"This is actually good for Tesla and EV industry, that’s really important to appreciate, and I really do believe that," Tesla CEO Elon Musk said on a call today. He’d just done something a little off-kilter: told his competitors to use his technology without the threat of a lawsuit. "I did get some wide-eyed looks from people on the board and management team, but they have all been really supportive."
In a blog post, Musk framed this decision in moral terms, declaring that open sourcing electric-car technology was the best way to truly tackle the growing carbon crisis. But make no mistake, this is a self-interested business move as well: a high-risk, high-reward gamble that could vault Tesla to the next level or eat away at the small advantage it currently has.
"I did get some wide-eyed looks from people on the board and management team..."
Tesla’s stock was up slightly on the news of the announcement, but the company is struggling financially. At the end of May its bonds were slapped with a junk rating, a signal to investors that many believe it won’t be able to pay back $2.2 billion in debt over the next four to seven years. With the patent move, Tesla is hoping it can get some major automakers to play a game of you show us yours, we’ll show you ours. "That is because research and development of new battery and power-train technology is extremely expensive," says Thilo Koslowski, an automotive analyst at Gartner. "And it will be very difficult for Tesla to scale that up given the current size of their market."
The auto industry norm — for better or worse — is for car companies to generally work in isolation on battery and power-train technology, a byproduct of competition that makes a paradigm shift like EVs unusually difficult to pull off. "For Tesla to succeed it has to create vastly more vehicles, and that will only be possible if other big manufacturers buy into their technology," says Koslowski. "The Gigafactory they have is good, but they can’t make it alone."
Musk acknowledged on today's investor call that he hoped sharing Tesla's patents would inspire other companies to adopt common standards. Tesla, for example, uses a different technology for its charging stations from the rest of the industry. "I think high-speed charging in particular is a great area of commonality," Musk told analysts, when asked what changes he hoped would result from his new open source approach. If other companies began building Tesla-compatible charging stations, it would allow the small company to reach a much bigger scale with far less capital.
The auto industry isn’t known for the kind of openness that Musk is trying to foster
And again, the auto industry isn’t known for the kind of openness that Musk is trying to foster. "We are talking about an extremely secretive industry," says Koslowski. "What Musk is offering goes completely against the grain." At the same time as he is asking his competitors to share ideas, Musk is also bashing their core business. "If this is an olive branch to other car makers, why is he talking about the need to get rid of gas-powered vehicles?" Despite the fact that many traditional auto companies are getting into electric vehicles, fossil fuel cars are still the lifeblood of their business. Fiat Chrysler’s CEO recently admitted that it only makes its Fiat 500e electric vehicle for the carbon credits, and openly asked customers not to purchase them. "I will sell the (minimum) of what I need to sell and not one more," he’s quoted as saying.
Companies like Toyota and Mercedes-Benz have already invested in Tesla in exchange for a look at its technology (Toyota, for instance integrated Tesla tech in its Rav4 EV). "There are some companies who were willing to back them in order to gain access to their patents. What will those partners think if Tesla starts giving its technology away to others for free?" asks Koslowski.
The language of Tesla’s offer is also vague. What does it means to use Tesla’s technology, for example, when it says it won’t sue those who use its patents "in good faith"? "You know that if they put this stuff out there Chinese companies are just going to take everything they can and copy it completely," says Koslowski. That would mean whatever advantages Tesla might currently have over other automakers in advancing EV technology would evaporate. "I don’t think their brand is strong enough to be the only differentiator they can offer."
Taken altogether, this move seems like the kind of bold bet that Musk is known for making — and he has bested the naysayers before, both with Tesla’s many plaudits and with SpaceX. For experts like Koslowski, however, this latest news seems like a noble idea that reveals more about Tesla’s troubles than its promise. "If I was an investor, this announcement would make me worried. In a way it shows weakness, an admission that unless they can get more buy-in from the rest of the industry, Tesla is going to have a very hard road ahead."
"It’s the velocity of technology innovation that matters."
Musk, of course, takes a distinctly different view, insisting it's not about the patent — it’s about a company’s commitment to keep innovating. "People often mistake technology for a static picture. It’s less like a picture and more like a movie," he said. "It’s the velocity of technology innovation that matters. It’s the acceleration. To what degree is the company accelerating the advent of new technology, that is what represents true competitiveness — not the static picture of, ‘Oh, I have this patent.’"