Open Innovation for the Electric Vehicle Market

Ford and Tesla have offered their patents for licensing in the hope of increasing electric vehicle (EV) adoption and improving the supporting infrastructure. In contrast, Toyota is banking on fuel cell vehicle (FCV) technology. The broader automotive innovation game is being won by “connected cars” at the moment because consumers are unwilling to pay more for physical car features, but they are influenced by software related innovations. Technology companies are now entering the car sector with their own EVs. This is leading to competition to access the talent needed to drive innovation and a willingness to open up technology investments. By opening their patent portfolio, Ford could be sharing their existing inventions in the hope that their technology is adopted more quickly and of acquiring the talent needed to be at the forefront of innovation.

“Open sourcing” the EV market

Ford was able to generate some positive PR with their announcement that they will be opening access to their electric vehicle patent portfolio in the expectation of driving innovation. While it’s been reported that they’re following in the footsteps of Tesla and Toyota, there are some differences and additional factors that are worth noting.

Outside of the honourable intention of promoting clean energy technologies, it’s important to look at the other innovations and behaviours in the automotive industry that tie into this story. Advancements in the “Connected Car” have brought the telecom and software industries into the automotive market and have positioned them as a driving force in car innovation. Some of the leading telecom and software companies have car ambitions of their own and they are skilled at acquiring talent to fuel their R&D.

By sharing IP, Ford is putting their innovations front and centre which has the potential to lead to more standardization in the EV market. This would give them a long-term advantage as the original patent owner. This move may also make Ford look more attractive to EV engineers who might feel they would have a stronger influence at Ford than they currently have in Silicon Valley. By pulling back the curtain on IP for EV, Ford is announcing they have every intention of competing in the innovation game.

The EV IP “open source” breakdown

Tesla was the first to open source their IP portfolio about a year ago. Their overarching statement was the EV market needed more innovation and by sharing their patents for free “in good faith,” more creative ideas would surface and propel the industry forward. Additionally, this move by Tesla has the potential to lead to a quicker adoption of their supercharging stations and greater standardization for the EV industry. While there has been some discussion around what “in good faith” means, their position is the promotion of the EV infrastructure and this move is to invite others to enter into licensing agreements with the hope of evolving and standardizing EV technology. There may also be a defensive component to their announcement.

Toyota announced the release of some of their IP in January 2015 and they are focused on Fuel Cell technology and their vision of the “hydrogen society.” They are allowing royalty free (until 2020) use of approximately 5,680 FCV-related patents. Their intention is to improve the infrastructure supporting FCV by creating more hydrogen fuel stations.

These are two different technologies that are reliant on competing infrastructures.

Ford announced that they too wish to promote innovation and increase the rate of adoption of EV technology by licensing their patents. “Innovation is our goal,” said Kevin Layden, director, Ford Electrification Programs. “By sharing ideas, companies can solve bigger challenges and help improve the industry.” They’re sharing their ideas through licensing agreements which is very similar to what Tesla is doing, but a license fee will have to be paid so it is not pure open source play.

The rise of the “Connected Car”

Connected cars are a point of convergence for the automotive, software and telecom industry. A recent McKinsey & Company report “What’s Driving the Connected Car,” stated that while the cost of ownership for vehicles won’t change, vehicle connectivity will lead to a major increase in the value of connectivity components and services:

“While technological advances have driven the automotive sector for decades, this dramatic acceleration as a result of connectivity has the potential to significantly alter the competitive landscape. Companies from the software and telecommunications sectors are already entering the automotive market, and a new McKinsey report finds that original-equipment manufacturers need to act now to secure control over critical industry sectors.”

This means consumers are unlikely to be willing to pay for more expensive automotive features, but they will be expecting innovative features around connectivity and that’s where they’ll see the value in their investment. This shifts innovation influence away from the automobile manufacturers to the telecom and software industry.

Both Google and Apple have entered the car market outside of connectivity components with their own automotive ambitions. Google is currently working on a self-driving car and buying robotics technology start-ups to support that effort. It’s also interesting to mention that in 2013, Google almost purchased Tesla, when Tesla was struggling financially, but the deal never went through and Tesla was able to rebound. Apple has been rumoured to be working on an electric car under the name “project Titan,” but they may be suffering a talent shortage because it was reported in February that Tesla has been able to recruit roughly 150 employees from Apple. It’s also important to note that Tesla has pioneered not only the EV technology but also dramatically moved the car User Interface to meet the needs of the “Smart Phone Generation”.

The talent needed to be competitive

In order for car manufacturers to compete in the new connected car market they need to be more inventive and they need creative talent. Google and Apple are likely to be more attractive to the Silicon Valley types who may not look to Detroit as a place to innovate. Tesla isn’t seen as a traditional automotive company so they have a leg up in recruitment attractiveness compared to the traditional car manufacturers. However, EV technology is an area attractive to engineering talent which is probably why Ford announced that they are hiring 200 new EV engineering positions.

Leveraging IP to boost adoption

Ford and Tesla benefit greatly if the IP around their EV technology becomes adopted as mainstream. The same goes for Toyota with FCV. As more players enter the market they can build on Ford, Tesla and Toyota’s existing technologies (while paying licensing fees, promising to avoid legal actions or cross-licensing) and accelerate innovation and adoption.

Asserting IP while giving it away

The Silicon Valley giants have tremendous financial resources and leading design and software engineering capabilities but they will need access to the broader automotive IP from the big car manufacturers to enter this sector. Could the announcement from Ford, Tesla and Toyota actually be targeted at Google and Apple rather than to their traditional automotive rivals? Could it be that they were also flexing muscles in addition to promoting technical collaboration to advance R&D and accelerate market adoption?

Watching IP strategies and allegiances emerge as the high-tech and automotive giants battle it out will be fascinating over the next 5 years.