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Global Economics

Israel: Cradle of the Electric Car

Can Renault-Nissan and Project Better Place make a success of the low-pollution vehicles in a country with bigger problems than the environment?

At first glance, Israel hardly appears the most suitable market for launching an electric car. Until recently, environmental awareness was almost nonexistent. Global warming isn't an issue on the top of many Israelis' minds. And though air pollution levels in Israel's major cities are high, there is little enforcement of existing emissions laws.

But Shai Agassi believes over the next three years he will be able to persuade Israelis to embrace his concern for the environment. The ambitious goal of the former SAP (SAP) senior executive is for Israeli private and public transportation to forsake its dependence on expensive imported oil.

On Jan. 21, Renault-Nissan President and Chief Executive Carlos Ghosn announced in Jerusalem that his company was joining Agassi's Project Better Place in the Israeli market. Israel was chosen, the two said, because it was an ideal testing ground for the electric car. Ninety percent of automobile owners drive fewer than 70km (43.5 miles) per day, and the country's main cities are within 150km (93 miles) of each other.

Educating the Public

Renault (RENA.PA) is planning to begin mass production of electric cars in 2011 (, 1/24/08). "We're talking at the outset of about 10,000 to 20,000 cars a year in the Israeli market to make this a viable venture," predicts Ghosn. That's an ambitious target for a country with annual new car sales of under 200,000.

Israelis will get their first glimpse of the electric car by the end of the year, as dozens are expected to hit local roads for testing. Until commercial sales begin three years from now, Better Place plans to invest hundreds of millions of dollars in the necessary infrastructure to support the cars, including an extensive network of charging points and hundreds of stations where owners can replace empty batteries. But equally important, the Palo Alto (Calif.) company will have to invest in educating the Israeli public about the benefits of switching to a new technology.

Agassi and his investors, led by local petrochemical conglomerate Israel Corp. (ILCO.TA), believe an electric car will be cheaper to operate than a gasoline model. "For most Israelis the real test will be the price of the car and cost of operating," says Jacob Enoch, president of the Israel Vehicle Importers Assn. Enoch notes that so far vehicles such as the Toyota (TM) Prius and the Honda (HMC) Civic have not been big hits because environmental concerns haven't caught on. Indeed, hybrids accounted for less than 1% of the 192,000 new cars sold in Israel last year, even though they enjoy a tax benefit.

Change the country's lifestyle

Ironically, the Israeli government, which hasn't gotten high marks for environmental protection, has become the new venture's biggest supporter. On Jan. 13 an unprecedented proposal was approved by the Cabinet to tax new cars based on their emissions levels. The biggest break would go to zero-emissions vehicles like the Better Place Renault and Nissan models planned for the Israeli market. They would be taxed at a 10% rate, compared with current rates of 79% on regular new cars and 30% on hybrids. The proposal recommends the tax on zero-emissions cars remain in place through 2014 and rise gradually to 30% in 2019, or be amended if their market share reaches 20%.

Prime Minister Ehud Olmert justified the generous tax benefits saying zero-emissions cars would change the country's lifestyle and help Israel end its total dependency on imported energy. The country imports 10 million tons of oil and 12 million tons of coal annually at a price tag of more than $6 billion.

Of course, while the cars themselves will be free of greenhouse gas emissions, producing the electricity to power them will not. Virtually all of Israel's electricity comes from coal and natural gas plants, so in the first few years, the electric car project would indirectly produce greenhouse gas emissions. Agassi says he hopes eventually to purchase electricity from renewable energy sources. In fact, Israel has a policy in place to produce 10% of its electricity from solar and wind by 2020.

Opportunity for Entrepreneurs

Earlier this month, the Tel Aviv Municipality announced it was joining Agassi's venture. Deputy Mayor Pe'er Wisner said the city would launch a pilot scheme of charging-points for electric cars set up around Tel Aviv. From an initial launch of five, the city plans a network of 150 charging-points at municipal parking lots, outside public buildings, and along city streets. Battery replacement stations would be set up at the entrances to Tel Aviv.

Israel's high-tech industry also hopes to play an important role. "There are a lot of entrepreneurs looking to jump on the bandwagon," says Jack Levy, founder and managing partner at Israel Cleantech Ventures, a Tel Aviv venture fund that has a small stake in Project Better Place. He believes Israel has a lot of knowhow to offer—from academia and the military—in fuel cell and battery technologies. While Renault-Nissan has no plans to manufacture cars in Israel, it will be opening a local research and development center to focus on technologies for the electric car.

Even though Israel is only a blip in the world's car market, Agassi's dream is to turn the country into a global trendsetter. He will have his work cut out for him, though—first in proving the electric car idea can work, then selling the idea to Israelis, who are just beginning to show an interest in the environment.

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