Is This the Real Reason That Tesla Motors Is Sharing Its Patents With the World?

Tesla Motors is opening its patents up to competitors to accelerate the adoption of electric vehicles. But what does this move mean for investors?

Jun 13, 2014 at 2:41PM

Tesla Motors (NASDAQ:TSLA) made a big announcement this week saying it would make its patents available to the world in hopes of accelerating mass adoption of electric vehicles. In a blog post on Thursday Tesla's chief executive Elon Musk said, "Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology." The company's decision to share its intellectual property with the world comes just days after Musk told investors at its annual shareholder day that he was planning something "somewhat controversial in respect to Tesla's patents."

For the greater good
Well, this is certainly controversial as it gives much bigger, traditional automakers, such as Ford and General Motors (NYSE:GM) free rein to use Tesla's proprietary technology. GM in particular should be happy about this announcement. If you remember, less than a year ago GM enlisted a special team of employees to study Tesla's disruptive technology.

It now seems that all of Tesla's current patents, as well as several thousand in the future, will be available with no strings attached for GM and other rival automakers. Ultimately, Musk hopes this open source move will help accelerate the adoption of electric-vehicle technology. However, it is less clear what this will mean for Tesla's stock.

Tesla Motors Patents

Source: The Motley Fool.

There is always the possibility, after all, that this could weaken Tesla's advantage in the long-range-battery war. At this point, Tesla's Model S boasts the longest driving range of any electric vehicle on the road. Moreover, it's no secret that GM plans to introduce an all-electric car that can travel 200 miles on a single charge and cost as little as $30,000. While GM hasn't said when its model would be available, gaining access to Tesla's patented technology could certainly speed up the process.

However, there could be an even more compelling reason for Tesla Motors to share its patents with competitors: It would create greater demand for lithium-ion batteries. And, as we already know, Tesla is set to break ground on its massive battery plant this month. Tesla's Gigafactory would produce about 500,000 lithium-ion batteries per year by 2020, more than were produced worldwide last year.

At the major auto manufacturers, electric vehicles currently make up less than 1% of total vehicle sales. However, if traditional auto companies were to adopt Tesla's innovative technology not only would they be able to create competitive long-range EVs, but they would also need large quantities of lithium-ion batteries -- not unlike those Musk plans to produce at scale with his Gigafactory.

For now, Musk says he is confident that sharing patents will help Tesla attract the world's best technical talent. "We believe that Tesla, other companies making electric cars, and the world would all benefit from a common, rapidly evolving technology platform," Musk said. However, perhaps the bigger payoff for Musk and Tesla's shareholders would be supply contracts for lithium-ion batteries, as Musk plans to corner that market with his Gigafactory.

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.

Tamara Rutter owns shares of Tesla Motors. The Motley Fool recommends Ford, General Motors, and Tesla Motors. The Motley Fool owns shares of Ford and 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.

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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." 

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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.

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