Electric Cars Miss Targets Globally; Better Place Sputters in Green-Conscious Denmark

1/23/2013 12:30:49 PM

As sales of electric cars come in significantly below expectations globally, Better Place, the Israeli company that develops charging networks and battery-switching stations, switched CEOs for the second time in four months and is downsizing its ambitions.

electric car photo by motorblog

Nissan is cutting the price of its Leaf electric car by 17 percent to $28,800 after the vehicle has consistently missed sales goals since going on the market at the end of 2010. The model only sold 9,819 units in the United States last year, less than half of the company's target of 20,000 cars. Nissan, which had predicted that electric vehicles will make up 10 percent of all global car sales by 2020, will lose money on every Leaf sold as it tempts buyers with the lower price, industry analysts said.

And competitors aren't faring much better. GM shut down production of its Volt model for a second time in August as unsold cars were piling up. French automaker Renault sold only 3,800 of its new electric vehicles Fluence and Kangoo in the first half of 2012.

"After huge initial hopes, the sale of pure electric vehicles has gone off to a bad start globally," said Niels Fehre, an analyst at HSBC in Germany. "The most important reasons have been, in our view, their high initial cost, their limited range, too little infrastructure, and safety and comfort concerns."

The lack of enthusiasm from car buyers for electric vehicles is hurting Better Place, which has raised $750 million since it was founded four years ago and is in partnership with Renault to install electric car charging systems in Israel, Denmark and Australia before expanding in other countries. But as sales got off to a slow start in Israel and Denmark, plans for Australia have been postponed.

Founder and his replacement step down

Founder Shai Agassi stepped down from the chief executive position last October, and his replacement, Evan Thornley, abruptly resigned last week after less than four months on the job. Despite tax breaks extended to electric vehicles in Israel and Denmark, only about 600 Renault Fluence cars are driving on Better Place's network in Israel and about 300 in Denmark.

Now Renault has put the rollout of the Fluence in Australia on hold by as long as 18 months because Better Place has not built a charging and battery replacement network there.

"We at times were too focused on turning into a global company and expanded too fast, but we have to focus on local operations and selling cars," said Alan Gelman, chief financial officer and head of operations for Better Place in Israel, according to media reports. The company will now be led by Gelman and Johnny Hansen, the CEO of Better Place Denmark, and will focus on building a viable business in those two countries before thinking again about expansion.

In Denmark, Better Place fully deployed its nationwide network of 18 battery switch stations by the end of last year. They are all active and used by the 550 motorists in the company's Danish network.

"In the next couple of months we will carry out the final testing and upgrading needed to offer 24/7 unmanned operation," said Susanne Tolstrup, a spokeswoman for Better Place Denmark.

Better Place chose Denmark as one of its first deployment markets because with a relatively low number of battery replacement stations, a network could be created that would allow electric car owners to extend the limited range of their vehicle's battery to the entire small Nordic country. The battery could be switched by a robot in about five minutes in a Better Place station, the same time it would take to fill up a tank of gas.

Meanwhile, the idle batteries could be recharged at night, when wind power is cheapest. Denmark is the world leader in wind power generation, and Danish state-owned utility DONG Energy, which is also the world's largest operator of offshore wind farms, owns a minority stake in Better Place Denmark.

As of the end of last year, Better Place members had completed 5,500 battery switches and 50,000 individual charges and driven 1.3 million kilometers with electric vehicles, according to the company. But although the infrastructure buildup has gone as planned for Better Place in Denmark, car sales have not. Hansen, the CEO, was quoted in Danish newspaper Berlingske as saying that "sales have been developing slower than expected."

That may be a bit of an understatement. In 2009, Agassi said he expected to sell 100,000 Fluence cars in Denmark and Israel combined by 2016. A third of the cars were forecast to be sold in Denmark, so at the moment the company has reached only about 1 percent of Agassi's prediction. By comparison with the 300 Fluences roaming the Danish roads, the best-selling car in Denmark last year was the subcompact Volkswagen UP, which sold around 10,000 units.

"In 2013, we expect electric vehicle sales to gradually take off with a quicker pace and volume now that the network is in place and the integrated solution proved through our first pioneer members and very high customer satisfaction," Tolstrup said.

'Ready for the market to take off'

Israel Corp., which owns about 30 percent of Better Place, said in a report in November that the electric car company had an accumulated deficit of $561.5 million and that more losses were expected. Better Place Denmark got a €225 million loan from the European Investment Bank last August, which should take care of the company's finances in the short term.

"Our network is fully financed, and we have big international investors behind us that have trust in our model and are taking a long-term view of their investment," Hansen told Berlingske. "We are ready for the market to take off in the coming years. Every new customer means new money coming in to Better Place."

The company hopes that as new electric car models and brands become available in Denmark, sales will pick up at least to the level of Norway, where one in 13 new cars sold is now electric -- a minor success story for the industry.

"Better Place continues to focus on battery switch and related 24/7 services including access to our more than 1,200 public charge spots deployed around the country, and we continue to grow and develop our offering as demand grows to also service the many new electric car models entering the DK market in the near future from manufacturers like Tesla, Volkswagen, BMW and Ford," Tolstrup said.

Much like Better Place, all carmakers still have ambitious electric vehicle plans despite the initial disappointments from low sales and the fact that an answer to the high cost of the vehicles has yet to be found.

"The major reason for high electric vehicle prices is the high battery prices," said Fehre of HSBC. "It remains to be seen if the battery technology improves quickly enough to allow for better cost efficiency."

McKinsey & Co. consultants expect battery prices to fall by two-thirds by 2020 due to rising economies of scale and technological improvements. But if sales volumes continue to significantly lag expectations, economies of scale may be difficult to achieve.

"The main problem for carmakers is that, due to stiffer emissions regulations, they have to continue to invest in a business field that consumers do not desire, at least so far," Fehre said. "This is particularly a problem in Europe, where CO2 emissions rules are tighter than in other regions of the world. For premium carmakers, it could even be cheaper to expand small car sales by low, competitive selling prices than to invest in electric vehicles."

Both Better Place and the carmakers are hoping that they will receive a near-term boost when government and corporations that aim to polish their green credentials start replacing fossil fuel vehicles in their fleets with electric cars. Denmark is a good place for that, as the central government as well as some local municipalities intend to buy electric cars for their fleets to meet "green mobility" targets.

But, as with many green technology and climate issues, it may ultimately fall to China to tip the balance in favor of electric vehicles: The country has a target of putting 1 million electric cars on its roads by 2015.

Reprinted from ClimateWire with permission from Environment & Energy Publishing, LLC. 202-628-6500.

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