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THE idea of the “Netscape moment”, a fund-raising that signals the spawning of a whole new industry, is dear to Silicon Valley types who think back fondly to the browser firm’s spectacular initial public offering in 1995. So it was not surprising that in late January Shai Agassi, a former software entrepreneur, greeted a $350m investment in his company, Better Place, led by HSBC, in just those terms. Better Place, based in Palo Alto, which hopes to be the leading infrastructure provider for the world’s growing fleet of electric cars, has raised nearly $700m in two years, making it one of the biggest “clean-tech” start-ups. A few days later, lending some weight to Mr Agassi’s claim, Tesla Motors, a pioneering maker of battery-powered sports cars co-founded by Elon Musk, another technology entrepreneur, filed for an initial public offering aimed at raising $100m. There is certainly much discussion of electric cars all of a sudden, although not as much as the internet prompted in 1995 (see chart).
Two questions arise. The first is whether Mr Agassi is right in believing that electric vehicles and the industry required to support them are about to enter the mainstream; the second is whether the charge will be led by disruptive innovators like himself and Mr Musk, or whether they will end up being trampled underfoot by the traditional automotive and energy-supply heavyweights.
Investment in electric cars is being driven by tightening emissions regulations, worries about energy security and enthusiasm for the technology in China, already the world’s biggest car market. Industry forecasts suggest that by 2020 about 10% of new cars will be either entirely battery driven vehicles or plug-in hybrids, with accelerated growth thereafter.
Mr Agassi’s achievement is to have shown how it can all be made to work. What impressed HSBC, apart from Better Place’s own technology, was the quality and seriousness of its partners, including Renault-Nissan, which has committed €4 billion ($5.6 billion) and 2,000 engineers to creating a range of vehicles designed to operate with Better Place’s infrastructure, A123 Systems, a respected battery-maker, the governments of Israel, Denmark, Canada, Japan and California, and big utilities in those places as well.
In addition to installing thousands of charging points—up to 20,000 for both Israel and Denmark, the two countries where the project will first go live—Better Place is also building battery-switching stations. Renault says that its cars will do about 100 miles (160km) between charges, which is fine for most commutes but not for longer journeys. To overcome the range problem, Better Place has devised machinery that will swap one battery for another in about two minutes. Customers will buy their cars, but lease the batteries and only pay for the miles they drive.
It all sounds promising, at least for now. But in the longer term, Better Place’s model may prove vulnerable. The utilities providing the electricity are quite capable of rolling out their own charging-point networks. There are also concerns about whether the switching stations will catch on. Oliver Hazimeh of PRTM, a consultancy, doubts whether other car manufacturers developing electric vehicles will be interested in standardising their batteries along lines determined by Renault-Nissan. And building different switching stations for different cars would either be impractical or very expensive.
Tesla’s prospects are even more uncertain. The firm’s prospectus brags about the technological innovations that have made its Roadster sports car a showcase for the potential of battery-driven cars to match the performance and (eventually) the range of the best conventional cars. But its next vehicle, the Model S, a five-door luxury saloon priced to compete with BMW’s 5-series that is meant to go on sale in 2012, is a far more ambitious undertaking and one that is fraught with risk.
Tesla has about $100m in cash and a $465m loan from America’s Department of Energy, but production of the Roadster will cease next year to allow retooling of the factory, and neither the design nor the production arrangements for the Model S have been finalised. Mr Musk’s plan to make 20,000 Model S saloons a year is a huge step up for Tesla (which has built about 1,000 Roadsters to date), but a tiny number for an industry that demands scale like no other.
Mr Musk believes that Tesla’s focus and Silicon Valley agility give it an advantage over incumbent carmakers. But those incumbents are now taking electric cars very seriously indeed, and have huge engineering and financial resources, as Renault-Nissan is demonstrating. Tesla has a close relationship with Daimler, which took a 10% stake in the firm last year. It may end up a skunk works for the German manufacturer rather than a carmaker in its own right. After all, where is Netscape now?"