times. His intention was to build robot-equipped stations, rather like a car wash, where a driver could pull in and have a depleted battery swapped out for a charged one in less time than it took to fill the gas tank on a conventional vehicle. This would overcome two main obstacles to greater penetration of the market by electric vehicles: range anxiety and long charging times. Oh, and the company would own the batteries, leasing them to customers, which would bring vehicle costs down sharply.

It all sounded simple and elegant, and he raised several hundred million dollars with a PowerPoint presentation, charisma, connections and chutzpah. If he’d had a detailed business plan, he might never have got off the ground. I recall at the time thinking that the challenges were gargantuan and was amazed at the glowing, largely uncritical press.

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And he was, in truth, a rock star to many. He spoke at Davos, gave a TED talk, was written up in places like Wired and The New York Times, mostly with little hint of the complexity of what he was attempting. Too boring, I suppose. No one thought about how he could possibly raise enough capital to build all the battery swapping stations, get the capital to finance owning the batteries (including those stored in the charging stations), persuade the auto companies to design their electric vehicles to conform to his robot battery-swappers’ requirements, and sell consumers on a new technology that would need massive infrastructure for support. Oh, and software for directional guidance and battery monitoring.

There were clearly personality issues, primarily the founder’s stubbornness and arrogance (or hubris, as the Greeks would say) that contributed to the failure. But the physical challenges of creating such a large, complicated infrastructure never seemed to impress him or his backers. Possibly because he was a software guy, it never occurred to him that the battery stations needed a large, well-cooled basement to store the charging batteries. (Batteries charge more efficiently at cold temperatures.) That sort of thing doesn’t come up in the software world of bits and bytes.

And he tended to believe reality would bend to his wishes, like a high-tech King Canute. He wanted the cars and the stations to be cheap, they would be cheap. Dissenting voices were shrugged off, and when the car, built with Renault, proved not to be cost-competitive with gasoline vehicles, the press and consumers proved, let’s say, unreceptive. The response to the problems was too little, too late, and Agassi’s company, Better Place, went bust in a big way.

What’s amazing is not that the company flamed out but that it had islands of success, especially in the Tokyo taxi business. Tokyo is a city with lots of taxis and a need to hold down auto emissions, and Japanese gasoline is expensive; in addition, the charging stations could be relatively few and centrally located at the taxi yards. From the book, it appears as if focusing on that aspect of the business would have made Better Place a success, just not the global dominant auto company that Agassi wanted. He could have been the Checker Cab company (there really was a Checker manufacturer; my parents owned several), just not General Motors.

Needless to say, there are some very good lessons here for others attempting to emulate Agassi’s vision. First is the old carpenter’s adage “measure twice, cut once.” Don’t start expansion until you know what your vision is going to cost and how you’re going to fund it. Don’t try to soar before you can walk. Don’t substitute aspirations for solid planning. Hire good people and listen to them.

Some of this might sound like Elon Musk and Tesla, and there are similarities but also differences. Tesla has developed a line of automobiles and a customer base and is well capitalized. However, it’s not clear they have the ability to gear up from less than 100,000 sales a year to 600,000 in the space of two to three years. Servicing your customers’ vehicles is mundane but expensive and crucial. Software can be fixed remotely over a fiber optic line, but real life mechanics have to be available and on call throughout the nation for a mass-market car company.

And Musk’s distractions of the Hyperloop, tunneling, SpaceX and so forth would be better left until Tesla has reached not just high stock market valuation but large-scale operations, when the company is up and running like a well-oiled machine rather than when it is poised to attempt a breakout. The most chilling phrase in Blum’s book was “Better Place had even grander plans.”

I look forward to the rock opera.

[Shoutout to my old Western Civ professor at M.I.T., Alvin Kibel, who taught me about hubris, one of the great Greek contributions to our culture. Proof that the humanities are still vital, even to engineers and especially entrepreneurs.]