Tesla Motors Inc. to Give Away Patents -- Good or Bad for Investors?

It’s a bold move. But does it cross the line of fiduciary responsibility? Or can Tesla actually benefit?

Jun 12, 2014 at 6:03PM

Before today, Tesla (NASDAQ:TSLA) was already open to sharing technology. It had provided electric powertrains to competitors, and was open to sharing its Supercharger network to manufacturers who would build a car that could handle a 135-kWh charge. Tesla has made its intentions clear from the get-go: Its first priority is to accelerate the advent of electric vehicles. But now, Tesla says it will take this mission to a whole new level by opening up its patents to other companies that will use them "in good faith."

Tesla Red Small

Model S. Image source: Tesla Motors.

But what about fiduciary responsibility?
Musk's determination to see this vision through sparks a controversial debate about fiduciary responsibility. Could CEO Elon Musk's vision to see the world adopt electric cars be in conflict with his responsibility to build shareholder value?

Indeed, this particular concern sparked a question from a shareholder during the Tesla annual shareholder meeting. Paraphrasing the shareholder, he asked Musk how he balances the company's mission to accelerate the advent of sustainable transport even when it may mean enabling peers. Musk responded by explaining that he does not see the successful launch of a compelling electric vehicle from a competitor as mutually exclusive to Tesla's success. Further, Musk said he would soon make a related announcement; hence, today's blog post from Elon Musk.

Yesterday, there was a wall of Tesla patents in the lobby of our Palo Alto headquarters. That is no longer the case. They have been removed, in the spirit of the open source movement, for the advancement of electric vehicle technology.

During a Q&A following the announcement, Musk gave further details: Its move toward opening up its patents includes every Tesla patent. But there are limitations. Those who use Tesla's patents, Musk said, should do so "in good faith." What may this mean? Companies should, for instance, be willing to share some of their patents with Tesla in exchange for use of Tesla's patents -- though Musk acknowledged that Tesla wouldn't request to use patents that are clearly of higher value than the particular Tesla patents a competitor wants to use.

Musk justified the move as a sensible business decision in the blog post.

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.

Further, Musk said he thinks Tesla will "benefit from a common, rapidly evolving technology platform." He even made an argument that an open source philosophy to Tesla's patents would help Tesla "attract and motivate the world's most talented engineers," which Tesla said is what ultimately defines technology leadership.

Good or bad?
The immediate-term influence of Tesla's decision to share its patents in a quid quo pro manner will likely have a muted effect. Currently, there aren't enough lithium-ion batteries in the world to support the demand for even Tesla's current demand. And considering the company's efforts to build a Gigafactory, or a factory that supports a higher level of lithium-ion battery production under one roof than all the world produced in 2013 combined, there are some large hurdles to overcome before electric vehicles could be produced in mass, anyway.

But over the longer term, if auto peers choose to build electric cars that rival the Model S (or the Tesla's planned lower-cost car), the broader auto industry could help Tesla solve its biggest challenge: revolutionizing the global supply chain of raw materials needed for batteries.

Warren Buffett's worst auto nightmare (Hint: It's not Tesla)
A major technological shift is happening in the automotive industry. Most people are skeptical about its impact. Warren Buffett isn't one of them. He recently called it a "real threat" to one of his favorite businesses. An executive at Ford called the technology "fantastic." The beauty for investors is that there is an easy way to invest in this megatrend. Click here to access our exclusive report on this stock.

Daniel Sparks owns shares of Tesla Motors. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information