The electric vehicle company underestimated the power of the leasing companies.
Electric vehicle company Better Place Inc. brought slick business and technology theories to the market with the aim of changing the world order. Its revolutionary theories were based on the notion that demand for electric vehicles would come from below, in other words the end-users driving in company car fleets. Taking into account that there are at least 240,000 such potential customers, most of them driving saloon cars (comparable with the Renault Fluence), the declared planned sales of 80,000 electric cars in several years sounded reasonable to investors.
This marketing theory viewed the leasing companies as "necessary partners" in the market penetration process. The basic assumption was that the leasing companies would receive very strong demand for electric cars from customers and to keep their existing customers they would be compelled to cooperate. But between theory and reality stood a series of mistakes that stemmed from not properly understanding the market and the belief that it was possible to change the rules of the game.
Better Place failed to provide suitable incentives for end-users that would generate demand from below. The electric cars were artificially priced at a similar price to a comparable regular saloon car (about NIS 122,000). From the viewpoint of the car's recipient who enjoys free gasoline, the significance was that there was the same monthly car use value as for a conventional car with no compensation for the inconvenience of driving a car with a limited distance capacity. A more aggressive pricing of the electric car could have solved this problem.
Better Place also failed to understand the power of the leasing companies and their ability to control demand. The leasing companies took very seriously the declarations of intent by company fleets to procure electric cars but saw that when demand did not cross the threshold of a "declaration of intent" they closed off in effect the purchasing faucet. In the end Better Place did not grasp the critical influence of regulations about the use value of cars.
In fact, Better Place focused on regulatory efforts regarding purchase tax because that offered certain immediate and easy profits for the importer and manufacturer. If efforts had concentrated more on reducing the use value of an electric vehicle perhaps by relinquishing some of the purchase tax benefits demand for electric cars would have been completely different.
The consequence was a collision between Better Place's sophisticated, polished, high-tech business model and the car sector which is conservative and anchored in years of convention. Better Place has suffered extensive damage to its chasse and maybe even a "total loss." The other vehicle in the crash has come through without even a scratch on the bumper.
Published by Globes [online], Israel business news - www.globes-online.com - on November 22, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012
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