The basic principles of the internal combustion engine have not changed a lot since the technology was invented. However, just because the technology is old does not mean that evolutionary refinements cannot make it more effective. And that basic idea has important implications for investors.
Case in point is laser ignited internal combustion engines.
A standard internal combustion engine relies on a spark plug which is necessarily housed on the top of a combustion chamber. As a result, the explosion from the spark igniting the fuel-air mixture is incomplete, which leads to wasted fuel.
Lasers present a way to get around this issue. A laser can be used to ignite the fuel air mixture from the center of a combustion chamber which ensures better fuel efficiency -- specifically, an efficiency gain of 27 percent.
All of this was merely theoretical until a few years ago, when a team of researchers working with Toyota (TM), and supported by the Japanese government, announced that they had created a working prototype. The technology worked but, likely due to cost and size concerns, nothing was done with it, at least initially.
Recently, however, a team at Princeton Optronics reinvigorated excitement around laser based ignition by building a working prototype of the system. More importantly, the venture-backed company built the prototype using only a relatively small $150,000 research grant from the U.S. government.
The fact that the company is venture-backed means that this technology will not just sit in a lab somewhere -- it has a better chance of becoming commercialized. And the fact that the prototype cost less than $150,000 to build suggests that mass manufacturing costs will be reasonable enough to attract the attention of big companies.
Finally, the grant that the research company, Princeton Optronics obtained is called an SBIR grant or Small Business Innovation Research grant. These grants are specifically designed to promote commercialization of new technologies. SBIRs ramp up over time to enable easier commercialization of new technologies like laser ignition. In light of that, the company has a clear path to develop a real product around this tech or license the technology to a large manufacturer.
Automakers around the world today are looking for every opportunity to squeeze efficiency improvement out of their engines. But they are not the only ones that could use technology like this. Firms like Caterpillar (CAT), Cummins (CM), Deere (DE), and Babcock & Wilcox (BWC) would all undoubtedly be interested. These firms make very large engines which move massive machines from construction equipment to large ships and so fuel efficiency matters a lot. Jet engine companies like Rolls Royce, General Electric (GE), and United Technologies (UTX) are also likely to be interested.
Of course, it is too early to say which firms will capitalize on this new technology, but a 27 percent improvement in efficiency could lead to a major profit bump. Take airlines for example. The cost for fuel on the average flight is about 29 percent of revenue according to US Airways and consulting firm Oliver Wyman. As a result, if laser ignited engines were used in all of an airline's planes, the firm would theoretically see profits jump almost 8 percent overnight.
At this stage, most investors cannot invest directly in laser ignition technology or Princeton Optronics. However, if the company can commercialize its technology it will have a massive market to tap into.
By Michael McDonald of Oilprice.com