Nation of Beancounters

Why is Elon Musk freeing his patents?

Posted in New Ideas, Vapor Mill by Navin Kumar on June 13, 2014

There is no doubt
that his actions are idealistic. But in the grand tradition of The Economist as Suspicious Bastard, one must at least look for a way that his actions benefit Tesla Motors. Here is a bare-bones theory:

1. Electric cars have large spillover effects – the more people own them, the cheaper and more convenient it will be to own one. For example, the more people own them, the larger the number of charging stations on highways. The larger the number of charging stations, the more convenient it will be for you to travel long distances in your car, and the more likely you are to buy one. There will come a tipping point where the facilities to service electric cars rivals the facilities enjoyed by fuel-driven cars.

2. Musk realizes that electric cars will not take off if Tesla is the only company producing them. And, as he notes

 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. At best, the large automakers are producing electric cars with limited range in limited volume. Some produce no zero emission cars at all.

3. Musk needs other producers to create cars, especially shitty cars in the lower end of the market he doesn’t want his company associated with. So he’s released all of his patents in an effort to stimulate competition.

4. He’s banking on Tesla’s brand (which will no doubt be enhanced by this move) and design/engineering talent to maintain profits even after this competition arises:

Technology leadership is not defined by patents, which 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.

In economic parlance, the electric car market has external economies of scale that Musk is trying to stimulate.


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