Interview: Sidney Goodman, Vice President, Automotive Alliances, Better Place (Part 1)

By: Martin Kahl, Thursday, February 04, 2010, AutomotiveWorld.com

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Since it was established as a formal company in 2007 by founder and CEO Shai Agassi, Better Place has outgrown its status as a vision, or a project (indeed, it has dropped all reference to its early-day "Project Better Place" moniker) to being a global company worth US$1.25bn. It now has the backing not only of the Renault-Nissan Alliance as its first strategic partner, but also support from countless national and regional government bodies worldwide for its business model, and most recently a US$350m investment by a consortium led by HSBC and Morgan Stanley.

The Better Place business model calls for networks of battery switching stations as a key element of an electric vehicle (EV) infrastructure. By offering the battery switching option, Better Place and its automotive partners intend to remove the element of range anxiety from a consumer's decision making process when considering opting for an electric vehicle.

To succeed, Better Place requires partnerships with major vehicle manufacturers to ensure that vehicles are compatible with its technology. The company's switching stations, for example, are designed for removable batteries mounted beneath the vehicle. The batteries themselves are owned not by the vehicle manufacturer or the driver, but by Better Place. Drivers will pay not for electricity but for driving distances, in a similar fashion to mobile phone tariffs. Better Place is establishing commercial links to suppliers of renewable energy, such as wind power, for the electricity used in its switching stations, to ensure that its business model is as environmentally friendly as possible.

On 24 January 2010, Better Place announced that a consortium of investors, led by HSBC, had invested US$350m, boosting the value of the clean-tech company to US$1.25bn. HSBC led the Series B equity financing round with a US$125m investment. Other companies involved in the investment were Morgan Stanley Investment Management and Lazard Asset Management. Under the agreement, HSBC acquired a 10% stake in Better Place plus a seat on the board of directors.

As mentioned above, Better Place's current major partnership is with the Renault-Nissan Alliance. The company is actively seeking to establish similar partnerships with other vehicle manufacturers. The person responsible for this activity is Sidney Goodman, Vice President, Automotive Alliances.

Here we publish the first part of an interview with Sidney Goodman, in which he outlines his role at Better Place, the mechanics of an "Automotive Alliance", and the challenges of pitching a new business model for the automotive industry to established vehicle manufacturers.

AutomotiveWorld.com: Can you please outline your role and explain how you became involved in Better Place?

Sidney Goodman: I am the head of the Automotive Alliances group, which covers three main areas. Firstly, I work with the major OEMs. This involves finding the right OEMs that meet the business model of Better Place and managing those relationships through to full execution. Renault-Nissan is one good example.

Secondly, I work the with key component providers in the electric vehicle space. As batteries are the most important component, I work directly with battery manufacturers, both on a cell and a battery pack level. This involves understanding trends in the market, and ensuring we really know what is going on in the market.

The third area involves working with the engineering service providers for our various projects. This includes service providers in the industry, integrators and engineering firms running projects for us.

I have been with Better Place for over three years, since before it became a formal company. My background is not from the automotive industry. I came from the IT industry, along with a few others [at Better Place], Shai Agassi [Founder and CEO of Better Place] being number one. I have worked for various IT companies for close to twenty years, most recently at SAP in various external facing roles, including consulting and sales. Indeed, I worked closely with Shai for a number of years at SAP.

I was drawn into Better Place through a number of discussions I had with Shai when we were travelling together at SAP. For me it was very obvious that I would want to continue in this space.

AW: Since Better Place is such a young business, little is known about the people behind the company. Is the company made up of businessmen, engineers, environmentalists or car fans?

SG: It's all of the above. Better Place has close to 300 full time employees today and several hundred more engineers on full time contracts with us. We have numerous engineering contracts, particularly on the battery switch stations.

If you broke the workforce down and looked at the mix of individuals, we come from all industries. Because of what we're trying to do, we need a wide range of talents. We are not a car company, but we work closely with the automotive industry, so we need people who understand the automotive industry. We are not a battery manufacturer, but we need people who understand battery science. We are not an energy manufacturer or producer, but we need people who have been in the utility space and understand the power generation industry. We have people dealing with government, finance, retail, customer service and consumer trends. And of course, IT specialists!

AW: Your title is Vice President, Automotive Alliances. How do you define an "Automotive Alliance"? And what criteria do you look for in an Automotive Alliance? Do you have minimum specifications or requirements?

SG: For us, an Automotive Alliance is a close partnership between Better Place and an OEM. Without that, we would not have the one key element from a consumer standpoint, which is the vehicle and all the related components.

A good automotive alliance involves a successful strategic partnership with a car manufacturer that believes, understands and is committed to the business model of Better Place and all its elements. It must really believe that there is a true market for commuters, and that we are not just building EVs for city dwellers. I need a company that really believes that the Better Place model is achievable, both on the business side and on the technical side. That company must be willing to find a way to achieve this goal.

A good automotive alliance involves a successful strategic partnership with a car manufacturer that believes, understands and is committed to the business model of Better Place and all its elements.

Secondly, that company must have the ability to build - in mass volumes - good, fun, affordable cars that people will want to drive, and that company must be committed to executing and delivering this in high volumes in various markets around the world. Small volume does not cut it.

Low volumes can fulfil certain aims, but to really impact the market, to really be able to drive this overall solution and reach our goal, we need a high-volume, quality-driven OEM. It needs to be one of the big companies capable of doing this, so that when demand is there, they can easily start manufacturing in the hundreds of thousands. They would have the full supply chain to do that, and know how to build like this even if the market is not there today.

As far as engineering capabilities are concerned, we obviously want partners that understand all aspects of electric vehicles. Some of them have been playing around with EVs for a very long time, and some had EV programmes last decade and even before that. That is important because a lot of lessons were learned that need to be applied when thinking about design, and how to build the vehicles and all that is associated with them.

All of those points are very important, but first and foremost, potential partners must be committed and really see an alliance with Better Place as a true partnership. And that is what we have with Renault-Nissan.

AW: Securing the recent US$350m funding package from the HSBC-led consortium must be not only a huge boost to Better Place as a company and its partners, but also to you personally in your role on the frontline of Automotive Alliance negotiations...

SG: ...sure, that was a great announcement and it is a great validation to the company and the business model. In fact, I see it as a validation beyond Better Place, for the industry as a whole. It really says a lot to secure investment from companies like HSBC and Morgan Stanley, as well as the other partners in the investment.

Without going into too much detail, this was a thorough due diligence process that took place over a very long period and on all aspects of the business. External parties validated everything from the software to the engineering around the various elements, through the business models and the financial model. This was a very thorough due diligence.

HSBC has made one of its largest such investments. They are excited and they really believe that this is the right way forward. So yes, it is a huge milestone for all of us, and it is going to be a great validation to now go out and use in our discussions.

AW: How does Better Place go about negotiating with vehicle manufacturers? Since this is such a new area, which divisions of a vehicle manufacturer are involved in the negotiations? Who are the people that you speak to?

SG: It very much depends on each OEM and on regional variations in philosophies and cultures, not just by continent but also by country. Each OEM has different views and a different appetite for new technologies and new models. It has been very interesting over the last few years to see how the different players react.

Anybody who drives a real electric vehicle loves it. You will not find anyone that complains about it - everybody who drives one says they want one. That was our starting point - we looked around and tried to figure out why EVs are not in existence.

When we started this journey, we were very much driven from the point of view of the consumer. The consumer is the centre of the world and we wanted to try to understand why electrification has not caught up.

Anybody who drives a real electric vehicle loves it. You will not find anyone that complains about it - everybody who drives one says they want one. That was our starting point - we looked around and tried to figure out why EVs are not in existence.

We started examining all the elements from the consumer standpoint to understand what issues face a consumer when making a decision about an EV. We then worked our way back to find a solution and to find the right partners for delivery. That is how the whole process of Better Place came about - it really started from the consumer.

We then had to explain this whole thought process to each OEM. This is very different to how OEMs think today, how they look at the whole market and how they assess the potential for a new vehicle.

So we went to the OEMs with a very different viewpoint. As you can imagine, the first discussion is not very easy, especially with someone who has been in the industry for thirty years and knows the industry inside out. Carlos Ghosn understood Better Place straight away. While he has been in the automotive industry for thirty years, he sees things differently. Electrification in general has been on his list for a few years now. It fits into his overall strategy and sits beautifully in the market segment of longer distance commuters that could not previously be served with electrification. Negotiations and decision-making with Renault-Nissan was very quick, bringing that partnership to where it is now.

With other OEMs, some did not see the light at the end of the tunnel. Some were technically driven, asking us to prove that the technology really works in the field before commissioning any projects. That is why we publicly demonstrated the battery switch process in May 2009 at Yokahama. That was a huge validation point which addressed a lot of the OEMs' technical concerns and showed that it is achievable.

Carlos Ghosn understood Better Place straight away. While he has been in the automotive industry for thirty years, he sees things differently. Electrification in general has been on his list for a few years now. It fits into his overall strategy.

So, that was a long answer to a simple question, but we really came at it on various levels. In the early days we were working on answering whether this even makes sense on a business level. Remember, there was not even a market for electric vehicles three years ago. Then there was discussion on whether the technology can even work and whether battery switch is the right means for extended range. Now our OEM discussions surround the issue of making a profitable business out of this.

In terms of who we speak to at the OEMs, we have been to the highest levels, we have been in touch with the deepest engineering levels and now we're expanding into the markets to see if it makes sense from the market's point of view.

AW: The name Better Place is heavily associated with Renault-Nissan. What effect has this relationship had on your negotiations with other OEMs?

SG: In the early days, many OEMs thought that we were part of Renault-Nissan, or that we were a subsidiary, or that there was exclusivity, to the degree that many of them did not even want to negotiate with us.

First and foremost, potential partners must be committed and really see an alliance with Better Place as a true partnership. And that is what we have with Renault-Nissan.

As more and more people understood what it is we are trying to do, they realised that although we have a strong strategic partnership with Renault-Nissan, we are not part of Renault-Nissan. Obviously, Renault-Nissan was our first partner, with great leadership and a clear strategic path, but now other people are saying if they [Renault-Nissan] are doing it, this is feasible.

Each validation point that Renault-Nissan came out with was another huge milestone for us. When Carlos Ghosn stood on stage at the Frankfurt motor show (IAA) in September 2009 and showed the line-up of electric vehicles coming just from Renault - and remember there is still the Leaf from Nissan - it was clear that they mean business. Before that, without seeing the cars, people thought it was just a marketing stunt, but once they saw those cars - and trust me, I have driven the Renault Fluence ZE, it's an amazing car that drives really well - once people saw the cars onstage, it really shook up the industry. People saw that this is real.

When we followed up with the order*, people saw that Renault means business, and that Better Place means business. That gave us a huge advantage over the rest. The first movers in this market are going to have a huge advantage over any subsequent competition.

I would even add to that statement by saying that the response from Renault-Nissan has been amazing, but that alone is not sufficient. The market demands choice and different brands and vehicles. It is obvious to Better Place and to Renault-Nissan that additional OEMs are needed in order to prove that this is the path forward.

Therefore, we are open to additional operators - we know we are not going to be the only operator out there, but also we don't want to be the only operator. We alone could not handle the huge potential market out there. We know there will be additional business models, operators, and electric vehicle operators out there - and there will be more OEMs joining in. Just as in the last two years, we have seen OEMs join the push for electrification, so you will see the same occur with battery switch.

AW: Are you preparing to make any announcements in the near future regarding partnerships with other OEMs?

SG: Obviously the market needs to see more OEMs at the table. Let me put it like this - we don't make announcements, we let our partners make announcements. You will see additional OEMs provide switchable battery EVs into the market.

*In September 2009, Better Place and Renault committed to a volume of at least 100,000 units of the Renault Fluence ZE in Israel and Denmark by 2016. Better Place will begin importing and selling the Fluence in H1 2011. In Israel, the cars will be sold in Better Place and Renault dealerships. In Denmark, sales will be handled by Renault.

Published on Thursday, February 04, 2010

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