The challenge of getting automotive technologies to market

The industry is well documented as being a difficult and heavily-regulated market. Automotive components require substantial physical testing, are expensive to develop and can take ten years to get to market. It is risky stuff and many have had their fingers burnt over the years. For this reason, many innovations come from the internal R&D departments of larger OEMs and not from smaller technology start-ups. The problem is not a shortage of ideas, but rather the ability to fund their commercialisation. Indeed the UK is well known for small-scale invention, innovation and elegant engineering, but just as well known for not being able to commercialise and capitalise upon them. "That stereotype has some substance but I don't think it has ever been quite as bad as that," says Professor Geoff Callow, managing director of Turquoise Engineering Consulting, part of the merchant bank Turquoise International. "We appreciate in the motor industry that we need to raise our game and in particular with regard to CO2 regulation." This legislation on tailpipe emissions has created fresh opportunities and is getting investors to reassess the potential. The tough targets set for 2020 and 2025 have unintentionally created a stable and predictable demand within the industry. "New products are not just driven by ideas and innovation, they are determined by the market," says Professor Callow. "These regulations have had considerable impact on investors and have also focused the minds of industry. The legislation has removed a lot of uncertainty." Turquoise tends to work with start-up companies run by engineers with experience of the automotive sector and that are some way in to the development process. Initial funding for conceptual and start-up development is often relatively straightforward: usually achieved through a research grant or the Technology Strategy Board (TSB). However, turning concepts and prototypes into a commercial enterprise is far more challenging. This second stage of funding is notoriously difficult and is known as the 'Valley of Death'. Though this stage of business development cannot be underestimated, the outlook generally for the UK, despite the recession, is quite strong. Vehicle manufacturers are hungry for innovation and are increasingly looking at how they can differentiate themselves from competitors. This means the market is perhaps more keen to acquire new technologies than it has been in the past. Investors are quick to forget problems of the past when a lucrative opportunity presents itself. Despite this, funding for automotive technology must compete against other business models that can offer a much quicker return. The hard truth however, is that ultimately there is simply not enough money around to support the ideas that deserve support and many investors prefer something like a digital app because of time for return and associated risk. "Turquoise looks for companies that have thought through the route to market and identified the all-important moneymaking opportunities along the way," says Professor Callow. "The journey to mainstream automotive adoption can take years so businesses need to work out when and how returns can be achieved to satisfy investors." Manufacturing readiness Getting ideas from concepts to CAD models to prototypes and then into small-scale production must be done relatively quickly, and start up companies must be able to demonstrate that they are dynamic in that respect. One company that has been successful in making the leap is Essex-based Control Power Technologies (CPT). The company uses switched reluctance motors to allow the micro-hybridisation of vehicles with a bolt-on solution. Its products include an electronically-controlled supercharger, an advanced stop-start system and an exhaust energy recovery system. CPT sprang out of a project by tier 1 automotive supplier Visteon. However, a change in strategy left the technology marooned. This presented the opportunity to buy the technology, get investment and set up a company. "Aware of the CO2 precipice that the industry is facing, this was a clear way of dealing with it," says Professor Callow. "The technologies had already had quite a lot of investment and it was recognisably on its way. "The products look like they are from a car. That may sound trite, but if a product based on new or emerging technology looks unfamiliar to an automotive engineer it becomes a significant hurdle to overcome. These look like starter motors or alternators. Automotive engineers very quickly understand them and that makes them easier to sell." Venture capitalists that fund early-stage, start-up technology ventures are in short supply so think very carefully about what the ultimate commercial proposition is and how to get the technology to market. "It doesn't matter how good the technology is from an engineering perspective," says Ian Thomas, managing director of Turquoise International. "There are a lot of great designers and engineers in the context of big companies, but being on your own without that resource is a very different environment. You have got to be sure you can adapt." The most successful automotive start up companies combine a genuine engineering innovation with a really objective, clear-headed analysis of how to make money as an independent business. Large companies usually have a dedicated sales workforce to help launch new products, but smaller companies need to ask: 'once a product is developed what happens then?' Though not always the case, often the engineer responsible for the technological innovation is not necessarily the best person to head up the company. Involving someone from the commercial side with experience of taking a technology and turning it in to money can be invaluable. While a fundamental belief in a business is vital, it is essential to be realistic and pragmatic when approaching investors. Many are not, particularly when it comes to the financial evaluation. "You may convince yourself, – or be convinced – that the development process is going to be quick and cost just a few million, when it might be eight years and cost £30million," says Thomas. "Don't get seduced by the technology you've come up with. A couple of patents are never going to be worth £50m and the minute you say that, people won't t like it. That is part of our role to advise you on a realistic evaluation based on experience." It is always advisable to get more than one investor and that is why merchant banks like Turquoise are helpful in matters such as raising funds and finding investors. Choosing the right investors that are both sympathetic – so as not to get too twitchy too soon – and also experienced in particular fields, applications or technologies is vital. "Be realistic about what you are asking for," says Thomas. "You need a plan that really reflects reality, which is well costed. You can't go and ask for five times the amount of money that you need as you won't get it. Equally, don't cost on the basis that everything has to go right first time. "You have to strike a balance. You can't make it riskless, but don't make it too risky. Be patient. Raising funds in this market will take time. It is a hard road, particular in these tough times, but it can be done, you just have to know what you're letting yourself in for." Technology readiness levels (TRLs) and Garner's hype cycle Technology readiness levels (TRLs) came out of NASA in the 1980s to define the maturity level of a technology. TRL 1 is an idea and maybe some simple experiments to show the principles are correct. TRL 8 or 9 means the system works properly under expected conditions and it is ready to go in to production. It is being adopted by the automotive industry to avoid people over or under talking where new technologies are at. "TRL 4 to 7 can be the 'Valley of Death' in terms of funding," says Steve Sapsford, global market sector director for high-performance vehicles and motorsport at Ricardo. "Universities and TSB funding might get you through TRL 1 to 3 and at TRL 8 to 9 you are in production. But who is going to pay for this industrialisation?" The Garner hype cycle highlights why it can be easier to get funding at the front end but difficult late. As a technology begins development everyone is enthusiastic about the possibilities. Examples include fuel cells, 3D printing and graphene – where everyone is speculating about the possibilities. Like fashion, people jump on the bandwagon. Policy makers often look for simple solutions that make good headlines and investors put money in with unrealistic expectations of technology maturity and timescale for a return of an investment. This builds up to a peak of inflated expectation. Reality kicks in and development actually proves a lot harder and more costly than first thought. Enthusiasm wanes and people are disenchanted. This then leads to the tough of disillusionment. "If someone figures out the clever bit that makes it cheaper, simpler, or more efficiently the enthusiasm comes back up again through the slope of enlightenment," says Sapsford. "This then levels off at the plateau of productivity which is where the whole thing should have been in the first place." If a breakthrough doesn't happen it can often spell the death for any future funding and of the technology. What this graph essentially says for funding is that when looking for funding it can be easy to get when early on when everyone is enthusiastic. That will enable some engineering and development but often it will show the technology is a lot harder to refine than you first thought.