Better Place's and new CEO rewriting business plan under orders from Israel Corp

Last months ouster of Better Place founder Shai Agassi has been followed by other turmoil, including the ouster of Better Place Israel CEO Moshe Kaplinsky, other departures, a large layoff, and on Wednesday a threat from Better Place's major shareholder, Israel Corp, to cut off funding. Reportedly the new CEO, Evan Thornley, is hard at work with a consulting company crafting a new business plan that is to be presented before the Israel Corp board in December for approval.

Better Place was founded in 2007 with the vision of enabling widespread adoption of electric vehicles by offering a battery pack exchange service. Such a service replaces a depleted battery pack with a fully charged one within a couple minutes. This allows electric car drivers a usage model similar to gasoline cars, because the driver refuels during a short stop at a service station rather than with a long wait at a charging station.

The company's service of course requires automakers to construct electric cars compatible with the Better Place quick battery pack exchange stations. The only company to do so is Renault, with their Fluence ZE. The Better Place service has rolled out in Israel for general use, and in Amsterdam as a taxi service. In October, Better Place was the indirect recipient of a grant to launch an electric taxi service in the SF Bay Area, and has tapped Coda Automotive to provide six electric cars for the first phase.

In other words, it is Israel that is the main venue for Better Place to prove (or disprove) its business proposition. Going by the results, the potential customers are not buying in, sales are weak, the management team is being replaced, and a new vision is being crafted.

In late October, it was announced that half of Better Place Israel's staff was to be laid off. In mid-November Kaplinsky and several others left Better Place Israel. While Kaplinsky, a former Major General, is apparently mulling entering politics the context of his departure suggests an ouster.

The Israel Corp owns 28% of Better Place, and Idan Ofer, controlling shareholder of Israel Corp., directly holds another 8% of the shares and serves as its chairman. The Israel Corp has invested over $229 million into Better Place, and recently added another $67 million matched by an additional $19 million from Ofer. The Israel Corp is however worried over when Better Place will start turning a profit. Haaretz reports on Wednesday that Israel Corp is demanding a new business plan by the end of the year, or they will stop injecting money into Better Place.

The problem is that Better Place is nowhere near meeting sales targets, has a big commitment to Renault, and is building an expensive infrastructure of battery switching stations.

Globes, the Israeli business news website, is reporting the Baran Group is worried about Better Place's debt to Baran. Baran is the engineering and infrastructure company building the battery switching stations in Israel, to the tune of NIS 750,000-1.1 million per station (1100000 Israeli new sheqels = $285,870.20 US at current exchange rates). This cost is far higher than the installation cost of fast charging stations. Baran is financing 70% of the cost of the first 20 battery replacement stations under a four-year loan to Better Place. In a recent financial report Baran's management said "Due to the size of the debt and the events reported in the media about Better Place, including the replacement (or retirement) of senior company executives, and due to the doubts whether it will meet its business targets, Baran's board of directors is closely monitoring the events. As the situation changes, the company's management and board of directors will review it and make the necessary decisions."

The Haaretz report says Better Place found itself unable to pay suppliers but was able to make salary payments to employees. Orders for new cars have come to a standstill, and in any case the company has sold under 500 electric Renault Fluence ZE's when it expected to sell 4,000 cars in 2012. The company had anticipated a 23 million euro deficit for 2012 but instead racked up an 80 million euro deficit in the first half of 2012 alone. Better Place sought to raise 200 million euros of additional investment from institutional investors, and when that failed the company turned to existing investors (including the Israel Corp) asking for $150 million, but only succeeded in raising $100 million.

As for the new business plan, reports are that Thornley plans to change the focus from electric car sales to purely operating a network of electric vehicle service stations. That would focus Better Place solely on operating battery exchange stations, rather than also selling (or leasing) electric cars. The company's core competency is in battery exchange technology, but one wonders how this will pan out when the car manufacturers are indicating little willingness to build electric cars compatible with the Better Place fast battery exchange system.

Even Renault, who is providing Better Place's existing electric car, the Fluence ZE, seems to be backing away from Better Place. The Renault ZOE recently unveiled at the 2012 Paris Auto Show was demo'd with a fast charging system, and no mention of fast battery exchange options when previously the ZOE was presented with fast battery exchange capabilities front and center.