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Tesla’s Latest Move Shocks the Auto Industry

Technology companies typically guard their patents with the might of a thousand dragons.

In fact, patent lawsuits have dramatically spiked in recent years as companies rush to protect intellectual property.

We’ve even seen the emergence of “patent trolls.” That is, companies or individuals that file patent applications with an eye toward eventual litigation, simply to block the progress of other companies.

Heck, look at the action from just yesterday alone…

Teva (TEVA) settled a case with four rival companies that were infringing on the patent for its wakefulness drug, NUVIGIL.

Nintendo won a case against Triton, which claimed that the Wii Remote infringed on a patent the company filed back in 1993.

Oh, and Facebook (FB) won a trial against a Dutch computer scientist, who had accused the company of infringing on a “web page diary” patent from the 1990s.

Such single-day action is normal in this age where patents rule the world, which makes Tesla’s (TSLA) latest move so hard to fathom. In fact, it could be the craziest idea since Napoleon tried to take Moscow during a Russian winter.

I’ll concede that Tesla just defied logic in every way imaginable. But here’s why the company’s latest maneuver is actually brilliant…

It’s brilliant because it speaks to the “second place sucks” mindset of the company and its owner, Elon Musk.

In his own words, here’s how Musk just stood the automobile industry on its ear…

“Yesterday, there was a wall of Tesla patents in the lobby of our Palo Alto headquarters. That is no longer the case. They have been removed, in the spirit of the open source movement, for the advancement of electric vehicle technology. Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.”

Musk isn’t so much helping other electric car manufacturers as he is trying to crush them.

Nissan just broke a monthly sales record by selling 3,117 plug-in Leafs in May. Meanwhile, the Chevy Volt delivered 1,684 units in May, up only marginally on the 1,607 delivered a year ago.

Toyota’s Prius Plug-in Hybrid sold 2,692 units in May.

Together, that’s far less than 1% of all automobile sales.

So before Tesla can crush the market, it needs a viable market to crush. The cart can’t go before the horse.

Musk is smart enough to know this.

Everyone wants to know if I’m bullish on Tesla.

Well, with shares trading at $234 and the company still operating at a net loss, the potential of the plug-in market has clearly been priced into the stock. But not fully priced in…

Heck, the fact that BMW just entered the market last winter means that manufacturers are still seeing dollar bills. Lots of them.

My analysis suggests that Tesla is 10 times more likely to hit $300 than it is to fall beneath $193, the level at which shares peaked in October 2013. I’d say that’s bullish.

Onward and Upward,

Robert Williams
Founder, Wall Street Daily

Robert Williams