"Tesla may be worth $25 billion in the stock market, but over in the real world, it is still just a tiny car maker operating in a segment so small it barely qualifies as niche. While it is growing fast, the company delivered in the first quarter 6,457 cars—all of 0.03% of the global light-vehicle market."
Tesla Motors is synonymous with sleek, highly priced technology. But in opening access to its patents this week, it has realized it needs to be more of a Microsoft than an Apple.
Tesla may be worth $25 billion in the stock market, but over in the real world, it is still just a tiny car maker operating in a segment so small it barely qualifies as niche. While it is growing fast, the company delivered in the first quarter 6,457 cars—all of 0.03% of the global light-vehicle market.
The electric-car market remains so small that Tesla's pricey vehicles account for a large portion of it. Indeed, established auto makers' enthusiasm for electric vehicles, never high, has waned relative to stepped-up efforts to build more efficient versions of vehicles burning gasoline.
One aim of Tesla's patent plan is to alter that equation. Through it, established car companies might not have to sink as much into research and development to produce electric vehicles. And having a common technology platform could accelerate innovation and reduce production costs for everyone.
Rather than hurt Tesla, this could help it. If established players were selling cheaper, mass-market electric cars, more drivers might eventually upgrade to a pricier, higher-performance Tesla. A larger electric-car market would also bring beneficial network effects for Tesla—most importantly, the establishment of more charging stations—that would broaden its vehicles' appeal.
As Apple found to its cost in its earlier incarnation in the 1980s, occupying a rarified position in technology wins plaudits from fans—but can mean ceding the market to a rival like Microsoft -that has a more mass-market approach. By opening its patents, Tesla appears to be embracing the latter model more forcefully.
This supposes that car companies will take Tesla up on its offer. At a time when they are pushing to reduce car weights, improve fuel-injection systems and implement software and other technologies aimed at increasing efficiency, they may not. After all, if they can offer gasoline-powered vehicles that cost customers only pennies per mile to drive, the extra upfront cost and range limitations of electric vehicles become harder for many customers to justify.
Tactically, Tesla's move makes sense. Competition in electric vehicles is hardly hot, so those patents weren't really protecting Tesla from anything. The hoped-for sales growth underpinning its lofty market valuation won't happen without a large and varied market for electric cars from multiple manufacturers. Investors who focus on the boldness of Tesla's move risk missing the insidious competitive context that spurred it.
Write to Justin Lahart at firstname.lastname@example.org