The thick smokescreen concealing the circumstances for the ouster of Shai Agassi as Better Place CEO cannot last much longer. Although it is a private company, its investors, which have put hundreds of millions of dollars into the electric car venture, are public companies and private equity funds, which must be accountable. There is also the effect of the company's actions on outside circles, such as the government, the leasing market, and the car industry as a whole. Until the picture clears, we are mainly left with weighty questions.
1. What will the car leasing companies do?
The companies that buy half of the new cars sold in Israel each year have more than once proved that they can push a model to the top or destroy sales for one reason or another. Better Place has cooperation agreements with some of Israel's largest leasing companies, some of which are defined as "partnerships", which if they were to apply the marketing machines in full, would almost certainly enable Better Place to sell several times more electric cars.
But these partners have their own agendas. For example, most of their savings come from maintenance costs, spare parts, and related services, each of which Better Place keeps to itself together with Renault SA (Euronext: RNO) and Nissan Motor Company Ltd. (TSE: 7201) importer Carasso Motors Ltd. (TASE: CRSO). The unique character of the electric car, which Better Place continuously manages by remote, bypasses the leasing companies' management systems, largely turning them into only financing factors.
In addition, all the leasing companies are facing major difficulties in raising money on the capital market and they are increasingly dependent on credit from importers of gasoline powered cars, which are not exactly sympathetic to the idea of the electric car. Add to this the uncertainty about maintaining the value of used electric cars, it is possible to understand why the leasing companies are a bottleneck, rather than a springboard for sales.
Better Place's ability to break the Israeli sales barrier depends on its ability to bypass the leasing companies and persuade company executives and controllers that the electric car is worthwhile. But if it does that, it will drive collaboration with the leasing companies further away.
2. What will the government do?
Better Place's venture could never have hit the road without government support facilitated by Agassi and Israel Corporation's (TASE: ILCO) network of officials in the corridors of power. The government made it worthwhile to buy an electric car through tax breaks, which are worth - based on a modest valuation of the car and the battery - NIS 40,000-50,000 per car. The government also defined the venture as a national project, paving the way for the construction of a chain of battery recharging and replacement stations, setting standards, and separating the price of the battery from the price of the car for the purpose of calculating the use value. The last measure amounts to a hidden discount of hundreds of shekels per month in the use value of a company electric car.
The question now is what will the government do? Will it support Better Place by offering, for example, a temporary exemption on the use value of company electric cars for employees, or will it turn its back? Lobbyists will apparently make the decision.
3. Where has the Renault-Nissan Alliance gone?
Rumor has it that on Agassi's office wall is a framed piece of paper on which Renault-Nissan Alliance chairman and CEO Carlos Ghosn bet on the number of electric cars that would be sold within ten years. The prize to the winner is a car.
But, if Better Place fails, the Renault-Nissan Alliance and Ghosn have far more to lose than the prize of one car. The companies made a huge bet when they harnessed their resources to the electric car vision, in no small part because of the extraordinary personal relationship between Agassi and Ghosn, which President Shimon Peres brokered. To date, Renault has invested billions of euros in developing the car and its battery recharging technologies, establishing plants in Japan and Europe to produce the car batteries, and a designated production line in Turkey exclusively for the Fluence ZE and its replaceable battery for Better Place. Ghosn has personally put his prestige and reputation on the line for the venture, sometimes in face of opposition by Renault executives and shareholders.
In ordinary times, Renault could allow itself to sweep an unsuccessful model or model line under the carpet. But with the French and European car industry hemorrhaging, Renault's shareholders probably have little patience or forbearance. Meanwhile, we have heard nothing from Renault on the matter, but we can assume that many worried Frenchmen are talking behind closed doors.
4. How long will Better Place's cash last?
Better Place was able to exploit investors' enthusiasm for cleantech in recent years to raise hundreds of millions of dollars. But an unknown part of this money is pledged, and the transfer of cash depends on milestones. We don’t know what these milestones are, but the investors undoubtedly want to see substantial progress in car sales before sending more money.
Meanwhile, a perusal of Better Place's financial report for 2011 will find (alongside the perennial going concern warning) an assessment by Agassi that its cash reserves will suffice for current operations through March 2013. But these assessments are based on 2011 figures, while the company's cash burn rate has soared.
Therefore, Better Place's ability to continue financing its operations until it breaks even will depend on the stamina of its investors. We've already encountered investors who continue injecting money into ventures merely to avoid admitting failure of their bet. In the case of Better Place, we are talking about unsentimental US private equity funds and European banks.
Israel Corp and its chairman Idan Ofer, which has invested $200 million in Better Place to date, have previously proved that they know how to cut the strings when necessary. Ofer closed Dov Moran's mobile phone venture modu, after investing tens of millions of dollars in it. If things get worse at Better Place, its big investors may compel negotiations for the sale of the company or its intellectual property.
Published by Globes [online], Israel business news - www.globes-online.com - on October 4, 2012
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