Automotive X Prize entrants announcedAugust 2, 2007
After almost 2 years of speculation and deliberation, the Automotive X-Prize (AXP) announced its list of registered teams, which ranges from upstart unknowns based out of garages, all the way up to established companies.
I was a big fan of the original X-Prize, but this new incarnation has some conceptual flaws.
The original competition had a truly spectacular goal – getting into outer space relatively cheaply using private money. But more importantly – and here’s the crucial distinction – there was no immediate financial incentive for mission success beyond the prize money -which wound up being less than the cost of development. It’s taking Sir Richard Branson and Scaled Composites several years to develop a profitable business based on SC’s proof of principle technology. However, the prize money created a market demand (albeit an artificial one), and spurred technological development which a traditional investment would have balked at.
With the AXP, the technological goal is an affordable, practical 100 mpg car, and the business plan to manufacture, market, and sell it. This specificity goes well beyond proof of concept, and unlike SpaceShipOne, such a winning entry would be its own financial incentive. Additionally, the free market has a clear demand and need for such a product: just take a look at recent US auto sales.
So is the AXP irrelevant?
For smaller companies that are just starting out, or are in desperate financial trouble (e.g. Zap!), $10 million could seriously help an innovative company launch or stay afloat. But it’s difficult to develop a complete, realistic business plan that takes into account manufacturing infrastructure. Established business entities with investors, existing products, and a decent cash flow are much more likely to manage this task successfully.
However, for larger companies the prize money is going to be a drop in the bucket compared to both the initial investment and the eventual profits. If you peruse the entrants, entrants like Phoenix and Tesla have established business plans and product developments that are well on their way. They already have the same goals as the AXP, so participating is almost like an afterthought. And while $10 million could build a lot of Phoenix trucks or Tesla Roadsters, they know that relying on winning the prize money isn’t a sustainable business strategy, nor a meaningful market pressure.
This sort of selective pressure on entrants is a major flaw of the XPrize concept, but the idea is novel and could be put to good use by instead focusing on individual components. In other words, prizes could be awarded for the first working engine to achieve a certain power/weight ratio or the first affordable composite chassis material. Prizes could also be broken down by specific vehicle classes and/or applications, and the AXP could assist with both prize money and marketing licenses to OEMs if the inventor doesn’t have the resources or desire to build it themselves. This is somewhat similar to the way that DARPA funding operates.
This scenario could be a likely outcome if/when the AXP is won, and the organizers ask “what next?” In the meantime, we have to just sit back and see what happens. If you’re on one of the teams – get to work!