Garth: I'm afraid I was cutting my high school math class the day they covered the stuff in your note. Here is how I figured it:
Let us suppose that an engine must cost US$10,000 (or less) to be sold in a car with any hopes of a mass market. When Daimler said that it had to reduce the cost by a factor of 100, that tells me that the engines today cost around $1,000,000 (i.e., 100 times 10,000.) That figure makes sense - the cost of the buses that Ballard is selling to the Chicago Transit Authority is about $1,500,000. When you consider that conventional buses go for about $250,000 and the seats, etc., are the same regardless of type of engine, then that says that Ballard's bus engines (somewhat more powerful than what will be required by a car) are presently going for maybe $1,300,000.
So if Daimler/Ballard succeeds in getting the cost down 99 times, that means to me that it will have knocked off 99 of those one hundred $10,000 chunks that it needs to reach its goal. So that means there is one excess $10,000 chunk hanging around, so the engine's cost is now $20,000 rather than the $10,000 target.
With only ten fingers and ten toes to work with, I may have gotten a bit confused - maybe I should have said that if Daimler achieves 98% of its goal, then the engine is still twice as much as it should be. But either way - 98 or 99 times - the point is the same - getting the cost of an engine from $1,000,000 to $10,000 is not a trivial problem - the first few halving of costs comes easy - after that it gets very hard.
Now an obvious solution would be for anyone who thinks that they might want to buy a fuel cell powered car in eight years to buy Ballard stock now. When the cars are finally introduced the stock's market cap will be valued in the tens of billions because of the company's obvious charisma, so even if the cars cost $100,000 or more because the joint venture was only able to reach 96% of its goal, shareholders will be able to peel off a few shares and buy one. |
