Agassi's 2009 TED Talk argued that the right moral decision--abandoning oil--would produce great prosperity.
"WE SPENT $60 MILLION TO BUILD SOMETHING THAT TOMTOM SELLS FOR $29.95," SAYS A FORMER BOARD MEMBER OF THE BETTER PLACE NAVIGATION SYSTEM. "WE THOUGHT WE COULD DO EVERYTHING BETTER."
Agassi had long seen himself as a Steve Jobs–like figure; now the most prominent writer at The New York Times had decreed it so. The failure of GM, and the public reaction to it, "made him think he was a prophet," says someone who was close to Agassi at the time.
The U.S. government did not take Friedman's advice. In mid-2009, GM filed for bankruptcy, selling itself to the U.S. government in a $50 billion bailout. The Department of Energy did offer loan guarantees to several ambitious clean-tech startups, including Tesla Motors, but it declined to give Better Place any of the funds earmarked in the economic stimulus package for electric-vehicle infrastructure. The government didn't discover flaws that other investors missed. Rather, Better Place had yet to partner with a carmaker whose vehicles were available in the United States, hurting its candidacy. (Discussions would resume with the resurrected GM, but they never led to a firm deal.)
The perceived snub from the U.S. government seemed to rattle Agassi. Although he continued to successfully woo private investors--in January 2010, he announced a second investment round of $350 million, which gave the company a $1.25 billion valuation--his behavior became erratic.
Agassi went on vacation to Israel in the summer of 2009, disappearing from the Palo Alto office for much of the rest of the year. Then, in February 2010, Agassi emailed his Palo Alto staff to inform them that he'd decided to relocate to Israel. He also began telling people that he had separated from his wife and now had a girlfriend, Tami Chotoveli, the owner of a luxury watch company who had apparently been moonlighting as his personal coach. Several former employees say that Agassi brought Chotoveli to meetings and hired some of her friends to top positions. Better Place had hardly been a meritocracy before Agassi's return to Israel, but now, says one former employee, "There was a watering down of the management team and a level of cronyism." (Chotoveli declined to comment.)
Meanwhile, Agassi had a falling out with his VP of operations Aliza Peleg, the non-family member at the company to whom he'd seemed closest. "Nobody could manage Shai, really, but Aliza had been an incredible counterpoint and a sounding board," says a senior executive. In mid-2010, Agassi forced Peleg out after accusing her of communicating behind Agassi's back with Alan Salzman, a board member from one of Better Place's investors, VantagePoint. (Salzman declined to comment; Peleg did not respond to interview requests.)
"That was around the time he started to go nuts," says a person with knowledge of the machinations of the board. Employees left behind in Palo Alto were horrified by Agassi's behavior. Efforts to diagnose him were something of a secret parlor game among certain disgruntled workers. One told me that he later sought out excerpts from the DSM, the psychiatric manual, in an effort to categorize Agassi's state. He decided that his absentee boss suffered from a narcissistic personality disorder. "Every box was ticked," he says. The DSM's clinical definition of narcissism includes "has a grandiose sense of self-importance," "is preoccupied with fantasies of unlimited success," and "shows arrogant, haughty behaviors or attitudes."
The sudden move to Israel was in some ways logical for the business--Better Place had an annual $7 million travel budget, according to a former employee, and Israel would be its launch market--but it alienated many senior employees. More than half of the original Better Place leadership team--"the grown-ups," as they were known--would eventually leave in the wake of Agassi's exodus. This included CFO Charles Stonehill and the general counsel, David Kennedy, who both left in 2011. Neither man would be immediately replaced. (Stonehill and Kennedy did not return requests for comment.) It would take Better Place, a company with hundreds of millions of dollars in capital and plans to file for an IPO, nearly two years to appoint a new CFO. Peleg was never replaced.
Meanwhile, Agassi brought his own brand of divisiveness to the Tel Aviv offices. At the global headquarters, which was on a different floor than the Israeli headquarters, he built himself a glass cube of an office. "The luxury in the global office was amazing," says Shelly Silverstein, the HR exec. "It was petty, but they had stuff we didn't have. We only had cookies from Israel; they had Nature Valley granola bars and Coke Zero. It didn't feel like one company." A rumor circulated that Agassi had spent more than 5,000 Israeli shekels--$1,500--on a coat rack.
STEP 6: THE ANSWER TO A HIGH BURN RATE? A HIGHER BURN RATE
To the outside world, Better Place still preened in 2010. The company opened a visitor center in a Tel Aviv industrial park that February. Built inside a giant converted oil-storage tank, it was a poetic expression of Agassi's ambition to replace fossil fuels with something clean and modern. The attraction, which was being dismantled when I visited earlier this year, featured a mile-long track where customers could test-drive a prototype car and a theater with 30 vintage car seats, a giant wall-size screen, and a hologram machine that projected a life-size Shai Agassi. One last, slightly mystifying feature: a futuristic rotunda, not unlike the war room in Dr. Strangelove, in which customers stood in a circle and played with personal touch screens that showed the planned locations of Better Place's switch stations.
The launch of the Better Place car was still two years off, but the visitors' center, which cost the company at least $5 million to build, was nonetheless quite a draw. More than 100,000 people went on tours--grade-school classes, tourists, and dozens of U.S. congressmen, senators, and governors. Some 30,000 sat down with a Better Place salesperson to pick a color and fill out a form stating their intent to purchase a car whose price had not yet been announced.
Unlike Tesla, though, which had asked early customers to secure their spot with a deposit of $5,000 or more, Better Place's reservations were not binding. Except, perhaps, in Agassi's mind. In a 2011 interview with the tech news site GigaOm (whose founder, Om Malik, is now Fast Company's technology columnist), Agassi publicly claimed that inventory was sold out for nearly two years. Employees told me that Agassi made similar boasts on internal conference calls. "Shai was giving these talks with wrong numbers," says someone who worked in the company's marketing division in Israel. "We knew they were too optimistic, but it was very hard to convince him."
In reality, Agassi's projections were falling far short. Agassi had assumed that the car would cost roughly half the price of a typical gasoline car and would have a range of at least 100 miles. Instead, batteries were delivered with a range of closer to 80 miles, and the terms with Renault meant he was selling an unsexy family car for about the same price as a nice sedan like the Mazda3 or the Toyota Corolla. (Not to mention that customers were asked to spend an additional $3,000 or so a year to rent the battery and pay for the use of charging and swap stations.) "There was a bit of Shai math going on there," says Evan Thornley, CEO of Better Place's Australian subsidiary. "If there were 100,000 cars on the road tomorrow, his economics would have been right. But the time frames he talked about for selling cars were crackers."
Meanwhile, the cost to build out Better Place's charging network had ballooned. The original spreadsheets that Agassi and the Palo Alto founding team had assembled called for swap stations to cost approximately $500,000 each. So, building 40 stations in Israel would cost about $20 million, while 20 in Denmark could be built for about $10 million. Ultimately, however, each switch station cost at least $2 million, meaning that Better Place would have to sell many more cars and driving subscriptions to pay for its pricey infrastructure. "Because it was so expensive, we needed more customers," says Patir, the former VP of policy. Given this, Agassi's bullishness could charitably be seen as a way to stoke the company's momentum into sales.
That would be very charitable indeed. Better Place could have also drastically cut costs and conserved cash. Sales and support could have been outsourced--or, given that there was no product, simply shut down. It could have bought off-the-shelf charging stations from GE instead of designing proprietary ones. The program to develop the Oscar navigational system could have been scaled down. "We spent $60 million to build something that TomTom sells for $29.95," says a former board member. "We were building our own charge spots and call centers. We thought we could do everything better."
By the spring of 2011, just five quarters after closing $350 million in financing, Agassi had to start fundraising again. The goal had been to raise another $350 million at a $2.75 billion valuation. But all Agassi could get was $200 million at a $2.25 billion valuation. The November 2011 press release cited GE and UBS as investors, but people involved with the round say their contributions were minimal. Almost all of the money came from existing shareholders. "The general public was like, 'Wow, this is a rocket ship,'" says one. "But the bloom was off the rose, and the financial community knew it."
By the time Better Place would finally have a car for sale, in January 2012, the company's daily burn rate--that is, the amount of money it was losing each day on operating expenses like sales, R&D, salaries, and payments to suppliers--exceeded $500,000.
STEP 7: WHEN ALL ELSE FAILS, GO SCORCHED EARTH
Better Place sold just 100 cars in its first two months, mostly to employees. "The press and the public were expecting a low-priced car," says a marketing executive. Agassi promised to ramp up sales once the cars' technical kinks had been worked out. But the reality was a PR disaster.
In June, with sales still slow and cash running out, the board of directors convened for its regular meeting. At one point, Agassi was asked to leave the room and Zarur, Agassi's original collaborator, proposed that the board assume responsibility for hiring an operations chief and a CFO. According to people who were present, the board agreed, and Ofer, the largest individual shareholder and the company's chairman, promised to inform Agassi. "By that point it was clear in our minds that this was not sustainable," says an insider. "The only way we could keep Shai in the company was if he became a figurehead. They were taking the company away from him."
Shortly thereafter, Agassi spent the day at Ofer's house and managed to talk him out of it. "Idan went wobbly," says a senior executive. "Shai said, 'Over my dead body,'" says a board member. "Ultimately it was over the dead body of the company." When Alan Salzman, who had been Agassi's loudest critic on the board, learned what had happened, he resigned in disgust.
Ofer went on vacation following his visit with Agassi, sailing the Mediterranean on his new yacht, Better Place, reportedly a $10 million, 165-foot sloop. Agassi, meanwhile, accused Zarur of betraying him. Sometime later, Zarur's biography on the Better Place website was rewritten to downgrade his contributions to the company.
On September 28, 2012, Agassi emailed the board, asking for a "safety net," a bridge loan that would allow the company to make payroll and pay suppliers. For months, he'd been negotiating to raise even more money. There was a deal for about $56 million in debt from the European Union's investment bank, most of which was earmarked for Denmark, and there was talk of a possible $50 million project in California and a $100 million deal to build a network in the Netherlands. But the money hadn't come through, and without additional funding from current investors, the company would be insolvent in a matter of weeks.
Agassi had finally overplayed his hand. Israel Corp., though controlled by Ofer, had been a public company since 1982, meaning that Better Place's books were audited as part of Israel Corp.'s regular fiscal reporting. So Better Place's dismal sales and massive losses were now a matter of public record. Insiders say that Ofer, who had been the company's most passionate defender--often to the point of willful blindness--became angry. "Idan realized he was being manipulated, he realized he'd been made a fool of for five years," one says. "Shai went from being the person he loved most to the guy he hated most."
Days later, Ofer proposed that Agassi step down as CEO and become chairman. Agassi said no; Ofer would have to fire him outright. So Ofer did. "An electric car with a switchable battery is the future," Agassi wrote in an email to the company on October 2, 2012, announcing his departure. "I will think of you every morning, as I enter my electric car, start it, and smile as I see Oscar come up to greet me." Agassi continued to drive his Better Place car but never returned to the offices.
In what was perceived as either an act of blind faith or perhaps a face-saving move, Ofer led one final $100 million financing round and turned over the tiller of this sinking ship to Thornley, the Australian CEO. "The financial management was in such a mess," Thornley says. "We had suffered from a lack of management discipline. There'd been a lack of accountability."
As the new CEO, Thornley saw the full effect of that lack of accountability. Agassi, with the board's consent, had allowed many of the company's suppliers to insert high minimum orders and cancellation penalties into its contracts. This created more than $100 million of off-book liabilities. Canceling the billing-system contract alone--Agassi had purchased the software from Amdocs, which primarily serves large telcos with millions of customers--would cost the company $80 million.
These runaway expenses meant that Better Place would have to quickly sell as many as 30,000 cars in Israel just to break even. But by November 2012, the company had sold just 500 cars there. "There wasn't a snowball's chance in hell we could have gotten to positive cash flow in Israel," Thornley says. "The only path that existed would have been to raise more capital and expand to other countries." By the time the books closed on 2012, Better Place would record an operating loss of $386 million. The board fired Thornley in January 2013.
Dan Cohen, a close associate of Ofer's, took over. He shut down operations in Australia and announced that the company would only focus on Israel and Denmark. (Upon hearing this news, Daniel Roth, now a LinkedIn executive, sardonically acknowledged on Twitter that his Wired story, "The Future of the Electric Car," should be amended to add, "But Probably Not.") A few hundred more cars were sold--mostly on corporate leases, and mostly because Better Place guaranteed to buy back the cars after the leases were over.
Those guarantees would be worthless by May, when Better Place declared bankruptcy. The company and its affiliates in Australia and Denmark had raised almost $1 billion. They had only put around 1,400 or so electric cars on the road by the time the court-ordered liquidation started that spring.
Some former employees and customers blame Better Place's failure on the board of directors, and especially Idan Ofer. According to that argument, the board could have allowed the car more time on the market, could have made more of an effort to enforce sensible financial controls, and could have fired Agassi at least a year earlier.
It seems likely that after the bankruptcy is settled, investors, including Ofer, will have lost every penny they put in. Agassi's 12% stake in the company is now worthless; his patent for a battery-exchange station will wind up being owned by someone else; and the company he poured so much of his life into is dead. Meanwhile, those customers who purchased cars are left with a hard lesson in what it means to be an early adopter. "We didn't know how bad the state of the company was when we bought the car--we just really believed in the vision," says Brian Blum, a Jerusalem-based freelance writer and father of three who bought a Better Place car in August 2012. "It's a real shame, because the car drives so well. I try to be positive."
STEP 8: SHOW NO REMORSE
I first contacted Agassi about this story nearly a year ago, in June of 2013. We corresponded many times in the months that followed, as I tried to convince him to go on the record--via Facebook, email, phone calls, and eventually during an in-person meeting at a seaside café outside Tel Aviv. The answer was always the same. Agassi steadfastly refused to explain his tenure at Better Place or to confirm or deny allegations of erratic behavior and poor management. "It's a great story," he wrote in his first Facebook message to me in June. "But I'm in no position to interview right now, for obvious reasons." Shortly before press time, he agreed to respond to my reporting, but only in writing. In the end, he simply replied that "Shai Agassi declined to comment for this story."
Agassi may see this dark time as a kind of wilderness period before he emerges again with another world-changing idea--like the one Steve Jobs went through after being fired by Apple in 1985. "I wouldn't count Shai out," says Saul Singer, coauthor of Start-Up Nation and a friend of Agassi's. "I'm sure he'll find a way to reinvent himself--to try to find the next big thing. What's funny is, he'll be forced to do it lean--and that's okay."
Indeed, Agassi has not completely left the public stage: Last August he wrote a four-part, 8,000-word series on the future of cars for LinkedIn. In the posts, he argued, still dwelling perhaps in the realm of Shai math, that Detroit should offer a mass-market electric car for less than $10,000 and make up the money by creating a charging network. Much of the piece seems straight out of his original white paper, but Agassi didn't mention his old company. It was as if the past seven years hadn't happened.
Agassi isn't the only person who feels that his idea will outlive the infamy of his startup folly. Many of his former employees, even those who have clearly come to despise their old boss, still treat that white paper by Agassi and Zarur as a near-sacred document. They believe that Agassi's fundamental insight was world-changing and will eventually come to pass. "In 10 years we probably could've gotten there," says Thornley. "The tragedy of the company is that we were trying to accelerate the trend toward electrification and we may have retarded it."
Maybe not. While Better Place was being sold for scraps, Tesla Motors, which pursued a strategy that Agassi had long derided as overly cautious and small-minded, delivered its 25,000th car. Perhaps more significantly, the company has added nearly 100 so-called supercharger stations in the U.S. and Europe since late 2012. The stations can deliver 170 miles' worth of battery capacity in a half-hour charge. The networks look a bit like what Agassi long imagined.
Tesla's Model S car, it turns out, has a swappable battery. Musk never seemed to put much stock in that technology, but he had the intellectual flexibility to allow that Agassi might have been right about a few things. In June 2013, just three weeks after Better Place's bankruptcy filing, Musk hosted an event in which someone drove a Tesla onstage and a contraption below the stage swapped its battery in 90 seconds. The plan is to roll out a handful of battery-switch stations this year between Los Angeles and San Francisco. Customers will be able to choose between a free charge or a paid swap.
Tesla's next task will be to build a gasoline-free mass-market car. The Model E, as it's being called, will be a $35,000 family sedan. It is slated for a 2017 release, 10 years after Agassi's launch. Tesla's success--and that of any other electric-car company--will likely depend on how well they absorb the lessons of Better Place's failure.
[Photo by Loulou d’Aki]