Lights Turned Off at Bright Automotive

...new technology can't target the mass market...

The long-run goal for electric vehicles is the mass market. The expense of new technology means that is not the place to start. Instead, there are two alternatives. One is to target the high end of the luxury segment; that is Tesla's strategy. It's not clear, however, that that market is sufficiently large for two firms to survive, and the second – Fisker – is late to market. Others, such as Aptera, wanted to turn out a (very) small vehicle and charge a (super) premium price for it. The vehicle itself would certainly have attracted attention. But the very rich insist on luxury as part of the package, and a tiny car can't deliver that.

The other option is to target a market that is particularly sensitive to fuel efficiency: commercial fleets. That was the strategy of Bright Automotive. Vehicles for (say) UPS in an urban area are on the road all day, with fuel a significant operating cost. But they're not on the road at night, and they may not travel long distances, only long hours. The space and weight of batteries is less of a constraint; there's no chicken-and-egg issue of whether there are enough recharging stations, because they are only needed at the corporate garage. And it's possible to create a value proposition, that the gains in efficiency will offset the higher up-front capital costs. Car purchasers aren't particularly good at that sort of calculation, focusing on "first cost" (purchase price) and not life-of-vehicle costs.

Bright in fact was able to attract purchase commitments from customers on the basis of actual vehicle cost and performance specs. What they needed was capital, in order to fund the nitty-gritty up-front costs of engineering and testing / regulatory approval, and to provide operating capital to let them produce vehicles – they would have to pay workers and capital equipment suppliers and (depending on their bargaining skills) suppliers of parts and components before they were able to deliver their first vehicle and build their revenue stream. And unlike the "supercar" entrants they were looking at production at a relatively high volume; they couldn't accomplish that on a shoe-string, taking the money from the first vehicle they shipped to pay for the parts for the second one. In other words, they intended to be a viable, volume operation, in it to earn a tidy profit on an ongoing basis. But to be a real company in the auto industry takes a lot of resources.

Reuben Munger, the founder, is a W&L econ grad, but that alone isn't enough to impress me, except that he was an exceptionally good student. Reuben is also a former investment banker, and had "skin in the game." Another notch in his favor. We were able to bring him to campus; he met with some of us faculty privately, and gave presentations to our students. What he said made sense, and I'm a hard sell, as I've sat through a lot of presentations of the business case for innovations in the automotive sector.

From the beginning those involved with Bright understood the venture to be risky. However, they were able to raise initial capital for the R&D part of the venture – including from General Motors – because there would be money available for working capital from the Department of Energy loan program.

Unfortunately, that loan program seems to have unofficially closed its doors. The undercurrent in media reports is that it is a victim of the election campaign, where the loans are being tarred by the failure of Solyndra. (See stories in the Washington Post and in Automotive News.) I also wonder if those involved at the Department of Energy were fixated on passenger vehicles; unless you know something of the industry, selling trucks to Snap-On doesn't sound sexy or central to US energy policy.

I've encountered that mindset, even among people with some real grounding in the auto industry, who ought to know better. But then I've benefited from serving as a judge for the Automotive News PACE supplier innovation competition [link], where I've heard the business case for innovations with target markets across the industry, from machine tool and test equipment suppliers, to suppliers of (not-so-generic) materials, to suppliers of components specific to the long-haul "semi" market, to suppliers to the aftermarket (replacement parts), and suppliers to dealers, as well as the "traditional" Tier I suppliers of parts that go into high-volume passenger cars.

One of the hurdles for a firm to win a PACE award is that they show a credible customer has purchased their innovation and has it in use, on the road. And often one customer isn't enough. So when I learned that a number of hard-nosed customers had signed up (I know a bit about one of them, Snap-On), well, I thought Bright should be a slam-dunk. Too bad, because the US needs firms like Bright.

Mike Smitka, Prof of Economics
Washington and Lee University