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Can Tesla Motors Strengthen Its Brand by Giving Away Its Patents?

By: Frank Holmes | Tuesday, June 24, 2014

"Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology."

That's according to Elon Musk, CEO of electric automaker Tesla Motors Inc., which we own in our All American Equity (GBTFX) and Holmes Macros Trends (MEGAX) Funds.

Innovators and entrepreneurs aren't normally in the business of sharing their intellectual property. But in his blog published June 12, Musk defends his shocking decision by asserting that "applying the open source philosophy to our patents will strengthen rather than diminish Tesla's position" in technology leadership and the auto industry overall.

The patents Musk refers to include the lithium-ion technology used to power his company's Roadster and Model S.

Nissan and BMW, two of Tesla's rivals in the electric vehicle (EV) market, have expressed interest in collaborating with the company on improving their own line of low-emission cars.

Investors might crinkle their noses at Musk's decision, arguing that giving away trade secrets for free will only hurt shareholders of an already somewhat speculative company. The market didn't agree, however, as shares rose more than 13 percent to $231.67 within five days of the announcement.

Although competitors will likely take advantage of and benefit financially from Tesla's hard work, Musk has dramatically grown the size of the pie to be shared by all and positioned Tesla to be the thought leader in sustainable transport technology.

Besides, as he points out, Tesla's "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."


Running on all cylinders--if it had any.

Tesla, founded in 2003, is showing no signs of slowing down. The Model S has received numerous awards such as Automobile Magazine's 2013 Car of the Year, Motor Trend's 2013 Car of the Year, Consumer Reports' Best Overall Car and an unprecedented 5.4 Vehicle Safety Score from the National Highway Traffic Safety Administration (NHTSA). Sales have been brisk. California drivers in particular are enamored, and in September of last year, the Model S was the top selling new car in Norway, the first time an EV outsold conventional vehicles in any country.

This year Tesla introduced its brand to China, the world's largest auto market, and already the car was spotted cruising the streets of Shanghai by a friend of Xian Liang, co-portfolio manager of our China Region Fund (USCOX).

For those who blanch at the Model S's nearly $60,000 baseline asking price might soon see some relief. Musk has announced the construction of a "gigafactory," which will turn out approximately half a million lithium-ion batteries every year. Mass-producing the batteries, the car's costliest component, will help lower the price of both Tesla and rival manufacturers' EVs.


A real-life Tony Stark.

With Elon Musk at the helm, Tesla Motors is primed to become one of America's greatest success stories. A serial entrepreneur, Musk made his billions investing and taking leadership roles in such tech endeavors as PayPal and SpaceX. Besides combatting carbon emissions with his line of EVs, his other ambitious goals include the construction of the so-called Hyperloop--a rapid transit system that, if realized, will zip commuters between Los Angeles and San Francisco in about 30 minutes--as well as a permanent human colony on Mars.

However these other pursuits unfold, it's nearly guaranteed that history will rank Musk in the same category of top American automobile innovators as Henry Ford, Ransom Olds, Walter Chrysler, the Dodge brothers and Lee Iacocca.

 

Author: Frank Holmes

Frank E. Holmes
Chief Executive Officer
Chief Investment Officer
U.S. Global Investors

Frank Holmes

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure.

The company's funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper's top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper's top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories.

Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of "The Goldwatcher: Demystifying Gold Investing."

He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies.

Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron's, The Financial Times and other publications.


Please consider carefully a fund's investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Copyright © 2010-2014 Frank Holmes