In one of the largest-ever initial fundings for a startup, a company led by former SAP («www.businessweek.com») executive Shai Agassi has raised $200 million to fund a plan to shake up the auto industry. The new project is a sharp professional departure for the 39-year-old Israeli, who launched two small software companies in Israel before he joined SAP. His goal is nothing short of audacious: to jump-start mass adoption of electric vehicles by introducing a radically different scheme for selling the cars and handling their batteries.

The company’s name is Better Place, a sign of Agassi’s hopes for its impact on the world. It has received $100 million from Israel Corp. («www.businessweek.com»), a large Israeli industrial holding company, and lesser amounts from Silicon Valley venture capital firm «investing.businessweek.com», a large New York investment bank that wasn’t immediately identified, and angel investors including Edgar Bronfman Sr. A Business Model with Big Aspirations

The project attracted some of its backers not just for the potential financial returns but because they see it as a catalyst for fundamental shifts in transportation and energy. “We take on transformational projects. This squares with our notion of what needs to be done to effect change,” says Alan Salzman, chief executive of VantagePoint, which has made a number of investments in green ventures, including Silicon Valley’s «investing.businessweek.com», an electric car company.

Agassi’s company plans on operating much like a mobile-phone service provider. It hopes to sell or lease electric cars to consumers in packages that include monthly service fees. It will also operate networks of charging locations and service stations that replace batteries for people who are on the road. The whole system, called a “smart grid,” will be coordinated by networking software developed by Agassi’s programmers.

Agassi hopes to pilot the project in a few countries next year and begin mass deployments in 2010. He says he’s close to signed agreements with several car companies and countries, but won’t reveal their identities. Yet Agassi is anything but shy about his ambitions for electric cars. “If what I’m thinking is right, this will be the largest dislocation in the history of capitalism.” An ‘Inevitable’ Shift

Agassi and his allies expect a lot of criticism from the powers that be in the auto and energy industries. A smattering of analysts and industry observers who had been briefed ahead of the company’s formal unveiling, scheduled for Oct. 29, were both intrigued and skeptical. “When I first heard about it, I thought it was just another crazy idea. It sounded far-fetched,” says Stephen Girsky, a managing director at private equity firm «investing.businessweek.com» who was an auto analyst on Wall Street for 20 years. “Then I sat down and listened, and it just might make sense.” Still, Girsky cautions that the old ways of doing things will be difficult to dislodge: “Change doesn’t happen quickly in the auto sector,” he says.

While Agassi’s backers agree that a lot of things have to go right for this business to take off, they’re totally sold on the concept. “It makes so much sense from the environmental point of view as well as the business point of view,” says «investing.businessweek.com», chairman of Israel Corp. and board chairman for Agassi’s new company.

Ofer first learned of the plan from Agassi in a June meeting. Israel Corp. is a major investor in oil refineries, ocean tankers, and chemicals, but Ofer says he’s not concerned about the seeming paradox of making an investment in technology that could slacken demand for gasoline. “If I didn’t do it, somebody else will,” he says. “What’s the point of fighting something that’s inevitable?”

General Motors («www.businessweek.com») says it is determined to force fuel-cell vehicles past the chicken-or-the-egg stage, where they have been stuck for decades, with a goal of a small but commercially viable fuel-cell fleet by around 2015. Fuel cells run on hydrogen, producing electricity to run an electric motor. The only emission is pure water. But which comes first? Fuel-cell vehicles or the infrastructure to keep fuel-cell vehicles supplied with hydrogen fuel?

GM is tackling both in a modest way, in an effort called Project Driveway. “This is the first meaningful market test of fuel-cell vehicles,” said Mark Vann, GM’s program manager for fuel-cell activities, in a presentation in Tarrytown, N.Y., on Oct. 25. A Different Sort of Test-Drive

Starting Jan. 1, GM is launching a test fleet of 100 fuel-cell-powered Chevy Equinox sport-utility vehicles, to be driven in part by ordinary consumers for free, keeping the vehicles for up to three months each, over the next 30 months. Consumers who live in the Los Angeles, New York, or Washington metro areas can sign up via Chevrolet’s Web site.

Other automakers have made smaller test-fleet efforts, but with fewer fuel-cell cars and more tightly restricted groups of test-drivers. Like GM, most competitors use compressed, gaseous hydrogen. BMW («www.businessweek.com») is an exception, using supercold liquid hydrogen, which contains more energy in a given amount of space but is also more difficult to transport and handle.

To give the Project Driveway test-drivers a place to refuel, GM is installing four hydrogen fueling stations in the New York metro area, plus six more in the Los Angeles metro area. To put into perspective how little that is, there are approximately 170,000 regular filling stations across the U.S. GM’s fuel-cell cars will require more frequent fill-ups than gas-powered cars, since the fuel-cell vehicles have a range of only about 150 miles on one fill-up. Instead of a regular gas tank, the GM vehicles have three hydrogen tanks, which resemble oversize scuba tanks, under the rear seat and in the rear cargo area. Hydrogen Availability and Production Are Obstacles

Without delving too much into the science, the concept of a fuel cell is simple. Ordinary air, which contains oxygen, is blown across a thin, permeable film. Hydrogen is blown across the other side. Chemically, the oxygen and the hydrogen are a match made in heaven. The film acts as a catalyst: Two hydrogens combine with one oxygen each, thereby releasing an electron. The end products are electricity, pure water, and heat. Stack enough cells on top of each other, and you produce enough electricity to run an electric motor powerful enough to propel a car. Air is universally available and free. The hydrogen is the tough part.

The ordinary driver today has just about no access to hydrogen, despite its wide availability for commercial use. According to GM, 70% of the U.S. population lives near a hydrogen-generating facility. Often used in the production of ammonia-based fertilizers, most hydrogen is produced from natural gas, which raises another issue: If independence from fossil fuels is the ultimate goal of fuel-cell vehicles, hydrogen eventually will have to be produced using renewable power sources, such as wind or biomass.

“We trusted that by this stage, the infrastructure would be in place, and it’s not. So we’ve decided to do it ourselves,” said Britta Gross, GM’s manager, hydrogen infrastructure.

Gross said the nation’s only hydrogen filling station available to the public is owned by Shell Oil («www.businessweek.com»), in Washington, D.C. Shell built the station in 2004, in a deal with GM to refuel an earlier fleet of six GM demonstration vehicles. It has a visitors’ center to accommodate school field trips and President George W. Bush had a photo opportunity at the station in 2005, to observe a vehicle being refueled.

General Motors («www.businessweek.com») says it is determined to force fuel-cell vehicles past the chicken-or-the-egg stage, where they have been stuck for decades, with a goal of a small but commercially viable fuel-cell fleet by around 2015. Fuel cells run on hydrogen, producing electricity to run an electric motor. The only emission is pure water. But which comes first? Fuel-cell vehicles or the infrastructure to keep fuel-cell vehicles supplied with hydrogen fuel?

GM is tackling both in a modest way, in an effort called Project Driveway. “This is the first meaningful market test of fuel-cell vehicles,” said Mark Vann, GM’s program manager for fuel-cell activities, in a presentation in Tarrytown, N.Y., on Oct. 25. A Different Sort of Test-Drive

Starting Jan. 1, GM is launching a test fleet of 100 fuel-cell-powered Chevy Equinox sport-utility vehicles, to be driven in part by ordinary consumers for free, keeping the vehicles for up to three months each, over the next 30 months. Consumers who live in the Los Angeles, New York, or Washington metro areas can sign up via Chevrolet’s Web site.

Other automakers have made smaller test-fleet efforts, but with fewer fuel-cell cars and more tightly restricted groups of test-drivers. Like GM, most competitors use compressed, gaseous hydrogen. BMW («www.businessweek.com») is an exception, using supercold liquid hydrogen, which contains more energy in a given amount of space but is also more difficult to transport and handle.

To give the Project Driveway test-drivers a place to refuel, GM is installing four hydrogen fueling stations in the New York metro area, plus six more in the Los Angeles metro area. To put into perspective how little that is, there are approximately 170,000 regular filling stations across the U.S. GM’s fuel-cell cars will require more frequent fill-ups than gas-powered cars, since the fuel-cell vehicles have a range of only about 150 miles on one fill-up. Instead of a regular gas tank, the GM vehicles have three hydrogen tanks, which resemble oversize scuba tanks, under the rear seat and in the rear cargo area. Hydrogen Availability and Production Are Obstacles

Without delving too much into the science, the concept of a fuel cell is simple. Ordinary air, which contains oxygen, is blown across a thin, permeable film. Hydrogen is blown across the other side. Chemically, the oxygen and the hydrogen are a match made in heaven. The film acts as a catalyst: Two hydrogens combine with one oxygen each, thereby releasing an electron. The end products are electricity, pure water, and heat. Stack enough cells on top of each other, and you produce enough electricity to run an electric motor powerful enough to propel a car. Air is universally available and free. The hydrogen is the tough part.

The ordinary driver today has just about no access to hydrogen, despite its wide availability for commercial use. According to GM, 70% of the U.S. population lives near a hydrogen-generating facility. Often used in the production of ammonia-based fertilizers, most hydrogen is produced from natural gas, which raises another issue: If independence from fossil fuels is the ultimate goal of fuel-cell vehicles, hydrogen eventually will have to be produced using renewable power sources, such as wind or biomass.

“We trusted that by this stage, the infrastructure would be in place, and it’s not. So we’ve decided to do it ourselves,” said Britta Gross, GM’s manager, hydrogen infrastructure.

Gross said the nation’s only hydrogen filling station available to the public is owned by Shell Oil («www.businessweek.com»), in Washington, D.C. Shell built the station in 2004, in a deal with GM to refuel an earlier fleet of six GM demonstration vehicles. It has a visitors’ center to accommodate school field trips and President George W. Bush had a photo opportunity at the station in 2005, to observe a vehicle being refueled.