Why Detroit will squander Tesla's patent present

Chrysler, Ford and GM need to be willing to kick Big Oil in the crotch to bring affordable EVs to the general public.
Written by Jason Perlow, Senior Contributing Writer

As many of you probably have noticed, I've taken an interest in electric vehicles (EVs) in the last two years.

EVs, however, have not been doing particularly well as an extant species. It seems to annoy the hell out of people that I've pointed this out, but the numbers don't lie: compared to gasoline and even diesel-powered vehicles, the sales stink.

Sure, they've been getting a little better. But in terms of making a real dent in the conventional vehicle market, worldwide EV sales are practically a rounding error.

There's a reason why this is the case. EVs are expensive compared to new conventional vehicles. There's a huge secondary market for used vehicles that EVs are also competing with. The range of EVs stink because of the battery technology in use, which is also expensive to produce.

And yeah, it would be nice if carbon emissions from fossil fuel power plants that power our homes, businesses, infrastructure and, of course, the EVs could be reduced, but in reality it doesn't factor into purchasing decisions whether to EV or not to EV as a whole.

Drivers don't really care about being green, no matter how important a problem it is that needs to be solved. And yeah, reducing carbon emissions is important.

Most people when they buy a car have a decision tree that goes something like this:

  • Can I afford the price of this new or used vehicle, via financing/equity or cash outlay?
  • Can I afford the insurance?
  • What kind of maintenance costs am I looking at for the next five years of ownership?
  • Does it get good mileage? 
  • What kind of money can I expect to pay for fuel given my driving habits?

EVs fail this decision tree often. But it doesn't have to be that way.

The only EV manufacturer that isn't failing right now is Tesla. The company borrowed $465 million from the US government and repaid it nine years earlier than expected. There is a worldwide demand for their vehicles, albeit small, in the order of about 35,000 units per year.

It's a $70,000 luxury sedan, which sets it apart from the other EVs on the market. It also has a 265-mile range with a battery pack that can be charged for a mere fraction of the comparative mileage cost of a gasoline or a diesel car.

The technology in the car is state of the art, but it's relegated to rich people. 35,000 units a year seems like a lot, but for relative comparison, sales of Mercedes, BMW, and Lexus in just the United States alone were about 800,000 units in 2012.

If Tesla goes on its merry way, it will probably stay a small-scale car company. Profitable, but a luxury, boutique product. Perhaps we'll see around 100,000-200,000 of them on the world's roads in three to five years.

That would be an outrageously successful outcome for Tesla.

"To build a much larger EV industry, you would need this for major replaceable component parts, service centers, and charging infrastructure, among other things."

But today something amazing happened. Today Tesla announced that it is effectively "open sourcing" its intellectual property, which is substantial, on the order of 250 patents.

That means that the larger automobile manufacturers can use Tesla's technology to build EVs at scale, if they do so "in good faith."

I'm not going to try to interpret the legal ramifications of such things but I will take it at face value that it is Tesla's intention to work with larger automotive manufacturers to mass-produce cars using agreed-upon reference designs and standards, of which Tesla could license.

To build a much larger EV industry, you would need this for major replaceable component parts, service centers, and charging infrastructure among other things.

I suspect that one of the reasons behind Elon Musk's open source motivations is that he is looking for large partners to finance and build the many "gigafactories" needed to mass-produce the batteries at scale, which is the single largest component cost of his cars, and the patent portfolio of Tesla is the "carrot."

Look, if Musk can get the price of his Tesla sport sedan down to $35,000 I'll buy one myself. And if Chrysler, Ford, GM and all the rest can make a family EV for $25,000 or less using his technology then we have an industry.

But here's the problem. In order for the Big Three and the rest to make that leap, even with the patents, they will need to make substantial investments, on the order of many billions of dollars. Some, like GM, have already made initial investments in EV tech, and could be a natural fit for Tesla in an overall manufacturing partnership. 

But to do more than just make a symbolic move in this direction means that these huge automakers have to piss off Big Oil in the process. And this is a marriage that has lasted a hundred years.

You don't break up marriages like that so easily. And there has to be significant incentive for the big auto companies to do this.

Their marriage with Big Oil remains profitable despite the fact we all know that petroleum is not a sustainable resource, that we're poisoning the planet and accelerating global climate change by burning fossil fuels. Not to mention we're continuing to make the despots and horrible regimes in a very politically unstable part of world filthy rich, which could have disastrous consequences if that petroleum supply should somehow be disrupted by regime change.

The patent portfolio from Tesla is a big carrot, but unless our world governments step in and give them huge incentives to do otherwise, I don't see the big auto manufacturers taking advantage of Musk's gifts and breaking up a century-old romance with Big Oil.

I hope I'm wrong with this one. Talk Back and Let Me Know.

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