Please don't take this as criticism, I certainly have no idea of the ins and outs of your project (obviously), financing, production capability nor market analysis.
It's pretty obvious to me that everyone in the local "photonics/optical physics/future tech" world (a part of which was my employer for the past 4.5 years, and other parts of which I've had various links to over the past 10) views patents in the following way:
-worthless, unless specifically and non-negotiably required by otherwise completely-on-board investors (typically US, and then typically only US patents)
-virtually impossible to enforce, since litigation, especially in overseas jurisdictions, is simply too costly for any small enterprise/startup and entirely contingent on precise, decisive, and most problematically time-consuming investigation to establish infringement, even if the time doesn't amount to a defacto loss of the whole market.
-disastrously distracting and expensive to acquire, at exactly the time in the product life cycle where especially the small start up should be focusing on building market awareness and nursing the early production iterations into customers hands, ready for the inevitable gotchas and teething problems that any new product will have.
-literally not worth the paper the certificate is printed on the instant any significant or decisive component is to be manufactured cheaply overseas. All offshore manufacturing facilities operate substantial side-/back-channel systems to maximise profit. If you don't keep all the patent-relevant manufacturing in-house or at least in-country, your patent wasn't worth bothering with.
In addition, ask yourself some of the questions any startup accelerator "coach" would:
-what is your win? Sell company? Sell IP? Make, package, market, sell, after-sales-support and defend your product?
-what is your growth plan to achieve that?
-what is your funding strategy to achieve *that*?
I may be completely wrong, but it reads like you're doing all the product development yourself, all the prototyping by one or the other local fabricator, and planning to do the bulk of the IP protection yourself too (based on you doing the us patent search, rather than your legal team). Where do you see your seed funding round coming from? Do you have VCs already interested? On what terms? For a performance kit for an engine that hasn't been manufactured in 35 years...
Your setback re the patent seems, *to me*, like the biggest helping hand your project could have gotten. In my opinion the fact your "competitor" has made nothing of their (costly!) IP in the time since the patent was assigned is, in and of itself, the best possible argument against pursuing patent "protection" for your designs.