Business Plan Requirements for the Progressive Insurance Automotive X Prize
A few of months ago the X Prize Foundation (XPF) opened up official registration for the Progressive Insurance Automotive X Prize. The 120+ teams that we've been talking about here on X Prize Cars are actually only "letter of intent" teams, meaning they haven't official applied to compete, only stated their intention of doing so once the competition opened.
Now it is open, and as expected the application requires some information which is targeted at the XPF's attempt to make the team's vehicles "production-capable cars that people will want to buy, not science projects or concept cars." We've all been very curious about how this rhetoric will translate into actual rules and requirements.
Before I get into the details, I just want to say that this "business plan" requirement is fairly controversial amongst the teams. Many wish simply to be car people - modifying a car and racing it. The XPF's attempt to enforce this requirement may well cause some teams to withdraw from the competition. That's the price. The gain will be a more business-oriented group of competitors. Many teams are already businesses (Tesla, Aptera, and Poulsen Hybrid come to mind) and so this will be easy for them, but many others are not, and the process of drafting business plans will make them consider things they would otherwise not, like formalizing their plans with drawings and schematics, writing patents, coming up with ways to commercialize their technology, shopping their tech to big car makers, or even starting new car companies.
The trick will be in the balance here - if the requirements are too weak, many teams will simply fake it. If they are too strong, many teams may be forced out due issues which have nothing to do with the competitive status of their vehicle - like for instance a lack of business talent on their team, or a lack of interest in business. The new Registration Application (PDF) gives some first hints on this balance issue; read on for some details.
The applications consists of 7 sections, Section B is on "Vehicle or Vehicle Modification Data." There, we find questions relating to the vehicle, things like how they plan to achieve 100 MPG, and any difficulties they anticipate. The next part of Section B. titled "Production and Marketability" gets a little more focussed on business:
[1] In no more than 1,000 words, please describe your preliminary plans for taking the vehicle(s) to market. Include high-level insight into your intended production and manufacturing plans, your market demographics, manufacturing cost and challenges, pricing, key assumptions, etc.
[2] Describe in 100 - 300 words how you anticipate meeting the servicing requirements of this vehicle. For instance, if your vehicle is a modification that voids the OEM's original warranty so that an OEM dealer will refuse to work on the vehicle, how do you propose that the consumer can obtain servicing?
Question [1] is clearly the heart of the "business plan" requirement at this stage. To answer that question properly, teams are going to have to reframe their vehicle-building efforts in terms of a product of service that will be sold. Will the judges require that the business plan actually be plausible (in the sense that "consumers will want buy"), or will vague hand motions about how we can sell retrofits from our garage satisfy them?
Unfortunately, despite assurances that the rules would be out "a few months" after the New York Auto Show official launch (which was March 20th 2008), we're still working only from the draft rules & revision guidelines. So how the actual judging will go is totally unknown.
Based on this Registration Application, it looks like the requirements may be fairly intensive - 1000 words is not small, and if teams actually have to include material such as market demographics, costs and pricing at this stage, they have some serious homework ahead of themselves. However, it also strikes me as unlikely that the judges will be exacting in their requirements at this time - the request in the application may simply be a shot across their bow, i.e. start getting your business plan ready!
If the 22 teams who have been approved are any sign, I'd say the judging so far isn't too harsh. Many teams on that list are certainly not businesses yet.
Overall, I hope that the XPF succeeds in their endeavor to get teams thinking about business. If the Automotive X Prize is to have a large impact on the automotive industry, as many teams as possible must carry their work through to actual application in the industry. And that's going to require some business savvy...
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Gaia Transport Corporation is a real business, with a real business plan, engaged in bringing an ultra-efficient commuter car to market. Other than aerodynamics and dramatic light-weighting, there is little about the vehicle itself that makes it fundamentally different than a Chevy Volt -- the physics are the same. (e.g., I can use my engineering models with the Volt numbers and come up with accurate predictions for the Volt.) I can jump in the POC prototype and drive it and achieve the figures I just mentioned. A buyer looking at the Volt vs my Zing! must weigh the value of additional seats, cushiness, and gee-gaws, and decide if the far higher cost and lower efficiency of the Volt makes sense. Most buyers will say "Yes -- give me the Volt." But a large niche will say "No." Many people will say it makes no sense to use 4000 pounds of steel glass and plastic to haul around a single person.
Without revealing confidential details which we are forbidden to reveal by our non-disclosures with the Progressive Insurance Automotive X Prize, I can say that the business plan is not too difficult to put together if you have a good grasp of the market and can put together a convincing case for how your vehicle will be able to sell at the required volume. Unfortunately, the level of detail is greater than required by most investors and investing institutions, so even for a company with a real business plan, translating that plan into the competition format is too costly and time-consuming for a small company with a good idea. Just one business plan for the investors is time-consuming enough, meaning that for a micro company, the car building slows down. Two business plans only makes it harder to innovate.
However, the technical data submission requirements are, in my view, completely out of synch with the realities of engineering and prototyping such a vehicle. It is as if the Progressive Automotive Insurance X Prize people are making you jump through hurdles purely to see if you have the resources to waste time on production details that are far (and many millions of dollars) down the road. No one on the core team has any automotive experience, and it shows. There is a profound difference between "production capable" and "production ready." For developing the Toyota Prius, that difference was about 1 billion dollars, and the Prius has nothing stunning -- the first version was even based on an existing chassis. The Prius is just a lot of beautifully-engineered details, many of which would make any engineer say "cool" but not one which would make an engineer say "How on earth did they do that?" (Granted, they goofed up with the floor mats.)
The current (competition) MPGe scheme far too strongly favors pure electric vehicles vs plug-in hybrids, and, in addition makes it impossible for a high-efficiency diesel to compete on a level playing field. A 50% efficiency diesel (stunningly efficient) cannot compete with an electric car under the rules. Any system of rules that shows that a boxy, heavy, ten-year-old production Toyota RAV4 EV already exceeds the threshold MPGe is deeply flawed. Even the Tesla Roadster (more of an electron guzzler than the RAV4, incredibly, and not a lot more than half as efficient as the old GM EV1) is already over the 100 (competition) MPGe threshold. (It is about 50 MPGe by the well-established legal MPGe used in the first steps of calculating efficiency for CAFE purposes.)
The long-established MPGe from the CAFE laws is a much better standard. (You have to ignore the political part of the CAFE standard, which gives a 6:1 advantage to any alternative fuel, regardless of whether that alternative makes sense environmentally or ethically) The CAFE MPGe (which is essentially well-to-wheels) does not unfairly favor pure electrics over plug-in hybrids.
I would love to see a vehicle like that Kinetic Vehicles MAX in the competition, because even though it is a different approach than my own, I can see that it could easily be marketable and could make a very positive change in the overall marketplace. The MAX is environmentally better than the Tesla Roadster (generating less carbon per mile) and should be at least as fun to drive.
As Jim Bullis has correctly pointed out many times, electricity is not a fuel, and shares none of the characteristics of a fuel (such as easily-measured mass and volume, the ability to enter into the chemical reaction we call burning, etc.) John Shore, who should know better, (having some physics background) calls electricity a fuel, apparently to obscure the fact that to produce electricity we burn REAL fuels. There will come a time when this is less true, (in other words, when we use meaningful amounts of renewables in generating electricity) but that time will be further off if we sit back, fat, dumb, and happy, thinking that electric cars are three times as efficient as other alternatives.
If I were running a competition like this, I would not want Elon Musk (the Tesla Guy) on the board, nor would I want Idea Lab (funder of the all-electric Aptera) as a sponsor. But Musk is a board member and Idea Lab is a sponsor. Why promote such obvious conflicts of interest?
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