Why Tesla Opened Its Patents To The Public & How It May Help The Stock

Tesla TSLA re-ignited investor interest last week when Elon Musk told the world he is opening Tesla’s patents to the world. Along with benevolence, there may be business motives behind Tesla’s action.

Battery Sales

Tesla’s most acclaimed innovation is its batteries. According to the Department of Energy, the Model S can travel 150 percent further on a charge than the second longest range electric vehicle. Because the technology so far outpaces its rivals, it makes sense that other automakers will copy the battery.

Tesla will soon begin construction of its “Gigafactory” to produce batteries. This facility will be so massive that it is expected to double lithium battery production for the entire world. Due to scale, it is likely Tesla will be able to produce these batteries cheaper than existing manufacturers.

Connecting the dots, if other car producers build vehicles based on Tesla’s battery technology, Tesla could sell batteries to the entire world. The margins on this product could be massive: Tesla believes it can cut the cost it spends to procure batteries by 30 percent with the factory, making the idea of margins at or greater than 20 percent very realistic. Additional scale could push this figure even higher.

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In addition, a standard electric vehicle battery would likely make use of Tesla’s supercharger network by other companies’ vehicles seamless. Not only could Tesla charge other brand users for a “fill up,” but the expansive supercharger network already in place could pressure other carmakers to buy batteries from Tesla to give its drivers additional access.

Collaborations

On Sunday, investors and fanatics became aware that BMW and Nissan NSANY may be in talks with Tesla to work together on charging networks, as reported by the Financial Times.

If Tesla’s patents are opened up to the public, cross company collaboration is very likely. Tesla’s growth shows that up to this point, it is a smart company with a smart plan. One of the greatest advantages its competitors have are greater financial resources. If Tesla does not have to worry about hiding its intellectual property, it could use resources from a multitude of companies to execute its plan.

Technology Change

This is probably the least likely reason. Tesla could be sharing its technology because it has innovative developments underway, rendering the old technology useless.

There are several benefits this could have for Tesla. For example, competitors may be left chasing old technology while Tesla is able to show its customers it is constantly innovating. Another example is the construction of good will with the general public.

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Investor Reaction

Regardless of the reason, investors like the announcement. Shares of the automaker are up 14.2 percent since last Thursday, when Musk published the announcement. Other developments that are helping to boost the share price include the alleged collaboration with BMW and Nissan and New York governor Andrew Cuomo allowing the five New York dealerships in place to remain.

Shares of Tesla last traded at 233.82, up 4.10 percent on the day.