The Electric Car Acid Test

Shai Agassi's audacious effort to end the era of gas-powered autos.

Just over a year ago, on Dec. 31, 2006, Shai Agassi settled into a leather couch in the office of Ehud Olmert to meet with the Israeli Prime Minister. Agassi, then a top executive at German software giant SAP ( SAP ), had come to pitch the idea of his native Israel reducing its dependence on oil by replacing gas-powered cars with electric ones. Olmert liked the concept but laid down a steep challenge: He wanted Agassi to raise hundreds of millions in venture capital and get an auto industry CEO on board before he would pledge his support. "You go find the money and find a major automaker who will commit to this, and I'll give you the policy backing you need," Olmert said.

Within a year, Agassi had pulled off everything Olmert had asked. He raised $200 million in venture capital and, with help from Israeli President Shimon Peres, persuaded Carlos Ghosn, the chief executive of Renault and Nissan ( NSANY ), to make a new kind of electric car for the Israeli market. On Jan. 21, Agassi, Olmert, Peres, and Ghosn unveiled the novel project, under which Agassi's Silicon Valley company, Better Place, will sell electric cars and build a network of locations where drivers can charge and replace batteries. Olmert has done his part, too. Israel just boosted the sales tax on gasoline-powered cars to as much as 60% and pledged to buy up old gas cars to get them off the road.

Agassi contends that Israel is just the start. He hopes to expand his business into several other countries over the next few years, with China, France, and Britain among the potential markets. Ultimately, he believes that his company and others like it could shake two pillars of the global economy, the $1.5 trillion-a-year auto industry and the $1.5 trillion-a-year market for gasoline. "If what I'm saying is right, this would be the largest economic dislocation in the history of capitalism," says Agassi.

The odds of Agassi succeeding on a grand scale are incalculably long, especially when you consider his background. Up until last year, the 39-year-old had spent his entire career in the software industry, first as an entrepreneur and most recently as a leading contender for the CEO job at SAP, the world's third-largest independent software company. He had no experience with energy or autos. Industry insiders are skeptical that anyone can put together a profitable network of electric service stations, because batteries are expensive and complicated to swap in and out. "It seems more like a pipe dream than a viable proposition," says Menahem Anderman, president of Total Battery Consulting in Oregon House, Calif., which consults with major automakers and startups on battery issues.

Yet soaring oil prices and the threat of global warming give Agassi an opening. Governments worldwide, like Israel, are getting more serious about reducing their dependence on oil and are more concerned about the effect of carbon emissions on climate change. And the auto industry is placing large bets on alternative power vehicles like never before. At the North American International Auto Show in Detroit last week, Toyota Motor ( TM ) announced a plug-in hybrid vehicle, and startup Fisker Automotive unveiled its Karma hybrid sports car.

Agassi does bring a new perspective to the alternative fuel world. The trouble with traditional electric cars is that they can go only 50 or 100 miles and then they need to stop for hours to recharge their batteries. Hybrids overcome the mileage limitations, but only by burning gasoline. One of Agassi's unconventional ideas is to separate the battery from the car. That will allow drivers to pull into a battery-swapping station, a car-wash-like contraption, and wait for 10 minutes while their spent batteries are lowered from the car and fully charged replacements are hoisted into place. Better Place will build the service stations, as well as hundreds of thousands of charging locations, similar to parking meters.