First watch the following clip (click on the link below) from an interview with
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Question
First watch the following clip (click on the link below) from an interview with Elon Musk, the CEO of Tesla Motors, where he discuss the reason that Tesla will no longer enforce their patents.
https://www.youtube.com/watch?v=Hr3HiOTudro&feature=youtu.be
Why do you think the CEO made this decision and in the long-run has he made the right decision for his company?
You should discuss his claim that this was an altruistic decision.
This interview was from 2015. You should see what new developments may have occurred with Tesla Motors since the interview when you think about whether he made the right decision for the company. Hint: Think Economies of Scale.
Explanation / Answer
Tesla is an automobile company that is committed to reducing the carbon footprints by developing environment friendly electric cars. Its website claims that Tesla customers have contributed towards reducing CO2 emmission by around 2.6 million tons. However, Elon Musk's decision to open up its patents to the rest of the automotive industry is not meagerly based on some altruistic consideration. Tesla is not manufacturing electric cars but in the process is creating a whole new industry segment within the automobile industry. Currently the electric cars that are being made by conventional manufacturers are more from a regulatory compliance perspective than from a strong long term business model perspective. Elon Musk believes that customers are not just willing to buy electric cars but they also prefer electric cars over the conventional gasoline cars provided they are more affordable. By opening up its patents, Tesla is actually attracting the bigger and traditional automobile players to the electric car segment. They can use Tesla's IP and further contribute in developing the electric car technology so that eventually it leads to better and more affordable cars.
Looking at the performance of the company over the past two years since making this announcement, it does seem to have created the right interest in electric cars. In 2014, Tesla sold about 22000 cars and in 2015 it was around 35000 cars. However, with increasing sales, it also looks like the company is not able to cope up with the increasing manufacturing pressure and is facing massive production issues. It is significantly short of meeting its aggressive plans to manufacture 5000 cars every week. Traditional automakers have good experience and well defined systems and processes to efficiently manage production lines. Competition from companies like General Motors is also eating into its market share. It is also mounting its quarterly losses and its stock price which has also falled by close to 20%.
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