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As Fuel Prices Fall, Will Push For Alternatives Lose Steam?

Demand for electric cars like this Saturn hybrid may flag if gas prices keep sliding.
Demand for electric cars like this Saturn hybrid may flag if gas prices keep sliding. (By Justin Sullivan -- Getty Images)

"These transitions take a long time," he said.

Financing Challenges

Ultimately the future of all alternatives to oil comes down to money. That's why one of the most intriguing promoters of electric cars isn't an automobile person at all.

Shai Agassi, once a contender for the chief executive slot at international software giant SAP, says that the right business model will put electric cars in the fast lane.

He wants to make owning an automobile more like owning a cellphone. In exchange for signing up for refueling service, he would give you an electric car for free. You could plug it in at public parking spaces or at home. You'd pay for electricity with a card, like a phone calling card. During long trips, motorists could pull into recharging stations resembling car washes and swap a battery running low on juice for one fully charged in just a bit more time than it takes to fill a tank with gasoline and check the oil.

Agassi's plan will get a test drive in Israel and Denmark, whose governments have pledged support. Agassi's Silicon Valley-based firm Project Better Place has raised $200 million venture capital from the likes of Morgan Stanley, VantagePoint Venture Partners, Wolfensohn & Co. and oil refiner Israel Corp. Renault-Nissan chief executive Carlos Ghosn has promised to deliver tens of thousands of electric cars by 2011.

"We started with the following question: How do you run an entire country without oil?" said Agassi. The cost of installing half a million recharging stands and 120 battery swap stations would come to $5 billion, he said, considerably less than Israel's annual bill for oil imports -- at least earlier this year.

Falling oil prices, however, make Agassi's plan a tougher sell. With gasoline at $7 a gallon, he can recover the cost of the car he gives away through his recharging stations. The price at the pump, combined with heavy taxes, was higher than that in Israel and most of Europe this summer. But this week, prices fell even in countries with heavy fuel taxes; in Britain, prices fell as low as $5.40 a gallon.

Keeping electric car projects going could be even tougher for the big automakers in the United States, where fuel taxes are much smaller.

"If you have to spend X dollars and your profitability has just gone into the black hole and you're having issues getting financing and just keeping the lights on, are you going to spend a lot of money on a high-risk product?" asked analyst Shah. "Probably not."

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