A new approach to selling and recharging electric cars could overcome some of the basic issues that have kept them from being widely adopted. A startup called Project Better Place, which had the largest of any venture-funding round in 2007, raising $200 million, recently announced plans to install recharging infrastructure in Israel and Denmark and to sell electric cars using a business model much like that used today with cell phones.

The company aims to address two limitations of electric vehicles: their range is considerably less than gasoline-powered cars, and the batteries take hours to recharge from ordinary outlets. To solve the first problem, says CEO and founder Shai Agassi, Project Better Place is installing a vast grid of outlets at parking spaces throughout the country, which will allow drivers to keep batteries topped off during the day. In Israel, the company will install 500,000 outlets–one for every six parking spaces in the country–with a similar number slated for Denmark.

To address the time that it takes to recharge batteries, the company has arranged for the automaker Renault to manufacture electric cars with batteries that can easily be swapped out. The cars will have more than a hundred miles of range, which is more than enough for most daily driving. On long trips, once a battery is depleted, a driver will be able to pull into a station where a simple robotic system will remove the depleted battery and install a fully charged one. The process will only take a couple of minutes, Agassi says. The company will build 125 such stations in Israel and slightly more in Denmark.

To make this system work, Project Better Place will take an unusual approach to selling cars. The company will sell cars for a subsidized cost in return for drivers signing up for a service contract. Instead of signing up for a set number of calling minutes, as with cell phones, drivers will pay for a set number of miles. The subscription will cover the cost of renting the battery, swapping it out, and the electricity for charging it up. The number of miles driven will be tracked using a wireless network, Agassi says. The cost of the car will depend on the length of the service contract, he says. For example, the car could be free with a six-year agreement. In any case, the car will cost no more than a comparable gasoline car.

The model has a number of advantages, Agassi says. First, it lowers the up-front cost of the car. What’s more, it takes care of the issue of billing people for recharging from the network of outlets: it isn’t necessary to keep track of charging at each outlet. Instead, each car records the energy it has used, and it communicates wirelessly with Project Better Place. The model also addresses one of the main objections that have been raised regarding battery-swapping systems. In a battery swap, a driver can’t be sure the new battery is as good as the old one–it could have more wear and tear or less storage capacity. In the project’s system, the drivers don’t own the batteries, and the responsibility for maintaining them is transferred to the company.

The plan is particularly suited for small countries such as Israel and Denmark. All of the infrastructure needed in Israel can easily be paid for with the money that Project Better Place has already raised, Agassi says. The economics are attractive in other ways. Both countries have very high gas prices–more than $7 a gallon. The countries also have tax policies that heavily favor electric vehicles. In Israel, conventional cars have a sales tax of 72 percent, while electric cars are only taxed at 10 percent. In Denmark, the difference is even bigger. The government collects a tax of 150 percent on conventional cars, while electric cars are tax-free. As a result, Agassi says, a typical sedan in Denmark costs $60,000, while an electric car will cost just $20,000.

To work in the United States, Agassi says, the approach would need to be implemented at the city or state level, since the country is so much larger. It would be fairly easy, he says, to install recharging grids in cities and, particularly on the East Coast, to connect the cities with swapping stations. He says that higher gas prices will also make the economics more favorable.

Not everyone agrees that the company’s approach can work in the United States. Menahem Anderman, a highly regarded automotive-battery consultant and the founder of Advanced Automotive Batteries, says that the approach will be expensive, and that battery swapping can damage the batteries, reducing their life and reliability.

Regardless of the future of the technology in larger countries, Project Better Place is now getting its first project under way in Israel, working with utilities on a plan to build its recharging grid. Agassi predicts that results will be fast. He projects that in Israel, within 10 years, electric cars will outsell conventional vehicles.