What are the similarities and differences between BP and Tesla's approach to bringing to market EVs?

The idea that the gasoline vehicle era is going to end has become clear during the last two decades. Many teams of engineers and companies have been looking for alternative solutions. When the technology of electric batteries was developed enough for use in electric vehicles (EVs), some startups and companies started looking for building EVs. Of course there are still many challenges on the path to the EVs; let's compare how two pioneers in EVs, Tesla and Better Place (BP), tried to make their business in this field.

History.

Let's explore the background of these two companies. Better Place was an Israeli startup founded by Shy Agassi in 2007. The company raised $850M from investors as venture capital. The company started to operate in Israel. In 2010 the company run out of money and was bankrupt. In comparison, Tesla was founded by Elon Musk in 2003 in the US. The company started at a time when many people were sure that it was too early to establish an EV business because technologies were not developed enough. Being a pioneer in the field, Tesla faced a lot of challenges. Whereas BP tried to catch a wave when it became clear that the future belongs to EVs .

Location.

Location determines a market, so a company should choose the country to start very carefully. For BP, Israel was an ideal place to start a business like this: the prices of gasoline are always very high even when oil prices are low. This means that many Israelis would like to have an electric car that could be charged at home without the need to pay a lot of money for gasoline. Israel is a nation that dreams to decrease its dependence on oil. Meanwhile, Tesla took advantage of benefits of the huge market of the US, but this market is challenging as well. The market of a small country is very competitive where the market of a huge country may be challenging.

Car range.

For EVs, the range is the most challenging issue because current batteries only allow for short distances. Our modern technologies drastically improved electric batteries, but still there are a lot of challenges to create a battery that could be recharged quickly and has the capacity for long distance travel. To solve this issue BP decided to cover Israel entirely with battery exchange stations that would allow drivers to switch batteries easily and conveniently on the road. On the other hand, Tesla was working on battery improvement to allow for longer ranges. We can conclude that these two approaches were based on the size of the country: for example, the BP approach definitely would not work for Tesla in a location as big as the US.

Car design.

Car design is one of the main factors of success. BP chose Renault Fluence, a budget car that had a range of 100 miles, as their model. And Tesla produced a completely new luxury car that had a range of 320 miles as their model. This defined two different target markets.

Business model.

We can assume that a business model determines the success of the company. BP chose the lean production model; they made an agreement with Renault-Nissan consortium for the production of cars in their factories. On the other hand, Tesla was producing cars in its own factories which allowed Tesla to solve many technical problems it faced as a pioneering company. Whereas BP struggled to solve technical issues that arose by implementing their battery exchange technology in the third-party factories. This was one of the factors that caused significant delay of the product launch.

BP separated cars from batteries. Cars were sold without any battery, but one was included in the battery exchange subscription. This business model made BP cars as expensive as luxury cars in total costs. Since Tesla offers luxury cars with batteries, customers no longer need to pay for gasoline any more.

Analysis.

Starting such a new product is very challenging, so only one of the two companies succeeded. Why is it that BP failed on the market and Tesla already has a positive revenue for four quarters in a row? Let's examine what the reasons were. First of all, we need to understand that not one reason but a combination of reasons had this specific result.

It is understood that producing completely new cars is very expensive until the mass market is reached. Operating in such a huge country allowed Tesla to find enough customers for its expensive cars. Tesla knew that bringing to market cars that implement completely new technology would be expensive, but at least they offered luxury models. In this way, Tesla solved the problem of expensive production. BP came up with a different idea for managing costs. In a small market like Israel, BP tried to sell budget Renault Fluence to get many customers and increase revenue. Needing to build a lot of battery exchange stations, BP put itself into a chicken and egg problem where to attract a lot of customers you need to have a lot of stations, but to build a lot of stations you need to have a lot of customers. Even to cover such a small country as Israel, a lot of stations are needed. As a result, BP's budget car had a very high price.

On the other hand, Tesla, which put a lot of effort into developing good batteries, came up with a more reliable car that has a long range and can be charged in less than an hour in regular parking with very simple charging stations.

Although Israel looked like an ideal country to start an EV business, the reality was different. BP didn't receive a tax reduction or any other help from the government. BP's electrical Renault Fluence in total costs was much more expensive than their gasoline counterparts, and as result by 2010 BP was able to sell only about a thousand cars in Israel when they had planned to sell up to 100K. When BP understood that the Israeli market was too small, they wanted to try in other markets. The next one they tried to enter was Denmark. But dispersing endeavors in different countries simultaneously before having enough sales was too much, and very soon BP run out of money.

Some other challenges that BP faced were caused the by their business model. BP chose a model of outsourcing and lean production. They decided to cooperate with existing car producers to build their cars. The only company that agreed to cooperate with BP was Renault-Nissan. This cooperation brought up different challenges, for example, implementing battery exchange technology. For this reason, many other problems appeared and as result launch was delayed. All these issues caused the failure of the company.

By observing the experience of these two companies, we can conclude that the era of EVs has already begun. Even though BP has failed, Tesla succeeded, and maybe it will prove to be the first company to start the revolution in the car industry.

Photo by Tesla Fans Schweiz