A Study of Patent Open Source Strategies Based on Open Innovation: The Case of Tesla

Most high-tech companies take strict strategies to protect their patents, while traditional patent protection strategies often need to face the challenges such as the slow conversion of patented technology. The patent open source strategy is to free the patent to the user for free and is usually with conditions ac-cording to certain rules, such as GNU and GPL contracts, etc. This strategy greatly encourages technology sharing and innovation, and changes the logic of intellectual property protection. At present, the patent open source research in the computer field is relatively common but not yet matured in other high-tech fields. Tesla is a representative of patent open source strategy in the field of non-computer high-tech. In addition to analyze Tesla’s patent open source strategy, this article can also be referenced by other high-tech fields as well as China’s new energy vehicle industry, and provides a reference for formulating long-term development strategies of which.


Introduction
As an exclusive monopoly right granted by law to innovators, patents have been seen as a means of promoting economic development and enhancing the strategic competitiveness of enterprises. More and more companies are realizing the importance of patents and are protecting their intellectual property rights by applying for patents or even forming patent pools. However, a patent can only have value if it is applied. Individuals or enterprises outside of the patent owner's ownership that wish to apply a patent generally have to go through a complicated and lengthy negotiation process and obtain a patent license. This can lead  (Chen, 2018).
Since open source is derived from Computer Science area, the open source problem is focused more on software or hardware intellectual property issues than that of other areas of high technology (Taeihagh, 2017). What's more, the advantages of patent open source are not sufficiently noticed. The current opinion is mainly focused on shorting the negotiation process of patent licensing and promote the transformation of patented technology, but the advantages of patent open-source in improving the strategic competitiveness of enterprises, such as the implementation of technology standardization and other aspects, have not made a profound study yet (Chen, 2018). Furthermore, although patent open source can put an end to patent trolls, it poses other potential risks, such as undermining strategic competitiveness that patent holders and users, in particular, have to worry about (Maggiolino, 2013).

User Group Building
Tesla's main market positioning is the urban middle-class group. These people are generally well-educated, have a strong ability to accept new things and a better sense of environmental protection, and have a certain consumption capability. Tesla's characters of high-end, stylish, energy-efficient, technology-filled functional design, and outstanding power perfectly fit their demand. As for the marketing business, Tesla currently provides services such as vehicle sales, technical maintenance and charging. Tesla will also be able to maintain its users by convenient and fast charging service. As of March 2020, Tesla had deployed 1870 supercharging stations and 16,585 Superchargers in the worldwide, and all are continuing to grow. In the early years, Tesla used to offer customers free charging for the duration of their car cycle, yet this service was no longer available for customers joined after September 17, 2018, which was replaced by a free charging allowance of 400 kWh per year. An automotive media Electrek estimated that it would bring Tesla an annual revenue of $50 million to $100 million in energy sales. Tesla has also designed a marketing strategy based on charging services: buying Tesla vehicles through referral programs, both referrals and new owners will be rewarded with a certain amount of charging credits.

Financing
Tesla has had a lot of success in the financial markets. In 2009, Tesla received several rounds of financing through pre-sales of Model S-Series model, getting $10 million in pre-sale funding and 2000 pre-orders. In the same year, Tesla sold 10% of its shares and received a $50 million from Daimler, the parent company of Mercedes-Benz. 2010 was another year. Accepted a $50 million capital injection from Toyota, and on June 29 of that year, Tesla went public on the Nasdaq, via an IPO Achieving $189 million in financing. This money gives Tesla, which is in its infancy, a good start.
In addition, Tesla is also actively creating capital flow through financial methods such as more waves of stock offering. In January 2020, the Tesla Shanghai Gigafactory started to assemble new cars, and the first batch of new cars rolled off from the production line. Subsequently, Tesla successfully issued an additional 2.65 million shares at $767 per share in early February 2020 and raised approximately $2 billion. As a result of all these good news, Tesla's stock surged, soaring to about $920 per share in just one week, even squeezing many short sellers to hopelessness.

R&D (Research and Development)
With sufficient funding, Tesla can reveal its strong R&D capabilities and keen Tesla has spent the last decade taking on rivals in the two key performance parameters of electric vehicle: acceleration and mileage and has an absolute competitive advantage on them. As 0 -100 kph acceleration, Tesla's Model series electric cars has progressed from 5.6 seconds to 2.5 seconds and even its electric Trucks can also break the three-second barrier. Tesla's 2010 S1 memo shows that the automaker wasn't yet able to commercially produce electric car with above 140 miles mileage, but back then Tesla set a goal of 300 miles. That goal seemed a bit ahead of schedule at the time, but put into today's perspective, it shows exactly what Tesla has accomplished in a decade. In 2020, Tesla applied for a new patent for a battery-a battery that has more than 5000 cycles of charge and discharge and a total of Lithium-ion battery modules with a lifespan of up to 1.6 million kilometers, four times the battery life standard of mainstream electric vehicles. Accordingly, over the past decade, Tesla has been raising the bar and pushing the boundaries of the industry as technical support for its patented open source strategy. The result is an absolute technological advantage over competitors worldwide.

Profit
Tesla's entire vehicle sales are highly profitable. Munro & Associates' 2018 report, The Tesla Model 3 Benchmark Report, notes that a $50,000 high-spec Tesla Model 3, with hardware costs of $34,700, logistics and labor costs of about $300, so the profit is about $15,000. The profit of a regular Model 3 is about $10,000. Therefore, the gross margin of Model 3 is 30%, and a net margin of which is about 15%. In contrast, other car companies, the gross margin of Toyota and Honda are less than 20%, while some German and French car companies' gross margins are often only about 10%, hardly even close to Tesla's net margin.

Technology Standards Promotion
Traditional technology companies have used patent pools and patent alliances to construct patent barriers to serve their markets. And no matter how advanced a patent is, it is only valuable if it is fully used. Tesla understands this, and has liberalized the use of patents through a patent open source strategy, and is practicing the Internet's great spirit "free, equal, open and share". At the same time, Tesla grasps the high point of technology standards and uses its own open source patents to open up more and more potentialpatent pools to create a "shared, rapidly evolving technology platform". On the other hand, Tesla combines software (Tesla technology patents and technology standards) with hardware (Tesla electric vehicles and charging stations), creating a strong Tesla ecosystem. The more companies that use Tesla's technology, the higher market share Tesla grabs, and the more Tesla's technology is recognized, and its brand value has increased accordingly. The increase in goodwill has strengthened investor confidence while winning the consumer market for Tesla. Tesla is standing tall amid chronic losses.
Charging stations are also an important tool that Tesla relies on to promote technology standards. As mentioned above, Tesla has deployed 1870 supercharging stations and 16,585 fast charging piles worldwide. Ostensibly, Tesla's move is to provide convenience to its customers and promote the sale of its own electric vehicles. In reality, for those electric vehicles companies interested in Tesla, they mustuse Tesla's already open-source technology patents as long as they use off-the-shelf fast chargers deployed by Tesla. They also accept the technology standards that go with it, especially in terms of charging. Tesla is definitely not without rivals when it comes to charging technology.
Challengers like Lucid in the US and Porsche in Germany are positioning themselves in the premium electric sports car market with their Lucid Air and Porsche Open Journal of Social Sciences Mission E, but both of them have not officially released yet. On the contrary, Tesla has not only achieved mass production of various types of electric vehicles, but also deployed a large number of fast charging stations around the world. In terms of technology alone, even if Tesla's charging technology is surpassed, Tesla is still able to take advantage of its huge fast charging base and mature fast charging system and technical cooperation platform to continue to maintain competitive advantage.

Problem in Practice
Unlike other high-tech companies, Tesla, while also aggressively pushing tech- Tesla has had a significant technological advantage for more than a decade, but Tesla's competitors are also growing up. Tesla's competitors have been catching up on technology, getting closer in some key areas such as car power and charging speed, and even overtaking Tesla, making it increasingly difficult to maintain the lead. For example, Tesla's BMS battery management system faces competition primarily from GM, while Tesla's highly publicized Autopilot Technology that isn't as efficient and reliable as the GM Super Cruise and Infiniti L2. Once Tesla lost its technological edge, not only will it affect its own technology to seize the high ground of standardization, but it also won't be able to use its own open source strategy to attract more patents, and the technical platform Tesla designed will eventually go bankrupt.
Tesla's opening its patents for free use does not mean unconditional. Users Capacity bottleneck is something Tesla can't ignore, which remains a major constraint to Tesla's development, posing new challenges to Tesla's ability to integrate supply chain strengths and resources. The global electric vehicle market suffered a cold winter in 2019, with annual sales of 2.21 million units, up 10 percent year-on-year and well below the 65% in 2018. Back then, Tesla sold 360,000 units worldwide and produced only 350,000 units, leaving a capacity gap of about 10,000 units. Tesla can encounter capacity bottleneck even during industry winter, and is unlikely to be able to handle the likely market growth in the coming years. What's more, without enough capacity, orders can't be delivered in time for Tesla to collect the final payment, and Tesla will need to continue to raise money to maintain a stable cash flow. This will not only increase the cost and risk of accessing capital, but will also correspondingly affect the business model based on its patent open source strategy negatively. These are all things that Tesla needs to worry about.
The final procedure of Tesla's business model is the whole vehicle business. In addition to some of the negative factors analyzed earlier, Tesla is also facing challenges in the whole vehicle business. At present, many local new electric vehiclecompanies supported by China, such as Xiaopeng and NIO, generally have both strong power performance and long mileage closing to Tesla, but with more competitive price. Plus, in 2020, Tesla is affected by negative information such as hardware downgrade scandal in China, which greatly affects Tesla's reputation and offends its customers. If the feedback result of these negative factors is a decline in vehicle sales and a decrease in market share, Tesla's sales, profitability and capital flow back will be negatively affected, and the sustainability of Tesla's patent open source strategy will be affected as well.

Conclusion
The concept of open source originates from the computer industry, usually re- and potentially large patent pools with just a handful of its own patents, make them free for its own use in the name of building a "shared, rapidly evolving technology platform", and then use the advantages of unified technology standards, vehicle sales and so on to beat other competitors. Tesla's plan is not hard to arouse public's vigilance, which can be evidenced by the attitude of many countries' governments towards Tesla: China and some European countries have reduced or even cancelled the subsidy of cars targeted at Tesla, and are really cautious about Tesla's plans for both factory building partnerships and charging station deployment.