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TheStreet Open House

Why Tesla CEO Elon Musk's Patent Move Is Political Genius

Stock quotes in this article: TSLA, NSANY, CCGI

NEW YORK (TheStreet) -- As the media fawn over Elon Musk for opening up the Tesla (TSLA) patent portfolio and quote him as being concerned about global warming, few observers have called the move what it is: a public-relations stunt. One contributor at TheStreet astutely pointed out that nothing, indeed, has changed at all.

Why? Because Musk expects other companies to use Tesla's patents only in "good faith," which Musk later clarified in a conference call as meaning, "If car companies use Tesla patents, in turn the companies should not complain if Tesla uses theirs."

But that's how it is already with patents. If there's an agreement, nobody sues. So in the end, nothing has changed. Then what was the point? Obviously it was a PR stunt, but PR for what exactly?

Tesla has been battling state legislatures for years to be able to cut out the dealer middlemen and sell directly to consumers. Some state-level politicians are not happy about this because dealerships contribute a lot of campaign money, and selling directly to consumers hurts their business.

If electric car companies want to make their vehicles more affordable to the masses, then selling directly to consumers is a great, fast, and necessary way to cut costs so people can actually drive the things. Technological improvements are necessary as well, but they will be much slower in coming compared to a lightning quick cut-out-the-middleman move.

Tesla has engaged in several key battles with state governments for the right to sell cars directly to consumers. First there was a victory in North Carolina last year. In March a compromise was reached in New York to allow existing stores to remain open on condition that new stores only be operated through dealerships. That battle is not finished. Then in April, a similar compromise deal was etched out in Ohio allowing 3 direct-to-consumer stores. Just this month, Tesla won back the right to sell direct in New Jersey. On the Federal level, three FTC officials have expressed support for Tesla's direct sales model.

Victories have been won, but serious problems remain in large States such as Texas, which forbids selling cars without middlemen. Musk may win this battle yet, because Gov. Rick Perry wants Tesla's $5 billion battery factory deep in the heart of Texas. It's unlikely he'll get it unless Perry lets Musk sell cars there.

So what does this have to do with "opening" the patent portfolio?

It looks very good, generous and environmentally responsible to sacrifice one's patent for the sake of the electric car industry. It will buy Tesla points with the public on both sides of the political aisle and will help Tesla convince state governments to let it sell cars directly to consumers. There is no better way to apply political pressure than to get the public to love you.

Was it a coincidence that two days after Perry's speech, Musk opens the patent drawer? Maybe. Perhaps the intent was to get Congress to move on legalizing direct selling on the federal level for the electric vehicle industry. That would solve the problem much quicker than battling state by state.

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