To fully appreciate the tremendous potential electric vehicles have, for India in particular, and the world in general, one needs to go back 10 years. That was when a bright senior executive of SAP Inc – Shai Agassi -- was persuaded by the late Shimon Peres (former Prime Minister of Israel) to quit his job and start a venture in Israel for making electric vehicles (EVs). The new venture was called Better Place.
Better place Shai Agassi soon came to two conclusions. First, a hybrid car will never succeed in becoming a mass market vehicle because it had two transmission systems. Common logic dictated that the cost of a single transmission car would be less than that of a twin-transmission vehicle, which is what hybrids generally are. A more expensive car seldom becomes a mass market vehicle.
Second, and even more significant, he asked a question that many automobile experts had not asked earlier. When you buy a conventional car, he asked, do you purchase the petrol pump also with it? His argument was that when one purchases a vehicle one only buys the fuel required to drive it. Why can’t that happen with batteries as well, he asked.
His solution was to adopt a model which allowed a swappable battery. The battery itself could belong to a finance company, which in turn sourced it from battery producers. These batteries could be stocked at the conventional petrol pump (which would be out of business with the demise of the hydro-carbon vehicles). The customer would just drive in, surrender his old battery, get a new one, with the residual energy in the old battery adjusted against the price of the new one. In just five minutes – the time it takes for a fuel tank to be filled up -- the vehicle would have a new battery charge and could drive away. The rental for the battery and energy was what he paid for, not the battery itself. The vision of Better Place was chronicled by authors Dan Senor and Saul Singer in their best-seller 'Start-up Nation – Israel’s Economic Miracle'.
Were that to happen the cost of the car would plummet, as the battery is invariably almost 50 percent of the cost of an EV. The reduced price would make the EVs more affordable than the conventional car. Moreover, since the conventional car had around 2,000 moving parts, and the EV would have barely 200, the engineering cost too would be lower. Nothing works better than a superior technology at lower costs.
For a variety of reasons, Better Place could not take off. It filed for bankruptcy in 2013. After two failed post-bankruptcy acquisition attempts, the bankruptcy receivers sold off the remaining assets in November 2013 for only $450,000.
The start-up died. But the concept of the swappable battery survived. And other management gurus developed this concept further. It is a pity that the government of India has not discussed this possibility before announcing the electric vehicle (EV) proposal.
Other benefits There are at least seven benefits that a swappable battery concept can usher in.
First is the ability to price cars lower – by around 50 percent.
Second, as batteries can be swapped at existing petrol stations, these stations will have a life-after-death once hydro-carbons no longer drive vehicles. Petrol pumps too employ people. The government could save that many jobs.
Third, an organised centre, where new batteries can be swapped for old, allows for organised disposal of dead or useless batteries. Collecting disused batteries from individuals can be quite painful.
Fourth, high tension cables can be reached to the existing petrol pumps, which can charge the batteries throughout the day.
Fifth, since each petrol pump will have hundreds (if not thousands) of batteries, all fully charged, they can provide the state grid the additional power that it may require during peak power consumption hours. The state could pay a small fee to the pumps for use of this power, as that would be at least half the cost of procuring power from peaking power stations. Peaking power stations work only for the one or two hours when peak loads occur. Thus while the plant pays interest and depreciation for 24 hours, it utilises the equipment only for two hours, making the cost of such power generation extremely expensive. Battery stations could make peaking power stations unnecessary.
Sixth, charging stations require three-phase power. Most households, especially in semi-urban or rural areas, don’t have three-phase power. The battery swapping station thus makes more sense. The country utilises an infrastructure that already exists.
Lastly, such a concept would allow the industry and the government to standardise the number of batteries and capacities. It would give a fillip to the finance sector, as each battery cost would have to be amortised over a specific number of charges. It would allow for new technologies to be upgraded at specific stations, and allow for the transition from hydrocarbons to batteries almost overnight.
The swappable battery stations would allow the country to indeed become a ‘better place’.
Will this happen? Listen carefully to the news. Last month, Reliance Industries and UK’s BP announced a joint venture for the setting up of 5,500 additional petrol pumps, ostensibly for retailing petroleum products. This would be in addition to the 1,400 petrol pumps Reliance already owns and manages. The additional pumps would be set up over the next five years.
But wait. Why would a savvy group like Reliance set up petrol pumps when hydrocarbon as a fuel is being sought to be phased out? It just does not make sense.
Unless of course Reliance and BP believe that the EV transition won’t happen for 20 years (it takes that many years to recover the costs of setting up a petrol pump station). Or it believes that there will be an ‘after-life’ for the petrol stations, as battery swapping stations. Or it is confident that these petrol stations could be used for fuelling hydrogen run vehicles! It would be foolish to underestimate the vision and foresightedness of Reliance Industries.
Or is this author reading a bit too much into this announcement? Wait and see.
The author is consulting editor with Moneycontrol.com
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