NEWS ANALYSIS

Tesla bets its patents on a vision of a battery-powered future

Elon Musk
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LOS ANGELES -- Tesla Motors says its decision to make hundreds of its electric-vehicle patents openly available to competitors will help accelerate the fight against climate change. How other automakers respond to the offer could determine the future of Tesla and the entire EV market.

"Tesla Motors was created to accelerate the advent of sustainable transport," CEO Elon Musk wrote in a blog post last week announcing the decision. "If we clear a path to the creation of compelling electric vehicles, but then lay intellectual property landmines behind us to inhibit others, we are acting in a manner contrary to that goal."

Tesla, he added, "will not initiate patent lawsuits against anyone who in good faith, wants to use our technology."

That open-source model allows Tesla to establish itself as the technology leader in an industry with monstrous r&d costs. On the other hand, it eliminates a potential source of licensing revenue.

But Silicon Valley's auto company has much more at stake.

Tesla makes only EVs. Its business model and growth ambitions -- built around developing the battery as a successor to the internal combustion engine -- hinge on the economies of scale that would come from far wider acceptance of EVs among automakers and consumers.

Those ambitions have been underpinning Tesla's massive investments in research, charging infrastructure and battery manufacturing capacity. For its billions of dollars in investments to pay off, Tesla needs more entrants in the EV market.

"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," Musk wrote in his blog post.

But EVs are struggling to counter that flow. Besides Tesla, only Nissan is marketing battery EVs aggressively outside California and other states that have set sales quotas for automakers. Meanwhile, Toyota, Honda and Hyundai are walking away from their experiments with battery EVs, citing the vehicles' lack of range, limited charging infrastructure and the cost and weight of the battery packs. They're looking instead to hydrogen fuel cells as a more promising technology.

While Musk dismisses the threat of fuel cell vehicles to his vision of a battery-powered future, other industry executives are keeping a more open mind. They use the term "technology agnostic" to describe their approach to developing the "compliance cars" they must build to meet stricter fuel economy and emissions standards coming in the next decade.

Tesla has no such flexibility. It needs the battery to win out.

That explains Musk's decision to share patents. If other automakers seize on the free technology and jump on Tesla's bandwagon, EVs could become the go-to technology and develop along standards defined by Tesla.

But if the others resist, Tesla is in a much more tenuous position: a startup unable single-handedly to create the scale it needs to make its EV business sustainable, and unable to pivot to something else.

Tesla's move is about "creating a momentum for the adoption of electric cars, by inviting others to join the club," said Alexander Poltorak, CEO of General Patent Corp. in Suffern, N.Y., which focuses on intellectual property strategy and valuation.

One hint of the strategic undertones of Tesla's decision was Musk's meeting last week with officials from BMW, which recently introduced an EV and plug-in hybrid.

Collaborating with a partner such as BMW on common quick-chargers could defray some of the infrastructure costs and help cement Tesla's proprietary charging technology as the industry standard. "It's a great area for commonality among manufacturers," Musk said in a conference call with reporters last week. "I'd be more than happy for them to use our supercharger network."

Not all of Tesla's technology will be left unguarded. Tesla collaborated with Panasonic to develop the battery-pack technology that produces the Model S' astonishing 265-mile top range, and Panasonic has its own patents on the next-generation "cylindrical cell" lithium ion battery Tesla will use. Musk said Panasonic's work with Tesla is not part of the open-source plan.

A Panasonic official wouldn't comment on Tesla's open-source plan.

Poltorak said Tesla may have erred in declaring its patents open-source and royalty-free licensing would have made better strategic sense.

"By relinquishing their patents, Tesla is leaving themselves open to future patent attacks from others," he said. "One day Tesla may find themselves infringing on a BMW or Mercedes patent because they have no bullets to fire back with."

Hans Greimel contributed to this report.

You can reach Mark Rechtin at mrechtin@crain.com. -- Follow Mark on Twitter


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