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.
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.