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Over the past year, Deutsche Bank conducted an in-depth analysis of Better Place's business plans and economic model, which includes the capital investment (for purchasing the batteries), locking in energy costs with long-term contracts with utilities, and payment by customers through subscriber fees.
Deutsche Bank concludes that most of model's profitability comes from the arbitrage gap between the wholesale purchase price of the electricity and the price of fuel. The bank estimates that as the global price of oil rises, and as governments increase incentives for emissions-free vehicles, the arbitrage gap will widen, rendering Better Place's business model more attractive.
Deutsche Bank believes that Better Place's model could be feasible even without government aid, but mainly in specific areas around the world with high fuel prices and relatively long journeys. The bank figures are partly based on Better Place's own estimates.
The bank estimates that the company could achieve a 5 percent share of Israel's vehicle fleet by 2016, amounting to 110,000 electric vehicles.
This 110,000 figure is based on a net annual growth rate of 14,000-30,000 subscribers a year in 2012-16. Deutsche Bank believes that if this target is reached, and assuming average annual revenue of $4,250 per subscriber, Better Place could see $500 million revenue a year by the end of 2016.
Deutsche Bank estimates that the majority of Better Place's investment will be capital investment in buying the batteries. Deutsche Bank expects the cost of the batteries to gradually drop from $14,000 each today to $9.500 each in 2015. Assuming 110,000 cars by 2016, the investment could reach $1 billion. In addition, Better Place will have to invest $25 million to set up 50 battery replacement centers, and up to $57 million to set up 77,000 recharging points at $750 per point.
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