Sword:
Welcome back. Hope you continue to visit and provide your insight.
...The big three exhibit a number of characteristics of which you should be aware.
1. Royalty aversion. Their component costs need to be very small for their margins to stay in the black. This drives them to engineer improvements to get around patents. Unless the patent is considered "fundamental technology" they are unlikely to license it but instead implement an improvement that gets around the secondary patent claims.... I'd be surprised if they could garner more than about $5 per engine in royalties....
Some rather large royalty figures were thrown around here recently. Thanks for providing a former insiders viewpoint on the aversion of automakers to pay royalties. Anyone wanting confirmation of that, just go look up the story of the gentlemen who patented intermittent windshield wipers.
Your $5 royalty figure guesstimate makes it almost impossible, under even the most favorable market share assumptions, to support the current valuation of the company.
From my back of the napkin analysis shown here,
exchange2000.com
you can back into an average royalty per engine of about $25. When I sketched that out, I was not attacking the problem from a royalty - per - engine starting point. Admittedly we are throwing darts here, but at least you have background in the industry to opine on the subject.
2. Risk aversion. Development of a new engine for the commercial market would entail over $500 Million in capital investment. Costs would include engineering preliminary design (sorry, it hasn't been done yet with this prototype), dynamic analysis, stress analysis, ilure analysis, detail design, fabrication and test of a large number of prototypes, manufacturing tooling, vendor contracts, and a huge dollar investment in a fab and assembly line...
Have worked and negotiated with large corporations, a 5 or 10 or 50 million one-time licensing fee would not faze them a bit. However, they will not drop those funds on a lark. Absent, verified performance data AND longevity, they won't drop a nickel. Moreover, if there is any doubt as to whether the patent is fundamental, they will probably take their chances on work-arounds and my lawyer is better than your lawyer (especially against a company with less than $500K in the bank since I'm assuming they have spent something since the IPO.) And of course, there is that phobia about royalties.
ww |
