Desperate Toyota does a Tesla

Let go to take control.

That’s what Elon Musk did with the patents on his Tesla brand of electric cars. That’s what Toyota has done now with its patents on fuel-cells, releasing 5,680 licenses for royalty-free use at the Consumer Electronics Show in Las Vegas on Tuesday. It said in a statement, “Toyota aims to go one step further as it aims to promote the widespread use of [fuel cell vehicles] and actively contribute to the realization of hydrogen-based society”, whose initial market introduction period it expects will last until 2020.

The release comes at the start of a year when the carmaker’s Mirai sedan is set to hit American and European markets. Mirai is Toyota’s first mass-market FCV. Fuel-cells power electric motors in cars by drawing on the energy released during a reaction between hydrogen and oxygen, whose only other by-product is harmless steam. The Mirai can travel 650 km without refueling. Despite the glaring environmental benefits of using such a device, the FCV economy’s biggest stumbling block is the safe transportation of hydrogen from production units to supply stations. The gas has very low density, which means sufficient quantities can be stored only in pressurized containers, and reacts explosively with air.

Accordingly, of the 5,680 licenses released, 1,970 have to do with fuel-cell stacks, 3,350, with fuel-cell ‘system control technology’, 290 with high-pressure hydrogen tanks and 70 with hydrogen production and supply.

While electric vehicles like those manufactured by Musk’s Tesla Motors have already hit the road in many countries with reliable infrastructural support, FCVs are far behind. To date, the only other commercial FCV (apart from the Mirai) is Hyundai’s Tuscon/ix35, while Honda, Audi, Mercedes and Nissan have piloted concept vehicles. The biggest deterrent to wider uptake has been the cost: $700-1,100/kW in October 2014, second only to photovoltaics and wind turbines. A US National Renewable Energy Laboratory report in 2007 discussed why it was high:

the infrastructure needed to enable the widespread use of hydrogen as a transportation fuel is not available, resources are located outside demand areas, and the methods of producing hydrogen from renewable resources face many technical and economic hurdles. All these barriers must be overcome if hydrogen is to fuel a sustainable transportation economy.

On the bright side, the cost in 2002 was $5,500/kW. Moreover, Europe – one of the two big markets for FCVs – has decided to spend $1.58 billion (current prices) under its Fuel Cells and Hydrogen 2 Joint Undertaking program in the period 2014-2024.

As a result, Toyota’s decision is different from Tesla’s in terms of what it hopes to achieve: Tesla wanted its competition to organize itself so Tesla could challenge them on familiar terms. Toyota wants its competition to realize itself and so help spur the hydrogen economy – a far more ambitious goal. If not, market introduction of FCVs will extend way beyond 2020, when the royalty-free-use licenses expire.

Elon Musk’s altruism powertrain is just good business

In 1907, the Serbian-American inventor Nikola Tesla sold all his patents to Westinghouse, Inc., for a heavily discounted $216,000, including one for alternating current. In 1943, he died penniless. In 2014, another Tesla has given away its patents but signs are that this one will be way more successful. Through a blog post on June 12, Elon Musk, the CEO of Tesla Motors, announced that his company would be releasing all the patents it held on the brand of successful electric vehicles (EVs) it manufactures. A line in the post indicates he wants to avoid future patent-infringement lawsuits, but this belies what Musk is set to reap from this ‘altruistic’ gesture.

Patents cut both ways. They safeguard information and prevent others from utilising it without paying its originators a license fee. On the other hand, patents also explicitly earmark some information as being useful and worth safeguarding over the rest. Even after open-sourcing patents on the Tesla EVs, Musk is still the proprietor of a lot of technical and managerial information – “the rest” – that his competitors are not going to master easily. By releasing his patents, Musk is not levelling the playing field as much as he’s releasing knowledge he thinks is crucial to develop zero-emission vehicles.

Shared knowledge

In fact, the battery-swapping station he showcased in 2013 was an idea borrowed from the Israeli entrepreneur Shai Agassi, who was Musk’s biggest competitor until his EVs company went bankrupt in 2012. Agassi had conceived battery-swapping a decade earlier to resolve the issue of range anxiety: the apprehension that gripped EV-drivers about how long the batteries in their cars were going to last. Unfortunately, the Israeli flunked while executing his plans. Musk not only installed the stations but also integrated it into his network of 480-volt Superchargers, of which he now has 90 in the USA, 16 in Europe and three in China.

Nevertheless, after Agassi’s departure, Tesla was king in a kingdom of frozen lakes. As Musk wrote in his post: “electric car programs (or programs for any vehicle that doesn’t burn hydrocarbons) at the major manufacturers are small to non-existent, constituting an average of far less than 1% of their total vehicle sales.” Without competition, Tesla both controls a market as well as leaves no room for errors for itself and witnesses no competing innovation to help support growing opportunities. While the charge capacity and efficiency of present lithium-ion batteries are nowhere close to being as high as the industry requires them to be, the Superchargers and the Panasonic cylindrical battery cells whose use Tesla pioneered are still unique and desirable. Now, Big Cars like GM and Ford could leverage the patents to crawl into the EVs market – and hopefully keep it from imploding.

Setting standards

Another way for Tesla to reap benefits from Big Cars is to latently guide them to model their products around the mould Musk has perfected in the last seven years. By releasing his patents, Musk has pushed a nascent industry toward one of its understated inflection points: standardization. Hardware standardization modularizes architecture, jumpstarts innovation, sets a benchmark for consumer expectations, and makes for easier adaptation of new technologies. For example, the Joint Center for Energy Storage Research was established by the US government in 2013 with one goal to compile an ‘electrolyte genome’, a database of electrolytes aimed at EV manufacturers. Minimally changing hardware specifications makes JCESR’s work easier.

After all, the Tesla Model S costs $70,000-$80,000, and the Tesla Roadster, $110,000. As much as they have sold in the thousands, the only way they can sell in the millions is if they are as accessible as fossil-fuel-powered cars. Musk may be leading the way but he’s reliant on costly subsidies on battery packs, refuelling and maintenance. If he has to keep them up, he has to make the business of batteries and refuelling profitable. While his decision to release Tesla’s patents could help keep the EVs industry alive, its existence feeds his supercharger network and batteries’ use.