NEW YORK (TheStreet) -- Forget the “let’s make our patents free” announcement. Tesla (TSLA - Get Report) made a far more interesting comment during its conference call Thursday: officials met with BMW to discuss… something important.
First, let’s backtrack. What happened? Tesla announced that it was going to make its patents freely available.
This had been widely anticipated. However, I think it was also anticipated there would be a greater PR or other marketing stunt around it. Perhaps there should have been some requirements on those who would use the patents to buy batteries from Tesla’s upcoming battery factory, thereby generating an “Intel Inside” effect greatly benefiting Tesla.As it turns out, there was no such thing. Tesla just pulled its pants down for free. But wait, there’s a quirk! Tesla says that it will not sue any company that uses its patents, but only if they do so “in good faith.” Well, what do they mean by “in good faith”? On the conference call, Tesla clarified that it meant that if car companies use Tesla patents, in turn the companies should not complain if Tesla uses theirs. Well, other than that, Mrs Lincoln… In other words, let’s say Nissan (NSANY) were to use Tesla’s technology. This would allow Tesla to use Nissan's patents, or else. Maybe I’m missing something but that sounds pretty much like it’s always been. In other words, the two parties would have to come to an agreement regarding intellectual property, either privately or following litigation. What this means is that I don’t think much has changed on the patent front, as a result of this announcement: “Yeah, you can use our stuff, but if you do, then we can use yours too, or else…” At a minimum, this development does not appear to support the investment thesis of those who believe that Tesla is going to become some sort of Qualcomm (QCOM) in terms of generating profits from its electric car and battery pack patents. In addition, Tesla did not even get a revenue tie-in with its future battery factory, or equivalent. Therefore, while not much changes in practice from this patent announcement, I viewed it as a negative to Tesla’s valuation. No patent income stream and no leverage to other parts of the business. I think this shaves a double-digit percentage off the company’s valuation, compared to the market’s expectations.