Saturday, June 21, 2014

What Was Tesla Thinking When It Shared Its Patents?

After Elon Musk, the  CEO of Tesla Motors, announced that Tesla would effectively allow any competitor to use its patents, an EPJ reader, Kaarel Tamm, sent me a link to the story.

I'm guessing Tamm did so because of my well known view that IP protection is a legitimate protection of creative property, but this doesn't mean an owner of IP can't grant patent permission on use of a specific patent to the world. Sometimes, but not always, it makes business sense to do so.

I don't follow Musk's moves closely and responded to Tamm's email quickly:
A marketing decision. I see no problem.
And, indeed, Serguei Netessine and Karan Girotra have now concluded that it was a business decision. In a post at the Harvard Business Review, they write:
[O]pening up the patent portfolio may finally create a structure where Tesla can capture more of the value of a more viable electric vehicles supply chain...In sum, Elon Musk’s opening up of Tesla’s patent portfolio might be motivated as much by strategic necessity rather than by altruism.


  1. Shades of the VHS/Beta war in my mind...the model has been tweaked but used by Microsoft, video game manufacturers, allowing a certain level of use of their IP for free so they gain market share but retain some control(and profit) by being the innovators....

    Then again, let's remember a substantial part/core of Tesla's IP was initially developed by Wrightspeed...who hardly anyone even knows about....Musk just pony'd up the dough for his ideas/tech.

  2. There is this strange part of me that wants to believe that Musk might just be a decent, if not humanitarian sort of guy. I know that flies in the face of conventional wisdom- but I have seen people like that. Ya know, people without ulterior motives. Just saying.

    1. He is a decent guy, he just doesn't 'get it' when it comes to political theory.

      I had an e-mail back and forth with him when he first started Tesla(long story), he came across as genuine. He just wasn't very savvy at the time as far as the auto industry went, when I told him what kind of business I own(a tool & die shop), he said "What's that?" just started Tesla and didn't know what a tool & die shop was.

      Anyway, I might be naive myself, but sometimes I think some of these guys that hit it big early on aren't super genius's as much they are competent and in the right place at the right time.(and there's nothing wrong with that, but the PR around him is that he's Wile E. Coyote)

    2. So, it's decent to give stuff away but selling is a sign of ulterior motives. Interesting rhetoric

    3. Nick you've only confirmed what I already 'knew' by reading between the lines, but I see it differently.
      Seems like Musk does get it. He spent his time getting taxpayer money via the political system to have a car company instead of learning how cars are built. If he had done the later he'd just be an engineer or have a specialty automotive shop. Not a billionaire who can have meetings with the right people.

    4. @ Meeker

      Well, there's the whole Paypal thing, so I'm trying not to discount him too much.

      That being said, I doubt that with his skill set that he could have been a mechanical engineer(maybe a design engineer, but I'm sure of that either) or run a specialty auto shop successfully by bootstrapping it.

      But you may be right on his awareness level philosophically/politically, I stated I might be naive there.

      I was thinking about it a little more today after my post, and I kept thinking back when I read Atlas Shrugged(for the first time at 36!) and remembering the trips John Galt was making to all the prominent business owners struggling to keep their businesses going, convincing them to shrug....

      My point being, I think there's many people that just need a good talking to so to speak. They might have business acumen but never stop and think about what it means to take taxpayer money, that they might be crony capitalists(Buffett for example), etc. When I look at Mark Cuban for example, if someone had a John Galt moment with him I think there might be an impact.

      Many entrepreneurs are too busy "doing" sometimes to stop and think about the paradigm they are operating in outside their maybe I'm romanticizing things but I'm trying to give some people the benefit of the doubt(though it's hard to do that for Buffett).

    5. Your point that many may see the conditions as just the way things are without thinking about it is well taken.

      Pay Pal: see The big money comes from government contracts to SpaceX.

      It is just that someone is unlikely to go very far learning about how to make a car (or anything else) the way the economy is set up today. GM's CEO probably doesn't know how to build a car. To be successful in this world these days one learns how to work the system not how to do things.

      BTW you should read the skills attributed to Musk by his fans. :)

    6. @ Meeker

      A bit of sad news- I just read Musk's release associated with the opening of Tesla's patents, here's an excerpt:

      "The unfortunate reality is the opposite: 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."

      I think the following based on the above statement, it's either:

      1. Exceptionally stupid on his part to never consider that most big auto manufacturers aren't surviving substantially on government subsidies(unlike Tesla) and can't afford to make things the market/buyers don't want.(at least in the numbers Musk wants to see them in....he might try to make the argument that the cost is too high until the production numbers move up...but that doesn't justify take someone else's money to gamble with)

      2. He knows full well that's the case, and doesn't give a damn that he's now entirely dependent on taxpayer money for Tesla's "success".

      I just can't get my head around Musk being so stupid as to be guilty of number 1....

      Which makes him a real shithead....

      Oh well, I suppose you're right Meeker and I once again fall prey to being too hopeful about people.

    7. But tax breaks for purchasers AREN'T subsidies for Tesla. (See Walter Block on this).
      In point of fact, ALL auto makers are "subsidized" by 0% interest rates.
      Nobody's clean on this, so what's wrong with the guy making a totally cool car, which it is?

    8. "But tax breaks for purchasers AREN'T subsidies for Tesla. (See Walter Block on this)."

      I probably need to read his POV on it, send me the link when you get a moment.

      Aside from that though, Tesla was granted a $465 million dollar loan from the DOE-which is a direct subsidy in a way, do you think you could be successful in starting a company with taxpayer money in the form of a loan like that? Why can't you get such a loan? :)

      I really think there's a slippery slope here you are missing...(for now, maybe the Block article will change my mind)

      The problem is this, he's getting taxpayer dollars to try to overcome what appears to be market should be a red flag to us all on the problem(s) with central planning.

  3. One other note Mike, if it wasn't for the $465 million dollar loan....Tesla goes out of business...the cash flow was if that isn't a direct subsidy, I don't know what is.

  4. Don't forget- before PayPal was bought by Amazon, Musk was pretty anti-establishment. He hated the banks and the bullshit.

    1. I think you meant bought by Ebay Rick.

      Anyway, point you are probably making the case that he was never "not aware" regarding moral hazard and government money I'm supposing....

      I was probably naive...but back when I emailed him Tesla wasn't the big crony corporation it is now...he was starting it from his Paypal money and hadn't taken any gov't loans and wasn't selling cars with taxpayer subsidies at the time.

      Also, I really wasn't in a sound place intellectually at the time either, I was still trying to adjust my viewpoints logically to ancap philosophy in my mid 30's at the time...(which frankly is late compared to most of you) I wasn't even thinking along those lines.

      Truth be told though, I did at one time do business with a big was an anonymous conversation with Wenzel here on EPJ in a comment section that convinced me I wasn't operating consistently within my new perspective on things(at the time)...and for that I'll forever be grateful to Wenzel.

      I flushed the GSE down the toilet...but if I hadn't I'd have probably been much I've paid dearly for my viewpoints...if Musk really had this anti-establishment streak at one time he's definitely sold out now based on what I've read recently.

    2. After reading more comments, I agree that Musk "sold out" and it makes me sad.

      For someone with only a few years of education in real free market Austrian economics, you seem to know your stuff, Nick!

    3. Thanks Rick. I read a lot...mostly at night when my kids are in bed(and I don't sleep much-most of my reading are books at night) and during the day on the web in between reading prints at work and running my business(when ever I need a mental break); LRC, EPJ & a few other places.

      It's been around 7 years now for me that I've been reading LRC...I was a Ron Paul supporter early in(07') and self identified as a full ancap believer since the early primary in 2011/2 when I realized how corrupt the system is in watching Ron Paul run again(I couldn't even watch anymore after Iowa) I'm 43 now and probably didn't become 'hardcore' until around 41...making me a statistical outlier age wise.

      As I've mentioned before, Atlas Shrugged was a huge read for me at 36 years of age(I'm not an Objectivist though)...and other books along helped my progress along so that when I finally realized the inherent fallacy of government itself, I was intellectually ready for Rothbard and company.