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Why Selling Patents is A Great Move For Tesla

July 03, 2014 | About:
FinanceGuru

FinanceGuru

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It's no doubt that one of the reasons that Apple's (AAPL) Mac OS took a major step forward many years ago was when the company switched over to the Unix based Mac OS X. Borrowing features from NeXT, the company Steve Jobs started after he left Apple, the company was able to rewrite the entire operating system around a Unix kernel which is notoriously secure due to the open source nature of the OS. Visually, it was also stunning. Mac OS X is what Steve Jobs' "new" Apple was about.

The reason for the "new" Mac OS's success is due to the fact that its built on an open source platform. By now, we know that open source items have major benefits - aside from Linux/Unix, coveted as one of the best operating systems in the world - look at a project like Wikipedia, which would have never of found success if it didn't open up its doors to anyone and everyone. Things like crowd funding are perfect examples of the benefits you can find as soon as you open up to everyone.

Elon Musk of Tesla (TSLA) understands this and - knowing the difficult landscape he has in front of him to make electric vehicles the norm - he's using open source as leverage. In a blog post, Musk confirmed what he had been hinting at for a little while: Tesla's patents are going to be available for anyone to use in "good faith" going forward.

Musk said, in a blog entitled "All Our Patent Are Belong to You":

At Tesla, however, we felt compelled to create patents out of concern that the big car companies would copy our technology and then use their massive manufacturing, sales and marketing power to overwhelm Tesla. We couldn't have been more wrong. The unfortunate reality is the opposite: electric car programs (or programs for any vehicle that doesn't burn hydrocarbons) at the major manufacturers are small to non-existent, constituting an average of far less than 1% of their total vehicle sales.

At best, the large automakers are producing electric cars with limited range in limited volume. Some produce no zero emission cars at all.

Given that annual new vehicle production is approaching 100 million per year and the global fleet is approximately 2 billion cars, it is impossible for Tesla to build electric cars fast enough to address the carbon crisis. By the same token, it means the market is enormous. Our true competition is not the small trickle of non-Tesla electric cars being produced, but rather the enormous flood of gasoline cars pouring out of the world's factories every day.

We believe that Tesla, other companies making electric cars, and the world would all benefit from a common, rapidly-evolving technology platform.

Technology leadership is not defined by patents, which history has repeatedly shown to be small protection indeed against a determined competitor, but rather by the ability of a company to attract and motivate the world's most talented engineers. We believe that applying the open source philosophy to our patents will strengthen rather than diminish Tesla's position in this regard

There is no doubt in my mind that this is the absolutely right decision for Musk to make. What Musk understands is that this isn't just Tesla vs. the rest of the car industry. This is about all electric vehicles gaining some prominence in our daily lives. The only way to ensure the safety of the electric vehicle market (without which there is no Tesla) is to try and make it the mainstream. What better way to help make it mainstream than to help share what you have learned thus far with those that are trying to enter into the same territory?

The interesting thing is with how quickly Tesla's technology is going to change, the patents may not even be as up to date as what Tesla is working on. What it may do, however, is create residual "clone" companies in Tesla's image which will serve two benefits:

  • They continue to help push electric cars, as a market, forward.
  • They remain behind Tesla, following Tesla's lead.

Thinking outside the box is what was got Tesla to where it is today. The company would have never been able to make it this far with their disruptive technology while abiding by the "normal" rules. This decision is just another step in a line of crucial major decisions that I believe we will look back on and identify as cruxes to the argument of why Tesla was a grand success.


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