With Tesla’s announcement yesterday that it will roll out battery swapping technology later this year, comparisons were quickly drawn to recently defunct Better Place, an Israeli startup that infamously burned through $800 million in venture capital. While there is much similarity between Tesla’s new offering and what Better Place was trying to do — both allow for an electric car to get “recharged” in comparable time to refilling a gas tank — the two offerings have less in common than meets the eye. Here’s why:
Better Place was trying to corral numerous manufacturers; Tesla is serving only itself. Shai Agassi, the charismatic founder of Better Place, convinced the governments of Israel and Denmark that his plan for battery swapping would solve the biggest problem with electric vehicles and got serious commitments from both. But what he couldn’t do was get similar promises from auto manufacturers to offer a wide variety of makes and models — something he needed to do to make widespread battery swapping widespread. As a result, Better Place swaps were limited to special versions of the Renault Fluence.
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Tesla, on the other hand, has already sold more of the Model S than Renault ever sold of that Fluence and the Model X SUV will use the same battery design. That gives Tesla scale that Better Place never had, an advantage will grow over time. But it’s perhaps more significant in that Agassi was busy trying to corral a bunch of disparate interests, while Tesla is acting only for its own benefit. Still, that leads to…
… Better Place was hoping to profit from battery swapping; for Tesla it could become costly. Fundamentally, Better Place was based on a bad economic presumption: You can add a middleman to already expensive electric vehicle ownership — one who will seek to make a profit — and this will help encourage electric-vehicle adoption. Some of us called this out long before Better Place spiraled downward. Tesla, to its advantage, won’t seek to make money from swapping batteries.
Tesla is asking users to pay a fee for each swap (CEO Elon Musk estimates about $60-80, depending on the current price of gas locally). But the $500,000 to build each station as well as the ongoing cost of maintaining it might well prove costly for the company — at least early on when volumes are low. Tesla is taking a go-slow approach, building only in California and along the bust Boston-to-D.C. route at first, limiting exposure to a few million dollars. Still, reaction at the Tesla Motors TSLA +2.03% Club forum to this idea was mostly negative. “Why would I want this?” was the general reaction.
Tesla has already achieved a level of acceptance Better Place never had. Perhaps, though, that forum reaction misses the point. It’s likely that most people who already have a Tesla have accepted the range limitations and recharge times as acceptable limitations. We can debate how limiting they are, but realistically the 10,000+ owners have decided they don’t mind. Musk is basically targeting the next 100,000 with this offering and he just might win them over.
He’s also looking to the long haul, where battery swapping might be key in urban markets that don’t allow for ubiquitous charging all the time. To that end, this is an investment for Tesla that might not pay off. But it could be the key that unlocks huge segments of the market.
Better Place’s technology was never going to make EVs as good as gasoline cars. The Renault that Better Place offered was another sub-100-mile electric car akin to Nissan’s Leaf. It’s a perfectly legitimate commuter car/second vehicle, but a useless long-hauler. Nothing about Better Place’s swap stations was going to change that. Having to pull over every hour for a new battery wouldn’t work for the Leaf (except for the hardest of die hards) and wasn’t going to make the Fluence electric as popular as a Honda Civic.
Tesla, on the other hand, has a car that can do 250+ miles on a single charge — and 250+ more with a battery swap. In fact, owners of the 60-kw version of the car (the small-battery variant) will be able to swap to the 85-kw battery through this offering. While that might hit sales of the larger battery, costing Tesla some money and margins given the $10,000 price gap, it also makes the best experience more accessible.
It’s now realistic to buy the $70,000 version of the Tesla for the 95% of your use where the 200-mile range is sufficient but then to swap out to the bigger battery for a long road trip. Beyond that, you should be able to keep the better battery if you like it for an upgrade fee. This kind of thinking is, quite frankly, a bit nuts for an automaker. It lets you pay less upfront and gives you the ability to upgrade your old car rather than buy a new one.
So far, though, thinking outside the box hasn’t hurt Tesla.
Tesla builds cars; Better Place leased batteries. This distinction is important for a lot of reasons. In fairness, one of those is that Tesla has profited handsomely from the sale of Zero Emission Vehicle credits to other auto manufacturers. While this gets down into arcane financial detail a bit, Tesla’s first-ever profit wouldn’t have happened without those sales. Going forward, it’s possible the California Air Resources Board might not give Tesla additional credits for these swappable batteries. Or it might. If it does, the cost of these stations will be paid for from the additional value of the credits — at least in the short run while there is still a robust market for them. (For more on the ZEV credits, check out “Tesla Delivers Promised Profit, Isn’t Counting On ‘Green Credits’ Going Forward“.)
In the long run, Musk notes, everyone should build their own EVs and the market for credits will dry out. That’s better for every manufacturer who isn’t Tesla. And he seemed fine with it. What Musk didn’t discuss yesterday, but others have noted, is that outside of the credits, there is some value for the company in building the swap stations regardless. Tesla is working with utilities in California to help stabilize the electric grid at the charge stations. These racks of batteries from people’s cars will be part of that, so it’s at least possible that the investment in “SuperSwapping” will net out smaller than it appears given contracts with utility companies.
Upgrades? Who wants upgrades? Tesla has teased several times that their design allows for an “upgradeable car” and yesterday’s announcement was a further reminder of that. Musk pointed out that future batteries for Model S (and X) might have larger capacity than today’s 85-kw design and there’s no reason to doubt that those, too, will be available through swapping. While there is no timetable from Tesla, nor any commitments, Musk has mentioned 500-mile range in the past, which would likely require a battery at least twice as large as today’s.
But in this case “large” doesn’t mean physical size. Energy density is improving and Tesla benefits from the large demand for commodity laptop lithium-ion battery cells, which it uses by the thousands in its car s. Today’s roughly 1200-pound battery might get you 265 miles. The battery of mid-decade might actually clock in under a half ton, but allow for 350 miles of range — or more. And you might be able to buy it simply by driving through a swap station, waiting 90 seconds and receiving a charge on your credit card statement.