Tesla Motors Inc. to Give Away Patents -- Good or Bad for Investors?

Before today, Tesla was already open to sharing technology. It had provided electric powertrains to competitors, and was open to sharing its Supercharger network to manufacturers who would build a car that could handle a 135-kWh charge. Tesla has made its intentions clear from the get-go: Its first priority is to accelerate the advent of electric vehicles. But now, Tesla says it will take this mission to a whole new level by opening up its patents to other companies that will use them "in good faith."

Model S. Image source: Tesla Motors.

But what about fiduciary responsibility?
Musk's determination to see this vision through sparks a controversial debate about fiduciary responsibility. Could CEO Elon Musk's vision to see the world adopt electric cars be in conflict with his responsibility to build shareholder value?

Indeed, this particular concern sparked a question from a shareholder during the Tesla annual shareholder meeting. Paraphrasing the shareholder, he asked Musk how he balances the company's mission to accelerate the advent of sustainable transport even when it may mean enabling peers. Musk responded by explaining that he does not see the successful launch of a compelling electric vehicle from a competitor as mutually exclusive to Tesla's success. Further, Musk said he would soon make a related announcement; hence, today's blog post from Elon Musk.

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.

During a Q&A following the announcement, Musk gave further details: Its move toward opening up its patents includes every Tesla patent. But there are limitations. Those who use Tesla's patents, Musk said, should do so "in good faith." What may this mean? Companies should, for instance, be willing to share some of their patents with Tesla in exchange for use of Tesla's patents -- though Musk acknowledged that Tesla wouldn't request to use patents that are clearly of higher value than the particular Tesla patents a competitor wants to use.

Musk justified the move as a sensible business decision in the blog post.

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. By the same token, it means the market is enormous. 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.

Further, Musk said he thinks Tesla will "benefit from a common, rapidly evolving technology platform." He even made an argument that an open source philosophy to Tesla's patents would help Tesla "attract and motivate the world's most talented engineers," which Tesla said is what ultimately defines technology leadership.

Good or bad?
The immediate-term influence of Tesla's decision to share its patents in a quid quo pro manner will likely have a muted effect. Currently, there aren't enough lithium-ion batteries in the world to support the demand for even Tesla's current demand. And considering the company's efforts to build a Gigafactory, or a factory that supports a higher level of lithium-ion battery production under one roof than all the world produced in 2013 combined, there are some large hurdles to overcome before electric vehicles could be produced in mass, anyway.

But over the longer term, if auto peers choose to build electric cars that rival the Model S (or the Tesla's planned lower-cost car), the broader auto industry could help Tesla solve its biggest challenge: revolutionizing the global supply chain of raw materials needed for batteries.

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The article Tesla Motors Inc. to Give Away Patents -- Good or Bad for Investors? originally appeared on Fool.com.

Daniel Sparks owns shares of Tesla Motors. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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