The Long Tailpipe - Shai Agassi's Blog

Open Letter to EV23 participants

The big Electric Vehicle Show is happenning in Anaheim starting this week. We sent an open letter to the participants, to state our intentions in the market and welcome all cooperative parties that want to leverage our entry to the market. I figured that some of you will not make it to the show, so...here goes a copy of the letter

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To my fellow EVS 23 participants:

As a new entrant to this market, I'm delighted to be a part of the excitement and passion this industry has for today and for the future.   

As you all know, the International Electric Vehicle Symposium and Exposition (EVS) series took root in 1969 – the same year that man first walked on the moon.  The Apollo Mission required enormous industry collaboration, smart engineering, and the imagination and vision to ignite an entire industry to rally behind it.  It was a unifying vector for all of mankind’s ingenuity to put together the science we had already known at the time into an integrated solution that was a wonder of technology. That race to the moon created many opportunities for many new companies in innumerable fields of technology which advanced society and science more in one decade than ever before.

Neil Armstrong, the first man to walk on the moon commented, "The important achievement of Apollo was demonstrating that humanity is not forever chained to this planet and our visions go rather further than that and our opportunities are unlimited."

Nearly 30 years later, I believe that to start addressing our planet’s burning issues of climate change and oil dependence, we need a new galvanizing mission – one that will capture the attention and excitement of the common consumer at home, even if they do not understand the science. At Project Better Place (www.ProjectBetterPlace.com), we believe that the answer to our inconvenient truth starts at a convenient car. Cars capture the public’s imagination, their aspirations for a better place for their children, and their self-perception. We can make every person a part of our industry’s exciting journey.

We believe that for certain markets around the world, the time is right now.  We believe that "transportation islands" – regions with dense populations where people drive 99.5% of the time less than 100 miles per drive – hold the most immediate promise for providing the consumer with a complete solution: car, infrastructure and energy at an affordable price.

We believe that we can integrate existing technologies – many of them will come from you — which can be scaled like never before, as we build out electric recharge grids much like the cellular industry in the early days of building cell towers.

We believe that it will be the consumer, not the industry, who drives the tipping point for EVs to go mainstream.  The consumer's contract for the EV must be the same – or better – than the consumer's current contract for gas-powered cars.  We need to change the way consumers buy an EV so that it fits the current social contract we have with our cars, providing a normal car ownership experience even if the car has an electric drive train.

We believe that with the right infrastructure, the right car, the right battery and the right consumer experience that the industry as a whole will benefit and that there's enormous economic opportunity for all of us. We also know that certain countries around the world are ready to put in place the right policy to make this reality come true today, not in the distant future.

And much like the moon shot in 1969, we believe that if we get this right, our children and grandchildren will benefit the most and our world will be a better place. We don’t need to see our planet from space to know it, we need to stay with our feet on the ground to make it happen.

The Project Better Place team looks forward to meeting you all and to what we hope will be many years of future collaboration among this esteemed group.

Best regards,

Shai Agassi
Founder and CEO, Project Better Place

Special interest Groups

I am copying a post from our internal discussion board which I thought would be of interest, when looking at the interest groups around this project of ours. The original comment came from Jean Louis from Belgium-France (Is that a new way to state you are from the side of Belgium that will soon become France??)

I will post his original post as a response to my post...but check out the discussion board at www.projectBetterPlace.com

My answer
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Guys,

Here are a coupld of observations on the special interests as I met them these past few months extensively

1) Car guys - need any way possible to get cars simpler to make profit. The myth that they want a car to have more replacement parts is not true - they would like a car that assembles in less time. Plus - they want all the used car guys to buy a new car which they will not do unless there is a newer cheaper way to use the car.

2) Big Oil - divided these days into national companies and global companies. The global ones actually see their business as "transportation energy companies not just oil" and they see their wells starting to dry up within 10-15 years. they get no new wells, and as a result they would love to find a better way to energize cars. can you say partnership?

3) Countires - while they collect tax on gasoline they lose a lot on their trade balance due to oil imports. Countries manage overall money markets (macro) not just taxes from one commodity (Micro). Plus, remember mel brooks always said "It's good to be king" - if you run the taxes for a country you can always add a tax somewhere else as long as the money stays in your country. If you import oil the money goes away and you never get to collect the taxes afterwards....

Finally consumers - especially in Europe - if you drive the average used car in Europe it is 7 years of age, making it worth roughly 3,000 Euros (which is almost a million dollars at today's exchange rate, right?). Think for a second - your "replacement threashold" has now become 3,000 Euro or less than the gasoline you pay for one year. At the pace things are going right now, you will probably be paying 1.5 Euro to 2 Euro a liter for the next year or two...in other words you can get 1,500 liters in exchange for your car. So anyone giving you more than 20,000 km of free drive will convince you to get out of your car...That makes the consumers the most important factor in this game...no longer silent becuase they can vote with their wallets.

General Press Observation

There has been a tremendous amount of press about Project Better Place over the last few days. In particular in Israel these last few weeks the voices for and against the project have been sounding off their opinions. I will set a list tomorrow so that people can follow the arguments, but I chose to put one piece which is not very flattering up here...I think it is an accurate description of what we face and although there have been others that are a lot more friendly (THANK YOU FOR THE TRUST) - I wanted to highlight this short one...

Analysis / The state is betting on Agassi
By Yoav Kaveh

The cabinet's announcement to back the electric car project will be phrased in general terms and will include only principles, but it will be clear to everyone that they really mean to support Shai Agassi's project directly. Or perhaps better to call it Agassi's dream.

Agassi has a vision of ending our dependency on oil, of non-polluting transport, of solar energy. He is dreaming of a revolution on a global scale.

But will his dream actually take to the road?

The wunderkind of the high-tech world certainly succeeded in electrifying the government and achieving state support in less than two weeks. "Agassi presented us with his ambitious plan. If another person had presented us with a similar plan, we would have thought he was crazy and thrown him out," said a senior government official. "But this was Agassi. He is a young man with an impressive record who knows how to reach the highest people directly and convince them."

The Ofers and their Israel Corporation are also involved in the project, and they also know how to open government officials' doors.

This will be Agassi's last project: If it succeeds he will never need to raise money again, and if it fails he will never be able to raise money again. If within a decade we can stop breathing exhaust fumes then we should give him a couple of Nobel Prizes. If he fails - and remember there are a huge number of technological, bureaucratic and other problems - he will have to eat his hat. And so will the Israeli government.

So, as I always do, I parsed the article a bit too much, and here is my take.

1. The government of Israel has not and will not given us any money, so all the risk falls on my reputation and on my investors money. we simply didn't ask for money, since I do not believe in trying my ideas at the expense of the general public of a country.
2. On the other hand, if the plan works, we will save people's lives, save the country a lot of money which is now spent on importing oil, and create a whole new industry and jobs for Israel.Not a bad deal for the first movers.
3. By the way - if we do succeed, we will be heavily taxed, so while we don't get money from the government we definitely enjoy having them as a senior partner with us (and we are not even complaining about it...we think it is good).
4. I find it amazing that we always know how to blame large corporate even when they are doing something that is good for people...why can't we say for a change that a company (Israel Corp) has taken a risky initative which may be good for the country and is still doing it in great faith (and I have to tell you Idan Ofer is one of the most amazing people I have met during these last 6 months, he truly gets the problem with climate change, and its affect on humanity).
5. I am willing to lose my wunderkind status, not looking for nobels, and am even willing never to raise money again - if we can get this plan to work. The race is bigger than one person, and all people who are ready to sign up can only help. It is not an exclusive game when one is right and the others are wrong, it is a journey where we will all learn, make mistakes early and fix them quickly - to make sure we reach our goal, or dream if you want to call it that way - I have been called worse names in the past...

In the new version of this article that was published this morning there is a comment by one of the Israeli car importers (and some engineering expert called Nameri, as the article states) regarding our electricity cost calculation - The translation goes roughly like this

"...A car in Israel drives roughly 15,000 km a year which requires 5,000 kWh costing 2,500 Shekels...which will cost an enourmous amount. Making the electricity through sustainable means will cost even more money which is just ridiculous to think about"

Let's run the real math for a minute

car goes for 15,000 km - requiring on the average 150 wH per km - making the required energy 2,500 kWh per year [that's half the amount mentioned in the article] - which costs roughly 1,000 shekels per year (that's about $250 for you gys without Shekel calculators handy)

Now, if you wonder how many gas station stops you can make in Israel with $250 - the answer will become pretty apperant when you realize that gas at the pump costs roughly $6.5 per gallon or $1.65 per liter. If your tank is the average 20 gallon (80 liter tank) then you could fill up the car about twice for those same $250 (or 1,000 shekels). I wonder how many people would drive for a whole year on two gas tanks. By the way, if I was wrong and the aticle's calculation is right - it is still 4 full gas tanks - which most people in Israel consume in less than a month. I suggest next time using a calculator for checking the data before publishing.

The real interesting question though was whether we can generate the electricity in a clean way without harming the environment at all. So let's see how much it would cost to create 2,500 kWh in a year from clean sources, like solar thermal - which enjoys an abundance in Israel (if there is somehitng that is abundant in Israel it is the sun).

To generate 2,500 kWh over a year we need about 1 kW of solr thermal capacity which in volume costs roughly $3,000 - but works for 25 years or more (ask Solel for the data...). In other words for about $150 a year we can generate enough electrons to drive a car. That's even cheaper than dirty electrons...oh, and by the way if we did install those solar plants, got our electric cars, and converted a country we would get the first ever "artificial oil field" which goes for ever and does not emit a single C02 molecule...for less money!

I think that critisicm is fair in general, the duty of proof is on us. At the same time, the duty of responsibility is on those who want to publish information. I hope we can get help from people along the way and that the nations who sign up will act with the same vision as Israel just demonstrated this morning. Shai doesn't matter in this entire story - it is our kids who do - so let's worry about how we make their world a better place.

Oil Prices

On the day we launched, oil hit its all time (non-adjusted) high - $92.5 a barrel. I got asked to speak at Fox, right after a panel of oil “price experts” finished a very heated dialog. The guy shouting the hardest was the anti-green guy. He made a very bold claim that the price point of $92 is over inflated by speculation in the market and that there is at least $20 of speculation in the price of the barrel. The reason for that projection – national reserves data for all countries around the world, and in particular US showed higher reserves than past numbers. That meant the US had 57 days or so of crude oil reserves in its disposal and wasn’t using them – in other words the federal governments were behind some of the inflation since they were “over-buying oil”.

I couldn’t interrupt him, as they wouldn’t let me sit in the same studio with the panel (I was pushed to a side room camera – not enough room next to the panelists). What I would have reminded him, had I had the chance is that going back $20 is merely one or two months in calendar terms. The interesting thing was the fervor with which he spoke, as if to say that oil at $70 a barrel is a cheap commodity that makes everyone happy.

Sure enough I wake up on Wednesday morning in Washington DC, to find the next headline – “Oil prices tumble to $90 a barrel”. Just the thought of the combination of $90 and the descriptor “tumble” threw me into a long laugh the entire day. Oh, by the way, by the time I took my flight out of DC on the same afternoon, the price of the barrel un-tumbled (I just can’t find a better descriptor) to $96, as we all learned that reserves in the US hit a low not seen since the post-Katrina shut down of the Louisiana refinery belt. Mind you, that $96 a barrel price, still does not factor in a single potential disaster like a Hurricane turning North-west instead of North in the Gulf of Mexico, let’s see, within the next 48 hours?

Continuing on the strong “weak signals” theme from Sunday

• China had the first gasoline direct casualty – a person in line for gasoline in a town gets beaten by people who are constrained by Diesel shortages. This is not a China problem - it is going to become a very ubiquitous problem around the world - so take the image of a man beaten for Gasoline and scale it out by 6 Billion people…you see the point.

• As result of the shortage of gasoline, China raised the price of Gasoline at the pump by 10%. This is really big news, and if the trend of oil crude continues at the same pace, more increases are on the way soon.

• The CEO of Total, the French upstream and downstream company, breaks rank from the rest of the industry and tells FT that “while reserves are still found in the ground, reaching production capacity of over 100 million barrels a day is difficult”. The reason is fairly simple, new reserves are going to the national oil companies (NOCs) and not to the major global companies any more. Countries are asking the majors who want to come into their country to focus on the “heavy oil sources” those are not only harder to get, they also have a higher carbon impact on the world. By not letting the oil majors tap into the easy oil the countries are hoping to keep those reserves for themselves for a rainy day.

If you were wondering what the oil majors were predicting on the future production targets, well check the following data out:

• We are producing 85m barrels a day (b/d) right now (that’s the great sucking sound you hear in your sleep as we gulp our planet’s scarce natural resources that took us 300 million years to convert from living matter into carbon based energy
• Oil companies predict 118 m b/d by 2030.
• We are already at virtually $100 per barrel, today at 85m. What happens as we approach 100 m b/d to the price  of oil and gasoline. This is queue theory at its best. The clog that comes as result of the last buyer for a barrel of oil is just the same as the slow down of cars on a highway – the last 10% slow down the road by 50%. Yet just like on the road, the last 10% set the price higher not just for themselves but for everyone in the market.

What does it all mean – we are $4 from the inevitability of $100 per barrel of oil. There is 0% short-term market elasticity in the price of oil. We consume it the same at $1 a gallon and $3 or $7 a gallon. Why? Because our short-term decision is always one for $100 or so – should I fill up my car or stop driving from now on. When the decision for car energy is less than 1% of the cost of the car, you can never wean away from the addiction to oil. It will be interesting to see what happens in Europe, when Gasoline prices hit $8 per gallon across the entire continent (not just London) as result of this recent crude oil increase.

To illustrate, an average clunker across Europe, and there should be 100M or so cars in Europe over the age of 8, is probably worth less than $5,000 to buy. Refueling it for a year at 20 mpg, which is where the European fleet was on performance 10 years ago requires an average of 600+ gallons. As a result the average used car owner will pay more than $5,000 for car energy supply for one year – more than the car is worth. As Europe urbanization and salary diversity pushes more people into suburban and beltway living, at least 30% of the population drives 30,000 km a year. Those people, who are the ones that cannot afford the expensive living in the city, now need to either stop driving private cars or pay upwards of  $7,000 for gasoline every year. Only we never make that decision ahead of time, we take the hit 50 times a year at the pump – death by a thousand credit card cuts…

The cost of the average used car in Europe is now cheaper than the cost of gasoline to drive it for a year– talk about razor and blades businesses. Big oil still can’t supply the global demand for this concentrated energy liquid, yet the US prices gasoline less than its other concentrated energy liquid – Red Bull – when we compare on a gallon-to-gallon basis. [If you are like me you now wandered into the "how much is a gallon of Red-Bull" part of your brain...at $2 for a can of 8.3 ounces it costs $30 for a gallon...if you buy it at a club for $6 a can you are looking roughly at $100 a gallon - or 30x more than Gasoline...but then again, where do you find a gasoline that would give you the buzz-worth 15 cans of Red Bull?]

The oil companies are not evil, they merely supply our craving for freedom of drive. The bigger the population growth, the farther we are from our centers of work and culture, simply because we cannot afford the houses that require no driving in the middle of our big cities. If the oil companies would not exist, we will all run for cover as our economy would stall and our markets truly tumble. They are not a magic liquid industry – they are in reality transportation energy companies. We need to find a better transportation energy platform for them to jump to, bridge to this future, one that does not depend on magic liquids bubbling up from the bottom of our oceans and spews the carbon so neatly stored in the ground back into the atmosphere.

check out our white paper at  Project Better Place

shai

Launch day...

We launched on Monday, what a day….what a week leading to the launch… and what an exhilarating 6 month roller coaster ride this project has been. I don’t even know where to start describing the entire process, and some of the story still cannot be shared.

But first, I have to thank a few groups for the amazing launch.

I’ll start with the blogosphere and the general media for an amazing reception to the concept and the company. We are undoubtedly in the honeymoon period (although, for some reason, in Israel there already seems to be an organized PR campaign against us, which was expected given the amount of rumors swirling around the project). I will add a small summary of some of the writings about us just so I can generate some traffic back to the sites that took the time to write good things about us. I decided that if someone writes bad stuff about us, we will put them at the front of the line, instead of hide them. If this idea has merit it needs to figure out the way around all the obstacles and all the potential shortcomings in the framework, so anyone helping us “debug” it deserves credit – regardless of the motive.

I also want to thank the good folks at all the agencies that worked with us through the launch under crazy schedules and levels of uncertainty that would require significant dosage of Prozac to stay sane. Hill & Knowlton and Addis Creson did an awesome job under duress, and the folks at Snowball Studios created the illustrative video that showed our battery concept (literally overnight).

Our great investors are indeed putting their trust and money in us based on great spreadsheets, but you can see in the way they talk and behave that they put their hearts and commitments into this mission. Idan Ofer is beyond commitment to mitigating climate change in all of his businesses; Mike Granoff and his group of angels define the new age of geo-capitalism; VantagePoint folks, Alan, Bill, Stephan, Lou have all signed up to build the entire eco-system around our framework, and the Morgan Stanley folks are offering us any help we can from their vast talent pool – to make this one go faster to execution.

Finally to our extended family - the guys who signed up to Project Better Place and their immediate family members – I have to beg forgiveness for the endless hours before (and probably after) this launch. We are literally doing this for our kids.

THANK YOU ALL!

Now, enough of this sentimental stuff – we got work to do.

shai

check out these links:

Radically re-thinking the automotive business model

http://blogs.discovery.com/news_tech/2007/11/electric-car-sc.html

Automotive Industry Visionaries?

Oh, and one more thing...

This summer we also got funded and started our new company.

It was an amazing experience so far with some fantastic people who support and promote the future of transportation as a business opportunity for a better planet.

Code name is "Project Better Place"...check it out

shai

What I did during my summer vacation...

I hate to destroy the illusion that I spent this entire summer at the Galapagos (although I would have loved to…). I also have to fess up that Steven Addis and my wife took the pictures I used for my little Galapagos blog entry, so they deserve all the credit!

In any case, I got some homework today to revive the blog by sharing some of the stuff I have done over the last few months, without telling you too much about what is really going on in our little “project Better Place”…

I figured that the best sharing I can do is to put up my reading list from this summer, to prove I wasn’t totally goofing off. All books are extremely interesting and every one of them is highly recommended reading on their own. Put together with the weak signals I collected this summer they make for a very interesting picture.

So, On the boat in the Galapagos I read Blue Ocean Strategy by Chan Kim and Renée Mauborgne, which is a fantastic business strategy book, guiding the reader through a methodology for examining markets by looking at them with a fresh view. It could probably be considered a prequel to both Innovators dilemma (by Clayton Christiansen) and Crossing the Chasm (by my dear friend Geoff Moore), two of my favorite business books ever. In other words, the best way to disrupt a market is by looking at an adjacent (even if not yet existing) market and defining the complete product through new glasses. As a general observation, the book is much better read in the middle of a blue ocean, but that is not a mandatory requirement…

I read a couple of great car books, one of which is a rare find – Billy, Alfred and General Motors by William Pelfrey (who was the head of GM’s corporate communication till recently). I bet you most of you don’t know who founded General Motors, but all of you know who Alfred is in the title of the book. And no, the answer to both answers is not the same person. Read the book! I always find that these books about what happened at the beginning of an industry to be extremely inspiring, as we all now take this $1.5 Trillion industry for granted, with its rules, inertia, winners and losers. We buy the cars but don’t know each name stands for a great engineer or an inspiring entrepreneur, who failed or succeeded, but whose name became immortal in the car brand they spawned.

Speaking of formation of industries, I re-read one of my all time favorites - Empires of Light by Jill Jones. If I have not yet convinced you to get that book and read through it’s time you do. What a master piece, describing an industry that changed all of our lives, through so many imperfect technical solutions some of which still stand. To think of the fact that incandescent light-bulbs are still dominant more than a century after Edison, and are still wasting 995 of the energy they get in the form of heat…yet they carry so much inertia that they are still ubiquitous even in countries where electricity and emissions are problems. Not to mention, Edison’s fight against Alternating Current (AC) which no one even thinks of replacing as the standard today… Yet we all seem to think that Tesla was a sports-car guy now that Tesla Motors generated the much-deserved excitement with their roadster. 

The other car book is the new one, Zoom by the two economist columnists - Vaitheeswaran and Carson. I love the historic perspective, the conclusion that the car market is about to be disrupted, although I don’t agree with the openning remarks about how Hydrogen is the solution (although I am not through the entire book yet, so there might be a great twist to the story towards the end). The book is extremely thoroughly researched, very colorful in its detail of the car industry, and feels almost like it takes over where Billy, Alfred book concluded… so consider it an unsynchronized sequel…

Finally, a great book you should read to put the entire oil picture in perspective is Out of Gas written by David Goodstein of CalTech. The first chapter is fantastic even for people who are not versed in the science part of the issues. The rest if great if you really want to understand the fundamentals of the energy issue and not make the same mistakes as other people make routinely (like thinking that “oil producing countries” actually produce oil…).

I mentioned weak signals – which is something I picked up at the great session with my Young Global Leaders out in Dalian, China. The hospitality was as usual incredible, with China awe-inspiring in its continuous growth and enormity. I have a bunch of notes from the sessions, although the best part about YGL this time were the YGLs themselves and the free form discussions we all had, which I am not at liberty to share even if I could capture the magic of that week in our shared space. The YGL team and Professor Schwab asked us to bring a weak signal to the session – meaning some event or piece of data that tells us something about the future, not in a direct way.

The question caused me to start collecting weak signals this entire summer. The three that I would share with you are all related in fairly obvious ways though – The cost of a deep water exploration oil rig, this year’s Nobel Peace Prize, and the recent story about the reduction in ocean’s ability to absorb CO2.

• A new deep ocean rig costs upwards of $600M to buy and $500,000 to operate daily. It digs at the ocean floor which is 12,000 feet under the ocean surface, and goes in well over 20,000 feet to find oil. I learned about these numbers in a session where an expert on the topic mentioned that oil is “cheap and abundant”, which makes me wonder what happens when we need to find the “expensive oil” - if this is the cheap stuff. Did I mention the price of an oil barrel crossed $90 for a brief moment this week?

• Al Gore won the Nobel for his amazing work waking us up to the dangers of the “uncontrolled experiment” we’ve been running on the only habitable planet within reach. I still find some people’s reaction to the recognition he received incredible. In some newspaper I read the morning after the headline was “Al gore makes 9 mistakes in his movie”. Talk about denial.

• Finally, this last one from this week's news -  Oceans seen soaking up less CO2. This one is really troubling as the ocean is our global “hidden CO2 sink”. You see, a few years back scientists ran a calculation that predicted our Earth’s atmosphere should have about twice as many carbon atoms as we measured, so everyone was wondering where did the CO2 go? It ended up that the ocean was a very efficient CO2 sink. It also ends up that the sink is getting clogged…as we find out today that the speed of absorption went down by 50% over the last decade. As if we needed more bad news. Did I mention the caps were melting at an alarming speed?

When I put all these signals together I get an interesting picture – (1) we ran out of cheap new oil reserves, (2) we are running out of place in the atmosphere and the ocean to store the carbon atoms oil makes when we drive our cars, and (3) we are all much more aware today than we were three years ago of the implications of our actions and the predicament we found ourselves in, thanks to Al Gore. At the same time, we will not stop driving our cars – thanks to the freedom to roam we got used to since the days of Billy Durant, Henry Ford and Alfred Sloan.

Now, as I was writing this entry two strong signals flared up - Oil hit $92, and closed the week over $90 - as OPEC anounced they simply don't see a way to increase production short term. the second one was a strong rumor coming out of the blogosphere about China intending to raise the tax on Gasoline so as to get the price up to $5 per gallon. I am not sure there is a base to the rumor, but if it is true then the second largest car market in the world will be strongly inclined to shift away from liquid fossil fuels fairly rapidly.

What does it mean? I guess we’ll see in our collective behavioral changes…From government policy to individual choices. Is it time for a “blue-ocean” look at this greatest of industries...

Stay tuned - more on Monday