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What Tesla Learned From Google About China

When Tesla Motors (TSLA) CEO Elon Musk steps into the game, he’s playing it on a whole different, multidimensional, probabilistic level.

Tesla China
Source: Tesla Motors

Which means when it comes to Tesla, China had better watch out.

As explained by Musk in an articled he penned for Bloomberg Businessweek magazine, business is a like a chess game where “The rules aren’t set, and the same moves don’t always make you win. A lot of people can be really good in a set-piece battle; my biggest differentiating skill is I can invent new pieces.”

The “new pieces” Musk and company have invented already have changed the world, and they have garnered him a lot of patents over the years.

Tesla Motors Electric Cars Sales Strategy in Chinese Market
Source: © ChenRobert /cofkocof

Now, however, Musk is in a position to focus on strategy while forgetting about those patents. He now has famously relinquished his patents, a move put into context brilliantly by InvestorPlace Deputy Managing Editor Kyle Woodley.

In his statement announcing the Tesla patent stance, Musk wrote:

“Technology leadership is not defined by patents, which history has repeatedly shown to be small protection indeed against a determined competitor, but rather by the ability of a company to attract and motivate the world’s most talented engineers. We believe that applying the open source philosophy to our patents will strengthen rather than diminish Tesla’s position in this regard.”

So, Tesla Motors is going to essentially give away its patents — and that might be one of those multidimensional probabilistic chess moves that Musk needs when doing business in strategically treacherous China.

How Google Might Have Taught Tesla Something About China

I am going to put on my speculative cap here for a moment and try to play chess on Elon Musk’s level. Yes, I know I am not worthy, but if I am able to capture even a few of his idea pawns it might give us a little insight into what could be described as a sort of lessons learned by Tesla from Google (GOOG) about China.

First, we all know that Tesla has big plans to produce and to sell its all-electric vehicles in China. China’s low-cost manufacturing advantages are a big draw for just about any technology company, the most famous of which is Apple (AAPL) and its relationship with Chinese production company Foxconn.

We also know that when it comes to China, no patent is really safe anyway.

In a country that essentially looks the other way when it comes to intellectual property law, Tesla’s battery-powered vehicle technology is sure to be reversed-engineered. Musk knows this, so the TSLA move to basically give away its patents renders any real material threat of cheap copycat Tesla knockoff basically mute.

Second, Musk knows from his investor partners at Google — co-founders Sergey Brin and Larry Page (Brin and Page were in on the third round of initial financing for Tesla pre-IPO) — that China is very protective. China has increasingly imposed shutdowns of Google, including heavy censorship before the 25th anniversary of the Tiananmen Square protests and subsequent government crackdown in the country.

Google doesn’t like having restrictions, and that basically has put Google in an adversarial position with respect to the Chinese government.

Musk doesn’t have this situation. He has embraced Chinese lawmakers, and that’s because he wants a hassle-free place to make and sell the unique, high-end all-electric luxury vehicles.

The fact is China, with its über-rich class that’s getting richer each year, is a millionaire haven. According to a report by The Boston Consulting Group, China now is just behind the U.S. in the number of millionaires in the world.

What this means is that there are a whole lot of Chinese with enough money to buy a Tesla, and that means a huge market for Musk and company.

Of course, the other important thing to keep in mind is that in China, the well-heeled consumer doesn’t want any kind of knock-off gear. They want the real-deal brand name stuff.

Musk knows this, and that’s why he’s putting his chess pieces in position now to take advantage of both the luxury market in China, as well as the low-cost production.

Sure, he’ll likely be copied, but with his patents out in the open, he has little to fear from theft.

Now that is what I call playing chess on a multidimensional, probabilistic level.

At the time of this writing, Jim Woods was long TSLA.

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