Elon Musk’s altruism powertrain is just good business

Jun 16, 2014

In 1907, the Serbian-American inventor Nikola Tesla sold all his patents to Westinghouse, Inc., for a heavily discounted $216,000, including one for alternating current. In 1943, he died penniless. In 2014, another Tesla has given away its patents but signs are that this one will be way more successful. Through a blog post on June 12, Elon Musk, the CEO of Tesla Motors, announced that his company would be releasing all the patents it held on the brand of successful electric vehicles (EVs) it manufactures. A line in the post indicates he wants to avoid future patent-infringement lawsuits, but this belies what Musk is set to reap from this ‘altruistic’ gesture.

Patents cut both ways. They safeguard information and prevent others from utilising it without paying its originators a license fee. On the other hand, patents also explicitly earmark some information as being useful and worth safeguarding over the rest. Even after open-sourcing patents on the Tesla EVs, Musk is still the proprietor of a lot of technical and managerial information – “the rest” – that his competitors are not going to master easily. By releasing his patents, Musk is not levelling the playing field as much as he’s releasing knowledge he thinks is crucial to develop zero-emission vehicles.

Shared knowledge

In fact, the battery-swapping station he showcased in 2013 was an idea borrowed from the Israeli entrepreneur Shai Agassi, who was Musk’s biggest competitor until his EVs company went bankrupt in 2012. Agassi had conceived battery-swapping a decade earlier to resolve the issue of range anxiety: the apprehension that gripped EV-drivers about how long the batteries in their cars were going to last. Unfortunately, the Israeli flunked while executing his plans. Musk not only installed the stations but also integrated it into his network of 480-volt Superchargers, of which he now has 90 in the USA, 16 in Europe and three in China.

Nevertheless, after Agassi’s departure, Tesla was king in a kingdom of frozen lakes. As Musk wrote in his post: “electric car programs (or programs for any vehicle that doesn’t burn hydrocarbons) at the major manufacturers are small to non-existent, constituting an average of far less than 1% of their total vehicle sales.” Without competition, Tesla both controls a market as well as leaves no room for errors for itself and witnesses no competing innovation to help support growing opportunities. While the charge capacity and efficiency of present lithium-ion batteries are nowhere close to being as high as the industry requires them to be, the Superchargers and the Panasonic cylindrical battery cells whose use Tesla pioneered are still unique and desirable. Now, Big Cars like GM and Ford could leverage the patents to crawl into the EVs market – and hopefully keep it from imploding.

Setting standards

Another way for Tesla to reap benefits from Big Cars is to latently guide them to model their products around the mould Musk has perfected in the last seven years. By releasing his patents, Musk has pushed a nascent industry toward one of its understated inflection points: standardization. Hardware standardization modularizes architecture, jumpstarts innovation, sets a benchmark for consumer expectations, and makes for easier adaptation of new technologies. For example, the Joint Center for Energy Storage Research was established by the US government in 2013 with one goal to compile an ‘electrolyte genome’, a database of electrolytes aimed at EV manufacturers. Minimally changing hardware specifications makes JCESR’s work easier.

After all, the Tesla Model S costs $70,000-$80,000, and the Tesla Roadster, $110,000. As much as they have sold in the thousands, the only way they can sell in the millions is if they are as accessible as fossil-fuel-powered cars. Musk may be leading the way but he’s reliant on costly subsidies on battery packs, refuelling and maintenance. If he has to keep them up, he has to make the business of batteries and refuelling profitable. While his decision to release Tesla’s patents could help keep the EVs industry alive, its existence feeds his supercharger network and batteries’ use.

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