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TheStreet Open House

How Tesla Wins on Elon Musk's 'Controversial' Patent Promise

Updated from 11:48 a.m. to include additional analysis in the fifth paragraph.

NEW YORK (TheStreet) –– Tesla Motors (TSLA) CEO Elon Musk delivered on his promise to bring something "controversial" to Tesla, regarding its patents, making them available to anyone "for the advancement of electric vehicle technology." While that may further Musk's promise of electric vehicles being more prevalent than they are currently, it may prove to be an even better decision for the stock.

Thursday, Tesla Elon Musk made good on a promise he made earlier this month, opening the company's patents to competitors for the betterment of the electric car market as a whole.

"Tesla Motors was created to accelerate the advent of sustainable transport," Musk said in a blog post, discussing the move. "If we clear a path to the creation of compelling electric vehicles, but then lay intellectual property landmines behind us to inhibit others, we are acting in a manner contrary to that goal. Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology."

Shares traded down on the news initially, but after some time to think about it, analysts seem to believe that by moving to an open model, similar to what Google (GOOG) has done with its Android operating system, Tesla gains a competitive advantage not just for the Model S, but the Supercharger network as well.

Topher Morrison, Managing Director at Entrevo USA, a growth accelerator firm, believes Musk did the right thing, as times have changed. "If you think this controversial move by Musk and Tesla doesn't make sense, think again," Morrison said in an article obtained by TheStreet, discussing the matter. "We're now living in the collaboration economy and your competition is now your ally. It's time to stop competing and start collaborating. Partner with the competitors in your industry by creating key relationships with the right people who have the right skills and can properly complement your strengths. "

"We believe the opening of patents is incrementally positive as the decision could ultimately increase the adoption of electric vehicles while supporting faster development of the supercharger network," Baird analyst Ben Kallo said in a research note, following the decision. He rates Tesla "outperform" with a $275 price target. 

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Musk has been adamant in the past about the advancement of the electric vehicle market, noting that Tesla is just one company, and ultimately, he'd like to see many, many more vehicles on the road. The issue at hand isn't to challenge other electric vehicles, such as General Motors'  (GM) Chevrolet Volt (a hybrid) or the Nissan (NSANY) Leaf, but rather all internal combustion engines.

"We need all cars to go electric," Musk said during the question-and-answer portion of the company's shareholder meeting, held earlier this month. He stated there are about 2 billion cars around the world, with 100 million sold every year.

The South African-born Musk is taking on an enormous task, noting that the problem is more about the betterment of society than just selling more cars.

"Given that annual new vehicle production is approaching 100 million per year and the global fleet is approximately 2 billion cars, it is impossible for Tesla to build electric cars fast enough to address the carbon crisis," Musk noted. Despite this altruistic view, Musk believes that Tesla's position will be strengthened, rather than hurt, by making the company's patents open source.

Though Tesla has experienced exceptional growth with its Model S sedan, which has won numerous awards, the Model S is merely a drop in the bucket for overall car sales. Last year, the company delivered 22,500 Model S vehicles around the world. This year, it hopes to deliver 35,000, a miniscule amount to the 100 million new vehicles sold every year around the globe.

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