The Declaration of Patents Sharing
This kind of bold move is truly shocking to me. In fact, yesterday I just wrote a blog to praise his potential sharing of the patents, but I thought he was going to share just the supercharger technology, not such a bold and broad declaration to share all existing and future patents.
So what does this mean to shareholders?
First, as I commented in my blog, Tesla's advantage is never about being an EV. Those people who worry about the competition from other EVs such as BMW's i3 or other new energy cars such as fuel cell cars are missing the basics.
Yes, being EV adds some attractions, but not many people like to spend an extra $10,000 just for the EV's sake, or just for helping out our environment. That is exactly why EV wasn't very successful until Tesla came out, and that is exactly why other big companies didn't put a lot of effort on mass production for an EV model.
The real game here is about "cost" and "value", and that is always the center of any business competition.
Tesla is successful so far only because it has many innovative designs and provided excellent value that was not found in other car models. In fact, if Tesla is a hybrid car or even a gasoline car, it would have generated much higher sales and be much more successful than what it is now.
As Elon Musk said, he started Tesla not just to make a profit. It is for the best interest of mankind, and he wants to do something really great for mankind. If he is only seeking profit, he could start a software company and grow it much more quickly.
For the other EVs though, it still takes a long way to be cost-effective to beat the gasoline cars. Right now, Nissan Leaf has some sales, but that has mostly relied on government incentives which is unsustainable.
Yes, EV can save money on gasoline, but the battery is costly, and it is inconvenient to charge and will be until we have a much bigger and faster charging network.
Since the threat from other EVs is not a big deal, does that mean it is OK to share all patents without hurting Tesla?
In my opinion, the answer is "No".
It seems that Musk's declaration goes far beyond the existing patents and patents for EV. His declaration is not the traditional "open source".
In traditional "open source", you would still declare what is "open source", and what is not. His declaration means ALL Tesla's patents are now open to use by anyone else without any consequence. And this goes beyond the existing patents, it also includes all future patents, as he said, "Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology."
Patent lawsuits may be expensive or even not worthwhile in many cases, but it is a constant threat for anyone who dares to think about stealing other people's IP. If Tesla simply removes this threat, it will encourage others to copy its designs and technologies without hesitation.
Even though the threat from other EVs is not that big, what about the other innovations? Such as the innovative designs of model S. I am not sure if Tesla has any design patents, but if it has, does Musk now allow others to copy it freely?
The value of Tesla models is in those innovations, so if it is shared, it will certainly destroy a lot of value/premium for shareholders, especially when the current share price already priced in a lot of future success and unique competition advantages.
The Trade Secrets
Since Tesla no longer has patent protection, the only other defense is the "Trade Secrets". In my understanding, the core battery technology is in the trade secrets, not in the patents.
This is a relief for shareholders, but I hope Musk won't go one more step to share that one as well.
Elon Musk is a character I admire a lot. In fact I told many of my friends that he could be the most famous inventor in our generation. Even if his recent declaration may not be in the best interest of all shareholders, considering that he is acting on the best interest of mankind and he is the largest shareholder himself, I have no complaints. Theoretically though, once the company went public, he had the other shareholders as his partners, and therefore he should consider all the partners' interest as well. I believe he must think this move will not have any dramatic impact to shareholders' interest. I only hope he is right on this. Either way though, it will not affect my admiration of him.
Disclosure: The author is long TSLA, UBNT, WFC, OCN, LUK. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.