Last Thursday, Tesla Motors (TSLA) CEO Elon Musk announced the electric car company will publish its technology patents. Musk stated that he and the company will not sue anyone who utilizes the patents, so long as they are used “in good faith.” The patents reference, but are not limited to, the technology within Tesla car batteries and the company’s charging station network. Since the announcement, analysts and investors alike are focused on how Tesla’s publication of valuable patents will (negatively) affect its future. However, these concerned investors maintain short-term mindsets. In fact, Musk’s decision to release Tesla’s patented technology is not only a smart long-term business move, but also represents an important shift in the “I made it first” attitude that plagues the Silicon Valley.
For many investors, Tesla’s patents represented a consistent revenue stream and bright future. They also offered Tesla protection from automaker behemoths, such as GM and Toyota (TM). So, why would Musk forego these precautions and expose the company to unnecessary risks? As it turns out, the future of Tesla actually depends on new competition. Tesla has demonstrated its ability to develop, market, and sell the most popular electric car in the world, the Model S. Undoubtedly, Musk and Tesla want as many Model S cars on the road as possible; however, Tesla does not currently have the ability to fulfill market demand. Tesla and its battery partner, Panasonic, currently struggle to produce their battery quotas. Thus, in order to increase its battery supply, Tesla, and Panasonic, will build a “mega factory.” This is why new competition is important. Not only will the growth of the electric car market benefit Tesla from a purely vehicle sales perspective, but the company will also create a new market of battery consumers. With their “mega factory,” Tesla and Panasonic could supply automakers with their batteries at a competitive price point. In turn, the revenues generated from new battery sales would compensate Tesla’s opportunity cost of releasing its patents.
In addition to the potential emergence of a Tesla battery market, the company will also benefit from the growth of the electric vehicle market. As electric cars become increasingly popular, “green” car companies will lobby the government for favorable legislation, and will participate in the expansion of nationwide charging stations. Currently, the direct sales model employed by Tesla is illegal in Arizona, Texas, and New Jersey, with additional states pursuing legal options. In reality, there is little Tesla can do to fight state legislatures. However, with the help of larger, corporate automakers, the auto industry may be able to fight state laws. If Tesla’s patent release grows America’s electric car market (Musk’s goal), companies that freely use Tesla’s technology could return the favor by supporting its fight against regulations. If GM were to express its support for Tesla’s sales model, a model GM is far too large to employ, state legislatures might overturn their decisions (or, at the very least, be pressured to do so).
However, even if automakers do not support Tesla, the growth of the electric car market could potentially demonstrate, to state legislators, how Tesla is the pioneering component of a revolutionary market sector; additionally, increased electric car investments will lead to more American job opportunities. Aside from Tesla’s legal battles, the growth of the electric car sector would allow Tesla to remedy another issue: the growth of its supercharger network. Tesla’s electric charging network currently includes about 100 stations, and continues to grow. This may appear adequate, given Tesla’s consumer demographics, but when compared to the high number of American-based gas stations, it’s irrelevant. With more electric cars on the road, Tesla and other automakers could partner to create and share charging stations. Tesla has already expressed interest in a shared network with BMW.
Since the technology sector came to the forefront of the American economy, the Silicon Valley has represented the heart of technological innovation. However, it is also accompanied by an environment of unfriendly competition, marked by endless conflicts and lawsuits over intellectual property; for example, the nonstop patent infringement lawsuits between Apple (AAPL) and Samsung. In my opinion, intellectual property litigation is one of, if not the most negative aspects related to American creationism. In fact, America’s strict and costly legal system arguably inhibits innovation. Fortunately Musk, who is a figurehead of the Silicon Valley, also realizes these pitfalls and is making an immediate effort to change corporate culture. In releasing Tesla’s patents, Musk is signaling that American tech companies must stop suing each other and, instead, work together to make brilliant ideas better.