315-021-1

Tesla’s ‘Open Source’ Model for its Patents

The Right Way to Go?

Case Study

This case was written by Doris Rajakumari John, Amity Research Centers Headquarter, Bangalore. It
is intended to be used as the basis for class discussion rather than to illustrate either effective or
ineffective handling of a management situation. The case was compiled from published sources.

© 2015, Amity Research Centers Headquarter, Bangalore.

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 315-021-1
Tesla’s ‘Open Source’ Model for its Patents: The Right Way to Go?

Author: Doris Rajakumari John

Tesla’s ‘Open Source’ Model for its Patents: The Right Way to Go?

Abstract: In 2014, Elon Musk (Musk), the CEO of Tesla Motors announced that his company would
not initiate patent lawsuits against anyone who wanted to use Tesla’s technology. This revolutionary
move challenged the very basic concept of patents. Patents were the main weapons in a tech
company’s arsenal and giving away these ‘crown jewels’ seemed illogical. While Musk defended his
move saying that he was in fact removing roadblocks to the creation of a sustainable means of
transport, some opined that the move was not totally altruistic. The electric car market had not
grown significantly and there were a number of hurdles on the road. The high cost of components,
the non-availability of batteries and charging infrastructure in tune with the demand were some of
the key impediments. While Musk was working towards establishing Supercharger networks and a
Gigafactory to manufacture lithium-ion batteries, economies of scale could be realised only if the
manufacture of electric cars were scaled-up. Given the background of a new and innovative industry,
was the ‘open source’ model the right way to go? Was Musk justified in opening-up an innovative
technology at an early stage of industry development? Was Musk making a well calculated strategic
move or giving up Tesla’s competitive advantage and facing a great gamble?

Case Study

“Tesla Motors was created to accelerate the advent of sustainable transport. If we clear a path to the
creation of compelling electric vehicles, but then lay intellectual property landmines behind us to
inhibit others, we are acting in a manner contrary to that goal. Tesla will not initiate patent lawsuits
against anyone who, in good faith, wants to use our technology.”1
– Elon Musk, CEO, Tesla Motors

lon Musk’s (Musk) announcement that his company, Tesla Motors was sharing its patented

E technology with its competitors came as a ‘bombshell’ to many. With Tesla’s patents seen as a
‘moat’ to fend-off giant, global automakers, why the company would want to share its arsenal
with its competitors seemed puzzling to many in the industry.2 According to Musk, Tesla’s
ultimate goal was to offer a sustainable means of transport and steer people away from
conventional vehicles that contributed to global warming. Musk also wanted reforms in the patent
system. While Tesla would still be guarding its trade secrets, Musk said that it would not lose its
competitive edge. He defended his move saying that “…the market is plenty big enough for
everyone. If we can do things that don't hurt us and help the U.S. industry we should do that.”

1
Musk Elon, “All Our Patent Are Belong To You”,
th
http://www.teslamotors.com/blog/all-our-patent-are-belong-you, June 12 2014
2
Shukla Vikas, “Tesla Motors Inc Sees Benefits From The Open Source Movement”,
th
http://www.valuewalk.com/2014/06/tesla-motors-inc-open-source-movement/, June 16 2014
“© 2015, Amity Research Centers HQ, Bangalore. All rights reserved.”

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Tesla’s ‘Open Source’ Model for its Patents: The Right Way to Go?

Musk, who was also the CEO of SpaceX3, said that his aerospace company did not have any patents
but still retained its competitiveness in the rocket business. While Tesla was not the first4 company
to share its patents, tech companies usually guarded their patents and engaged in legal battles to
protect them. The classic case was of Apple and Samsung who were engaged in a number of lawsuits
around the world, with alleged patent infringements on both sides. While some experts like Jacob
Sherkow5, opined that patents ‘stifle innovation and creativity and encourage litigation’, some
others felt that Tesla was taking a risk with this move.6 The predominant view however was that, by
sharing its patents, Tesla hoped to increase the market for EVs. It also wanted to bring-in economies
of scale into the supply chain for EVs and establish necessary infrastructure for its growth and
development. This would only further strengthen Tesla’s position in the market. "By opening its
patents, Tesla rightly realizes it's better to be the best product in a large industry than the only
product in a niche one," Aaron Levie7, CEO of Box Inc., said in a Twitter post.8

Tesla: The Innovator

The Model S, Tesla’s electric vehicle, which was adjudged the ‘best overall’ car in the yearly ranking
of Consumer Reports9 in 2014, outperforming the ‘Audi A6, Toyota Prius and BMW 328i’, was the
first car in the U.S. to receive such an honour. The features that brought these laurels to the Model S
were its ‘blistering acceleration, razor-sharp handling, compliant ride and versatile cabin.’ “It’s truly a
groundbreaking car… You get into it, and it really stands out. It’s the very best car I’ve ever driven,”
said Jake Fisher10, the auto testing expert at Consumer Reports.11 Introduced by Tesla Motors, the
Model S had several unique features. It boasted an advanced electric powertrain, which performed
with a high level of energy efficiency, instant acceleration, zero emissions, high level of driving
dynamics, efficient performance even in cold weather and many more. It operated on lithium-ion
cells which could be easily charged at home and at charging stations. According to Franz von
Holzhausen, Tesla’s Chief Designer, “Model S epitomizes efficiency, embodying the grace and
performance of a world-class athlete. Its sculpted form expresses a constant state of speed and
motion." Behind this superior performance (Annexure I) was the technology of the electric vehicle
that Tesla had mastered.12 For instance, unlike the internal combustion engine, which had numerous
moving parts, the Tesla motor had only one. This helped in accelerating the vehicle almost
instantaneously, almost like ‘flipping a switch.’13

3
SpaceX was a space transport services company founded with the goal of reducing space transportation costs and
enabling the colonisation of Mars.
4
Volvo in the auto industry threw open its patent on the V-type three-point safety belt, which later became an industry
standard. Nikola Tesla, after whom Tesla Motors was named, was a famous inventor who became so exasperated with
the legal system that he finally stopped patenting his ideas.
5
Patent law expert at the Center for Law and the Biosciences at Stanford Law School.
6
Hirsch Jerry and Hsu Tiffany, “Elon Musk opens up Tesla patents; it 'isn't entirely altruistic'”,
http://www.latimes.com/business/autos/la-fi-hy-elon-musk-opens-tesla-patents-20140612-story.html#page=1, June
th
12 2014
7
Aaron Levie was a Silicon Valley entrepreneur and the CEO of file-storing company Box Inc.
8
Prigg Mark, “Tesla boss Elon Musk gives away firm's electric car secrets in bid to boost market”,
http://www.dailymail.co.uk/sciencetech/article-2656736/Tesla-boss-Elon-Musk-gives-away-firms-secrets-bid-boost-
th
electric-car-market.html, June 13 2014
9
The independent product-testing magazine.
10
The director of auto testing at Consumer Reports, in charge of the review of 260 vehicles for the 2014 ranking
11
Plungis Jeff, “Tesla Model S Is Ranked Best Overall Car by Consumer Reports (2)”,
http://www.businessweek.com/news/2014-02-25/tesla-model-s-is-ranked-best-overall-car-by-consumer-reports#p1,
th
February 25 2014
12
“Features & Specs”, http://www.teslamotors.com/models/features#/performance
13
ibid.

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There was also the advantage of energy efficiency in an electric motor versus that of an internal
combustion engine. While only 30% of the energy was efficiently used in an internal combustion
engine, there was not much energy wastage in an electric motor. This led to the creation of instant
torque in a most efficient manner (Annexure II). Its Roadster model had an ‘overall driving efficiency
of 88%’, nearly thrice that of a conventional car. In the case of Roadster, the motor also acted as a
generator to recharge the batteries.14 The car also had advanced software called ‘firmware’, which
helped to monitor the smooth functioning of the car. Functions such as ‘…battery voltage
management and motor control to diagnostics, door locks and touchscreen interaction’, were
controlled by processors, which even helped to respond to external conditions by sharing
information and managing action.15 In cold weather, for instance, the Model S could be preheated
using the mobile app, which allowed the car's climate control system to be accessed.16

The ‘firmware’ which was developed in-house, was constantly upgraded every time the vehicle was
serviced. The Vehicle Management System collated information from a number of processors to
offer a smooth driving experience. It also ensured proper charging of the battery, working alongside
the battery processor to control the temperature and voltage in the batteries. There was also the
Power Electronics Module processor which monitored the charging process. The entire charging
process and torque control was coordinated by the Vehicle Management System and the Power
Electronics Module. An added advantage of the ‘firmware’ was that it was able to remotely diagnose
a car’s problems and suggest suitable solutions.17 Tesla compared charging its cars to charging a cell
phone. Its Model S, for instance could be charged ‘at the rate of 29 miles of range per hour’, using a
‘high-amperage 240-volt outlet.’ It also boasted an electric driving range that was not found in other
EVs. Apart from a number of unique features in its styling and interiors, the safety and environment
aspects were well taken care of in the Tesla Model S.18

Tesla was touted to be one of the safest vehicles in the U.S. According to the National Highway
Traffic Safety Administration, which tested all vehicles sold in the U.S., Tesla’s Model S was one of
the safest cars. The Model S scored much above all SUVs and minivans, in safety terms, on the basis
of ratings provided to manufacturers. This rating was despite the stray accident that occurred on July
4th 2014, in which one person died.19 There were also incidents of battery fires, reportedly caused by
road debris, which were being investigated by The National Highway Traffic Safety Administration.
The investigation however was called-off, after the company assured that it would fit its cars with
more number of shields under the cars. Earlier, to deal with the problem, the height of the Model S
was raised through a software update. Its CEO, Elon Musk, said that although the additional shields
would minimize any kind of inconvenience to its customers and offset misconceptions about the
safety of electric cars.20

Despite issues such as the driving range, recharge time, battery cost and the bulkiness of the battery,
they had a number of advantages too. Apart from benefits such as energy efficiency, superior

14
“About the Size of a Watermelon, with a Lot More Juice”, http://www.teslamotors.com/roadster/technology/motor
15
“A Silicon Valley Approach to Vehicle Software”, http://www.teslamotors.com/roadster/technology/firmware
16
“Features & Specs”, op.cit.
17
“A Silicon Valley Approach to Vehicle Software”, op.cit.
18
“Features & Specs”, op.cit.
19
Sparks Daniel, “Tesla Motors, Inc. Model S: Still the Safest Car on the Road”,
http://www.fool.com/investing/general/2014/07/13/tesla-motors-inc-model-s-still-the-safest-car-on-t.aspx
th
July 13 2014
20
“Feds close investigation of Tesla battery fires”,
th
http://finance.yahoo.com/news/feds-close-investigation-tesla-battery-fires-134526877--finance.html, March 28 2014

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performance, less maintenance and reduced energy dependence, EVs also enjoyed tax incentives 21
from the federal Government.22 Despite the incentives, Tesla’s Model S was still exorbitantly priced
ranging from $62,400 to $72,400. There was also a performance model at a price of $85,900. Tesla
had planned to launch more affordable vehicles such as the Model X, (which would offer features of
a minivan and an SUV) and also the ‘Gen III’. Compared to Tesla, Nissan Leaf was priced much less
between $29,000 and $35,000, excluding tax credits. Tesla targeted to mass produce EVs by 2017.23

A unique aspect of Tesla was its obsession with quality. According to Wharton Professor, John Paul
MacDuffie (MacDuffie), “[Tesla] backed up its ambitious rhetoric with products that have proven to
be really excellent.” As depicted in a 2013 National Geographic channel documentary (Watch
YouTube video: https://www.youtube.com/watch?v=DX0qt6O0n5g), Tesla’s signature red paint
was infused with glass flakes that caused a sparkle. An engineer opined that Tesla wanted its paint
jobs to resemble a ‘piano finish.’ Inspection of its cars were executed on a bamboo platform since
Tesla believed that ‘one can only see beauty framed against beauty.’ To offset issues regarding
battery charging, Tesla was building the Supercharger network24, in the U.S. and in Europe. This
would augment the 98 stations the company had in North America, 23 in Europe and three in Asia.
Although electricity was still derived from fossil fuels, Musk argued that compared to energy use in
ICEs, energy was used more efficiently in EVs.25

Tesla was also planning to set-up several Gigafactories to mass-manufacture lithium ion batteries
and reduce costs. The Tesla battery was a collection of these lithium ion batteries which were linked
together with a software that managed the resulting heat and other charging issues.26 Prashand
Kumta, Professor at University of Pittsburgh's school of engineering opined that Tesla's lithium ion
battery technology was not unique. But the way the company compiled that technology and
designed its cars were indeed unique.27 MacDuffie said that “Most others make much bigger
batteries with slightly different chemical properties and risk profiles” that were operated using
energy management software.28 As of January 2014, Tesla had been issued 203 patents relating to
its batteries and other key features that were unique to its EVs that differentiated its EVs from
gasoline-powered vehicles. According to regulatory filings by Tesla, it had an additional 280 patent
applications that were pending in the U.S. and other countries. The earliest date of expiry for its
patents was in 2026.29 On the whole, Tesla had garnered nearly 300 U.S. patents and patent
applications and had spent $9 million amassing it. Including its various international patents, its total
patent portfolio increased to 691 patents.30

An analysis of its patents by Thomson Reuters revealed that while there were patents for some
mundane features such as ‘ornamental designs for car doors, display panels’, etc., common to any
car company’s patent list, there was a substantial increase in the patents pertaining to its unique
21
Electric vehicles (EVs) purchased in or after 2010 were eligible for a federal income tax credit of up to $7,500. The
credit amount will vary based on the capacity of the battery used to fuel the vehicle.
22
“All-Electric Vehicles (EVs)”, http://www.fueleconomy.gov/feg/evtech.shtml
23
“What’s Driving Tesla’s Open Source Gambit?,”
th
http://knowledge.wharton.upenn.edu/article/whats-driving-teslas-open-source-gambit/, June 25 2014
24
Supercharger is a fast-charge station capable of delivering up to 50% battery capacity to Model S in about 20 minutes
(roughly 16 times faster than most public charging stations).
25
“What’s Driving Tesla’s Open Source Gambit?”, op.cit.
26
ibid.
27
Gent Edd, “Tesla patent giveaway to boost electric vehicle take-up”,
th
http://eandt.theiet.org/news/2014/jun/tesla-patents.cfm, June 13 2014
28
“What’s Driving Tesla’s Open Source Gambit?”, op.cit.
29
“Tesla patent giveaway to boost electric vehicle take-up”, op.cit.
30
Fung Brian, “How to build a Tesla, according to Tesla”,
rd
http://www.washingtonpost.com/blogs/the-switch/wp/2014/06/23/how-to-build-a-tesla-according-to-tesla/, June 23
2014

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Tesla’s ‘Open Source’ Model for its Patents: The Right Way to Go?

electric battery technology.31 While Tesla’s electric cars travelled ‘three times farther on a single
battery charge’, compared to other EVs in the market, it had other proprietary technology, which
included ‘the company’s cooling and safety systems, environmental durability, motor design and
software.’32 For instance, it had patents for the ballistic shield, which protected the battery under
the body of the car. This shield ‘interposed between the battery pack enclosure and the driving
surface.’ There were also patents for a wind-powered generator, which took advantage of
headwinds and recharged the battery to some extent while one was driving. There was also a patent
for the ‘connector for the power cable’ that was used to plug-in to charge the car. Another unique
patent was related to its charging stations. By paying a fee, there was the option to automatically
replace a run-down battery in a few seconds with a new one. This ‘Fast Pack Swap’ was considered a
speedier alternative to charging the battery at an outlet, which was done free of cost.33 Apart from
these, Tesla had also filed patents for ‘metal-air’ batteries that would be combined with the lithium
ion technology to provide a dual battery pack for its electric vehicles. These advanced technologies
that it had developed were predicted to be used in its mass-market version, the Gen III and would
give it a range that matched ICE vehicles in performance.34

However, there was dip in the number of patents that Tesla had filed (Exhibit I). Musk though, did
not seem to be much concerned. “Technology leadership is not defined by patents,” he said.
Compared with tech giants such as Nokia, which earned nearly $800 million in 2014 through
licensing its IP to various companies, Tesla’s patent portfolio was comparatively small.35 The value of
its patents was also not clear. Although the concept of patent valuation by itself was still quite
vague, a majority of its patent portfolio was used as collaterals for financing36 (Exhibit II). Despite
advancements in EV technology, the electric vehicle market was growing at 67% (in 2014), but it
represented only about 0.5% of the total vehicle sales37 (Annexure III). Issues such as the lack of
range and availability of charging facilities for EVs38 and the stable prices of gasoline39 had slowed
sales of EVs. Musk himself admitted that Tesla would not be able to keep pace with the traditional
car market (Annexure IV). “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,” he said.40

31
“How to build a Tesla, according to Tesla”, op.cit.
32
“What’s Driving Tesla’s Open Source Gambit?”, op.cit.
33
“How to build a Tesla, according to Tesla”, op.cit.
34
Russell Galileo, “Tesla Patent Applications Reveal Next Generation EV Technology”, http://seekingalpha.com/
nd
article/1359601-tesla-patent-applications-reveal-next-generation-ev-technology, April 22 2013
35
Ide Michael, “ Tesla Motors Inc Patent Applications Dropping Sharply”,
rd
http://www.valuewalk.com/2014/06/tesla-motors-inc-patent-dropping/, June 23 2014
36
“How to build a Tesla, according to Tesla”, op.cit.
37
Platt R. John , “Tesla Motors’ Patents Up for Grabs: Any Takers?”,
http://theinstitute.ieee.org/ieee-roundup/opinions/ieee-roundup/tesla-motors-patents-up-for-grabs-any-takers, June
th
17 2014
38
“Tesla patent giveaway to boost electric vehicle take-up”, op.cit.
39
Plache Lacey, “Do Consumers Really Want Electric Cars?”,
th
http://www.edmunds.com/industry-center/commentary/do-consumers-really-want-electric-cars.html, February 17
2012
40
“Tesla Motors’ Patents Up for Grabs: Any Takers?,” op.cit.

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Tesla’s ‘Open Source’ Model for its Patents: The Right Way to Go?

Exhibit I
Tesla’s Patents – Their Categories and Value

Source: Fung Brian, “How to build a Tesla, according to Tesla”,

http://www.washingtonpost.com/blogs/the-switch/wp/2014/06/23/how-to-build-a-tesla-according-to-
rd
tesla/, June 23 2014

Exhibit II
Tesla’s Patents as Collaterals

Source: Fung Brian, “How to build a Tesla, according to Tesla”,

http://www.washingtonpost.com/blogs/the-switch/wp/2014/06/23/how-to-build-a-tesla-according-to-
rd
tesla/, June 23 2014

Tesla’s ‘Open Source’ Model for Patents: A Revolutionary Move?

In a revolutionary move, Musk announced that he was willing to share his company’s patents with
others in the industry. Writing in a blog dated June 12th 2014, on his company’s website, Musk said
that “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… Tesla will not initiate patent lawsuits against anyone
who, in good faith, wants to use our technology.” Although the company still owned the patents,
Musk justified his move saying that patents would actually create roadblocks to the development of
a ‘sustainable transport’, which was Tesla’s goal. Musk continued to argue that in more recent times,
patents “…serve merely to stifle progress, entrench the positions of giant corporations and enrich

7
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Tesla’s ‘Open Source’ Model for its Patents: The Right Way to Go?

those in the legal profession, rather than the actual inventors.” He said that after launching his first
company, Zip2, he “…realized that receiving a patent really just meant that you bought a lottery
ticket to a lawsuit, I avoided them whenever possible.”41

Although Tesla had initially acquired patents to protect its technology from the ‘big car companies’,
the truth was far from it. The major car producers had not pursued the electric car market
aggressively, with EV sales constituting less than 1% of their total sales. Admitting that Tesla would
not be able to combat the ‘carbon crisis’ on its own, he said that the market for electric cars was
large and that “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.” He hoped that through this move of offering Tesla’s patents for free, other car manufacturers
would benefit from the revolutionary technology. “…history has repeatedly shown to be small
protection indeed against a determined competitor, but rather by the ability of a company to attract
and motivate the world’s most talented engineers. We believe that applying the open source
philosophy to our patents will strengthen rather than diminish Tesla’s position in this regard,” he
added.42 Although experts welcomed Tesla’s move to share its ‘crown jewels’, they also observed
that the offer was not very ‘generous.’43

“I commend Tesla for this action. In many domains, the patent system is an impediment to
innovation,” said Karl Ulrich.44 Adding that Tesla’s offer was not indeed very significant, he said, “I
don’t believe Tesla is giving up much of substance here. Their patents most likely did not actually
protect against others creating similar vehicles.” He argued that in the assembled goods industry,
patents did not work to protect IP and competitors always found ways to circumvent them. He said
that patents were used as “ammunition in the arsenals of big companies, which they can use to bully
smaller companies with the threat of litigation. With rare exceptions, big technology-based
companies amass patent portfolios as strategic deterrence against infringement claims by their
rivals.… Tesla is essentially deciding it doesn’t want to spend money litigating patents, which is a
great decision for its shareholders and for society.” He also said that Tesla’s initiative was technically
not ‘open source’ and that it was only ‘providing a free license to use its patents.’ “If Tesla were truly
going open source, it would publish the engineering documentation for its vehicles. That would be
disclosing a great deal more than the patents do. Intrinsic to the patent system is the idea that the
patent must teach the invention to the rest of the world. That information was already available,” he
opined.45

While the move had a few short-term risks, MacDuffie said that Tesla’s ‘brand and reputation’ would
in fact be enhanced through this. But “The obvious potential risk is that you allow a competitor to
catch up with you quickly in an area where you’ve had some advantage… You will have less ability to
differentiate,” he added. Despite the risks, Tyler Wry (Wry), a professor at Wharton said that the
initiative gave Tesla a “nice claim to authenticity.”46An almost similar view was echoed by Professor
Orly Lobel47 (Lobel) who opined that a Tesla vehicle was indeed ‘more valuable than the sum of the
parts’, even when the patented technology value was included. “It’s something different from just
the aggregation of the knowledge in the patents,” Lobel said. According to her, Tesla had not given
away its secret recipe and competitive advantage. “There’s a lot of thinking in the research these
days on the gap between the codified knowledge that is patentable and gets disclosed versus tacit

41
“All Our Patent Are Belong To You”, op.cit.
42
ibid.
43
“What’s Driving Tesla’s Open Source Gambit?”, op.cit.
44
He was vice dean of innovation and professor of operations and information management at Wharton.
45
“What’s Driving Tesla’s Open Source Gambit?”, op.cit.
46
ibid.
47
A law professor at the University of San Diego specializing in intellectual property.

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Tesla’s ‘Open Source’ Model for its Patents: The Right Way to Go?

knowledge that really exists in how you actually produce. That gap is probably relevant in this
market,” she said. IP expert Alberto Galasso, from the University of Toronto, also aired a similar
view: “A patent on a great technology is worth nothing if there is no threat of imitation.”48

Just access to patents would not ensure that a competitor could evolve an equally innovative
product. Although it would help competitors to some extent, Tesla had not given away its
competitive edge. “Tesla is very much the dominant innovator in the industry, so it can afford
making that move,” Lobel said. She added that Tesla hoped that the move would trigger similar
action by other players involved to further develop the EV industry.49 Academic expert Martin Ihrig50
(Ihrig) said that Musk had triggered rapid innovation among his competitors. “[Musk] shared part of
Tesla’s intellectual property to drive innovation. He’s following a knowledge-based strategy.”
However, Ihrig believed that Musk’s ultimate intention was much more than developing the electric
vehicle market and establishing an active chain of charging stations. He placed the bet on attracting
the best talent available. “It’s a bigger play on attracting talent and forcing the industry to develop
innovation more rapidly,” he said. Tesla’s ‘spirit of openness, innovation and dedication to a social
mission’ could indeed attract the best engineers. “It’s similar to what Google and others are doing –
do good and inspire people. Many people want to work for these companies,” Ihrig said. In its SEC
filing, Tesla attributed this move to its Silicon Valley roots, which “enabled us to recruit engineers
with strong skills in electrical engineering, power electronics and software engineering.”51

Ihrig added that, although the company shared its technology, it retained the expertise acquired by
its engineers and other staff members, which was a better strategy in the long run, because it
enhanced Tesla’s ‘core competency.’ “It’s one thing to have patents. It’s another thing to put it all
together,” Wry said. According to Ihrig, this talent pool would already be working on developing
more advanced technology, way ahead of rival car companies who were still trying to master its
shared patents.52 While Musk himself had acknowledged this in his June 12 blog post, “Putting in
long hours for a corporation is hard, but putting in long hours for a cause is easy. I think it’s quite
motivating for people,” he said in a media call. This was quite significant, since as of June 17th 2014,
the company had 187 vacancies for engineering jobs. Although Tesla would not charge royalty for its
patents, it was profiting in another way. Its stock price reacted positively to the announcement and
continued to rise.53

There were also others who saw the move as an excellent PR strategy. Some, however, opined that
there were benefits more far-reaching, in sharing its technology and patents. For Tesla to succeed,
an ecosystem of ‘complementary knowledge and infrastructure’ was necessary. This ecosystem
consisted of auto mechanics who had to be specially trained to repair EVs; drivers who had to be
educated on using and maintaining them; new channels for marketing and distribution; and the
profuse presence of charging stations mainly for long distance travelers. This ecosystem would
develop much faster if electric vehicle manufacturers worked together to evolve common and open
standards, contributing to the knowledge database as new techniques were being experimented.
EVs would succeed mainly from powerful “network effects” when knowledge was shared to create a
“common, rapidly-evolving technology platform.”54 On earlier occasions, Tesla had disrupted the

48
Frick Walter, “What Tesla Knows That Other Patent-Holders Don’t”,
th
http://blogs.hbr.org/2014/06/what-tesla-knows-that-other-patent-holders-dont/, June 12 2014
49
ibid.
50
An adjunct professor who teaches a course on strategic management of knowledge assets at Wharton Executive
Education.
51
“What’s Driving Tesla’s Open Source Gambit?”, op.cit.
52
ibid.
53
“Tesla Motors’ Patents Up for Grabs: Any Takers?”, op.cit.
54
Bessen James, “History Backs Up Tesla’s Patent Sharing”,
th
http://blogs.hbr.org/2014/06/history-backs-up-teslas-patent-sharing/, June 13 2014

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traditional auto industry, selling through a direct sales model, without the help of local car dealers
and was in the process of installing a switching station model55 for its EVs. Adopting the ‘open
source’ model for its patents was a similar move. Tesla’s disruptive business model for its electric
cars indicated that the electric car industry was entirely different from the traditional auto business
and hence required a different treatment.56

The EV industry required a structure that would create a more feasible EVs supply chain. For this to
happen, sharing its technology was a better route than indulging in a competitive technology race
that was typical of traditional automakers. For instance, following the announcement about its
patents, both BMW and Nissan expressed their interest to collaborate with Tesla on ‘technology and
standards.’ This was despite them being natural competitors, with the three carmakers – BMW,
Nissan and Tesla sharing almost the entire market for EVs.57 This would in fact help Tesla. According
to MacDuffie, “They have influence, they have access to capital, they have access to public subsidies,
or [they can] influence public subsidies. Whether it’s licensing per se or a partnership …either way I
think works well.” This did not imply that Tesla was not faring well. Tesla registered sales of $2 billion
in 2013, almost quintupling compared to its 2012 figure. For the year 2013, Tesla reported positive
cash flow from operations with its net loss narrowing considerably over the years. Tesla lost $396.2
million in 2012, while in 2013 its loss had decreased to $74 million.58

By sharing its technology and patents with other car makers, Tesla would scale-up its supply chain,
thereby giving a boost to the EV market. For instance, it would help to bring down the cost of
components required for EVs, which were comparatively higher and supplied by fewer suppliers
compared to the traditional auto industry. It would be impossible for Tesla to augur economies of
scale in the component supply chain for EVs, all by itself. Through its patent-sharing move, Tesla
hoped that if its competitors, Nissan and BMW, which had access to much deeper pockets
(compared to Tesla) and with almost 60% of the EV market, adopted some technology and designs
of Tesla, the component cost would decrease considerably, bringing-in the much needed scale into
the electric vehicle supply chain. The same was true of its charging infrastructure, another hassle in
the development of the EV industry. While Tesla had realised that it would be difficult for it to
establish the required charging infrastructure to support its operations, especially, as it expanded
into Europe and Asia, it hoped that competitors would co-operate to build and share common
standards59 for charging. By sharing its patent portfolio, Tesla hoped that its charging specifications
would be adopted as industry standards.60 Musk said that BMW and Nissan were already in talks
with Tesla to share its Supercharger network.61

Through the move, Tesla might also plan to achieve economies of scale at its Gigafactory where it
planned to mass-produce lithium ion batteries and drive down costs.62 Another possibility was also
true. Through its Gigafactories, Tesla could develop a sizeable business in battery manufacturing and
this could well overtake its car sales. Tesla’s business model was already more than just selling cars-
it was also involved in selling its technology to other car manufacturers. It had supplied its batteries
to Toyota and to Daimler, which owned Mercedes-Benz. Both carmakers were Tesla shareholders.

55
Tesla had developed a 90-second battery swap system to be installed in its supercharging stations.
56
Netessine Serguei and Girotra Karan, “Tesla Goes Big, Not Home”,
th
http://blogs.hbr.org/2014/06/tesla-goes-big-not-home/, June 17 2014
57
“Tesla Goes Big, Not Home”, op.cit.
58
“What’s Driving Tesla’s Open Source Gambit?”, op.cit.
59
In China, Tesla would abandon its standards and adopt the uniform standards for electric cars to take advantage of the
electric car power charging network there. Hence there was a pressing need to adopt uniform power charging standards
across countries.
60
“Tesla Goes Big, Not Home,” op.cit.
61
“Tesla Motors’ Patents Up for Grabs: Any Takers?”, op.cit.
62
“What’s Driving Tesla’s Open Source Gambit?”, op.cit.

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The revenue streams from selling its batteries and other components could help sustain its vehicle
sales, which was on a smaller scale. With more car manufacturers adopting Tesla’s designs, it hoped
that its component production would scale-up. There was also the possibility of Tesla being acquired
by larger car companies. Considering these arguments, whether Tesla’s move to share its patent
portfolio was a strategic move rather than mere altruism was debatable.63 Historically too, there
were a number of examples of new and innovative technologies that had shared their knowledge
and inventions even at an early stage. ‘Textile technology, Bessemer steel production, the personal
computer, wireless communications, and the Open Source software’ were all examples of the same.
The benefits of this sharing were also evident. For instance, in the case of the initial US Bessemer
steel mills, competitors agreed on common standards to produce steel, which reduced production
costs by 78%.64

A more recent example that technology giveaways were beneficial was that of the Android software.
Although Google had spent millions to design the software, it made it available free of cost. Through
this, Google aimed at expanding the mobile market and to popularise its search engine and other
digital services, which were supported by advertising. The strategy paid-off well for Google, with
Android installed on more than 1 billion devices and overtook Apple's iOS to be named ‘the world's
most widely used mobile operating system.’65 While sharing patents seemed to have its advantages,
the move had its downside too. Some experts opined that Tesla was taking-on a great risk. Thilo
Koslowski (Koslowski), a Gartner analyst said, “If you open up all your books to everyone, it means
you all are fighting a war with the same weapons.” Koslowski was referring to technology such as
powertrains and battery management that were required to meet fuel efficiency standards. It was
natural for companies to vigorously defend such technology.66 There was also the impact on
competition and hence on profits. With Musk acknowledging that his competition was from the
conventional gasoline cars, experts felt that Tesla’s profits would be affected by the market share of
gasoline cars and not by the miniscule share of non-Tesla EVs with whom it was sharing its patents.
The same conditions however might not hold good for long. When eventually, gasoline cars would
be replaced by EVs, then, Tesla’s competition would increase, making patent sharing no longer
feasible. That however was in the long term and Musk seemed to be making most of the current
opportunity.67 There was also the stark reminder of how AT&T, the innovative firm behind the
transistor, lost its technological dominance to smaller firms such as Texas Instruments and Sony,
after its decision to make available the blueprints for the transistor for a one-time fee.68

Competition was also gearing-up. According to ‘The Electric Drive Transportation Association’, there
were 19 plug-in and fuel cell models available in the market (as of 2014) and another 17 expected to
be launched by 2016. Tesla said that many established and new automakers had already entered or
planned to enter the ‘alternative fuel vehicle market’. The big names included ‘BMW, Lexus,
Mercedes, Mitsubishi, Nissan, Ford, Renault, Fiat, Volkswagen, General Motors, Toyota and Audi.’
Apart from the famous car markers, there were EV manufacturers in China and other countries. 69
With well-established auto majors such as GM, researching the concept of electric car for more than

63
“Tesla Goes Big, Not Home,” op.cit.
64
“History Backs Up Tesla’s Patent Sharing,” op.cit.
65
“Tesla patent giveaway to boost electric vehicle take-up”, op.cit.
66
“Elon Musk opens up Tesla patents; it 'isn't entirely altruistic'”, op.cit.
67
“History Backs Up Tesla’s Patent Sharing”, op.cit.
68
Fung Brian, “Elon Musk’s huge patent bet could doom Tesla, even if it’s great for the rest of us”,
http://www.washingtonpost.com/blogs/the-switch/wp/2014/06/12/elon-musks-huge-patent-bet-could-doom-tesla-
th
even-if-its-great-for-the-rest-of-us/, June 12 2014
69
“What’s Driving Tesla’s Open Source Gambit?”, op.cit.

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a decade, if they had planned to take-on Tesla, the results would have been stifling for Tesla.
However, over the years, not many had seemed interested in the ‘high-quality, premium electric car
market’, with no significant competitor to the Model S. In fact, some automakers like Toyota were
not adopting electric battery technology. Toyota and several other big auto makers such as BMW,
Honda, Hyundai and GM were already researching on the fuel cell technology and this was
considered a threat to Tesla and its electric car batteries that were to be produced at its
Gigafactories.70 Although Tesla could not force the auto majors to enter the EVs market in full
earnest, Tesla wanted to remove all roadblocks, by opening-up its patents.71 Once prices were
lowered and more auto makers aggressively entering the EV scene, the electric car industry was
bound to boom. Jason Perlow72 said, “Look, if Musk can get the price of his Tesla sport sedan down
to $35,000, I’ll buy one myself. And if Chrysler, Ford, GM and all the rest can make a family electric
vehicle for $25,000 or less using his technology, then we have an industry.”73 How Tesla would
overcome the challenges and succeed in the gamble remained to be seen.

Annexure I
Range and Performance of the Model

EPA 5-Cycle Certified Range 208 miles 265 miles 265 miles

0 to 60 mph 5.9 seconds 5.4 seconds 4.2 seconds

Quarter Mile Time 14.2 seconds 13.7 seconds 12.6 seconds

Top Speed 120 mph 125 mph 130 mph

302 hp (225 kW) 362 hp (270 kW) 416 hp (310 kW)

Peak Motor Power
5,000-8,000 rpm 6,000-9,500 rpm 5,000-8,600 rpm

317 lb-ft (430 Nm) 325 lb-ft (440 Nm) 443 lb-ft (600 Nm)
Peak Motor Torque
0-5,000 rpm 0-5,800 rpm 0-5,100 rpm

Energy Storage 60 kWh 85 kWh 85 kWh

8 years, 125,000 8 years, unlimited

Battery Warranty 8 years, unlimited miles
miles miles

Supercharging Optional Included Included

Source: “Features & Specs”, http://www.teslamotors.com/models/features#/battery

70
Randy Carlson, “Tesla's Fuel Cell Threat”,
th
http://seekingalpha.com/article/2303255-teslas-fuel-cell-threat, July 8 2014
71
Rosevear John, “Why Tesla Motors Released Its Patents”,
http://www.fool.com/investing/general/2014/06/15/why-tesla-motors-released-its-patents.aspx,
th
June 15 2014
72
A senior tech editor at ZDNet.
73
“What’s Driving Tesla’s Open Source Gambit?”, op.cit.

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Annexure II
Efficiency of an Electric Motor over an ICE

Source: “About the Size of a Watermelon, with a Lot More Juice”,

http://www.teslamotors.com/roadster/technology/motor

Annexure III
EV Market in the U.S.

Source: Klippenstein Matthew, “Electric-Car Market Share In 2013: Understanding The Numbers Better”,
http://www.greencarreports.com/news/1089555_electric-car-market-share-in-2013-understanding-the-
th
numbers-better, January 11 2014

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Annexure IV
Size of the U.S. Auto Market by Price Point

Source: Klippenstein Matthew, “Electric-Car Market Share In 2013: Understanding The Numbers Better”,
http://www.greencarreports.com/news/1089555_electric-car-market-share-in-2013-understanding-the-
th
numbers-better, January 11 2014

14