Why Tesla Motors Inc.'s "Open Source" Offer Is Not What You Think

Tesla will allow competitors to copy patents, but that won’t hurt it.

Jun 25, 2014 at 2:35PM

Source:  Wikimedia Commons

Is Tesla Motors (NASDAQ:TSLA) making a move for the good of humanity, or does the company have other ideas in mind? Maybe it's a little of both, but make no mistake about it: Tesla opening up its patents is unlikely to help the competition catch up.

Come and get it
On June 12, Elon Musk, CEO of Tesla, posted on his company blog a note for the public: "Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology." He went on to remark how little is being done to advance acceptance of vehicles that don't burn hydrocarbons by any of the major auto manufacturers.

The true competition for Tesla, Musk reasons, is the 100 million gas-powered vehicles produced every year and not electric cars. Therefore he invites more research and development by allowing, even encouraging, others to take a look at Tesla's patents and use what they need in their own vehicles.

Why it's a short lifeline
What much of the media seems to be missing about this announcement is that while it could be a big help to competitors, patents will only get them so far. Musk even states that patents are "small protection indeed against a determined competitor." If you say that line out loud a few times and let it sink in, he's saying that competitors will find a workaround for the patents anyway so there is no point is trying to stop them.

Furthermore, Tesla is not revealing its trade secrets. There often is only so much information that you can get from a patent. Only Tesla knows how to put it all together in a cost-effective manner. Besides, by the time the competition digests the patents, some of them may have become outdated, and Tesla likely will have advanced to the next generation of its technology.

Publicity is gold
You've probably figured out by now that Tesla's leaders are publicity hounds that love to be in the spotlight. They kind of have to be. Tesla has never spent a single penny on advertising and relies only on word of mouth to sell its vehicles. Word of mouth, and media exposure. Let's face it -- Tesla being in the headlines helps sell vehicles. Sure, the electric-car company already has its hands full of orders, but that may not last forever. Demand is only a function of consumers' awareness and attention.

Under the pretext of trying to further a good cause -- fighting climate change and reducing fossil fuel use -- Tesla is yet again creating a positive, altruistic image of itself for consumers through the guise of "open source" good will toward the people, business, and governments of earth.

It's a move similar to the one the company announced when it entered China. Tesla announced that it would price its cars the same everywhere, including China, even though it could list them at a 50% or higher mark-up, as is typical for automakers in the Chinese market. Potential short-term profits were sacrificed for a positive, "we're different" image.

Foolish takeaway
All of this news about patents has transpired without any serious threat of Tesla's competition taking advantage of what it offers. How is that possible? Because a blog post by a CEO promising not to sue infringers of Tesla's patents "in good faith" is not a legal document. It's not enforceable and doesn't forbid Tesla from suing anybody. Considering the amount of time and effort that goes into vehicle development, no major car company would be foolish enough to use Tesla's patents based on some undefined words in a blog post by one executive who may not even be working at Tesla in five years. Take this is as a publicity stunt, but quite a clever publicity stunt.

Warren Buffett's worst automotive nightmare (Hint: It's not Tesla)
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Nickey Friedman has no position in any stocks mentioned. 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.

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