Tesla recently announced record sales in 2022, delivering 1.3 million vehicles during the year. Despite this apparent success, the value of Tesla shares dropped by 65% and cut more than $700 billion from the firm’s market value, outdoing losses of the wider market by some margin. The electric vehicle (EV) pioneer faces fierce competition from established automakers in a market that is rapidly growing. At present, IP is an underappreciated as an asset in the EV industry. We suggest IP will become crucial as the importance of this market grows, and that investors and management should start paying attention to IP now.
Elon Musk’s Tesla sold its first EV in 2008. Although prohibitively expensive for the general public, the price of EVs has fallen in recent years and consumer uptake has concurrently grown. 75% of cars sold in Norway in 2021 were EVs, as were 28% of all vehicles in Europe. Over one quarter of all new cars sold in the UK in December 2021 were EVs, an increase from 2% in December 2019.
This growth has been supported by governments keen to encourage ‘clean’ driving. Incentives for buying EV’s have included tax credits, reduced interest rates on loans and exemption from emissions-based restrictions. The UK Government has gone so far as to commit to ending the sale of petrol and diesel cars by 2030, whilst the EU has set out ambitious regulatory targets to reduce emissions output of vehicles up to 2030. One prediction suggests the EV market will be worth $1,299.3 billion by 2030 arising from a combined annual growth rate (CAGR) of 19.8%.
Intellectual Property is an underappreciated asset
Against a backdrop of such dramatic growth, technologies that support the EV market will rise in value too. Yet IP comes currently across as currently an underappreciated asset within the EV sector. Whilst Toyota holds a leading patent portfolio arising from its headline position in the hybrid cars and concurrent substantial investment into battery powered vehicles, it may well be the exception. Tesla, despite being the leading EV manufacturer by market share, holds far fewer patents and its founder has given free reign for others to use them.
At present, the industry lacks clarity on what patents are owned by who. Market participants seeking to get ahead in their understanding would benefit from an inquiry into the patent landscape and its corresponding economic mechanisms in the EV market. In addition, EV manufacturers may seek to collaborate and explore ways to extract value from the IP and find avenues to adequately manage their IP.Individual firms may also seek to increase the value of their IP position through acquisition, as Google did through acquisition of Motorola. What roles intermediaries and in particular patent assertion entities will play in this sector remains yet to be seen. Given the high potential for standardisation within the industry it is likely the overarching question as to how to value standard essential patents and appreciate the FRAND (fair, reasonable and non-discriminatory) agreement may also arise here. So far, this sector lacks a position or point of view on the issue.
Standards and Patents
Whilst not yet present, the interoperable nature of EV use means standardisation could emerge. For example, vehicles of different marques will use the same public charging facilities and proposals for exchangeable battery packs would require technological standardisation to ensure compatibility between marques. A parallel can be drawn with the wireless communications sector, where disputes around standard essential patents (SEPs) and the FRAND terms on which they are to be licensed have been prevalent in the last decade. EV manufacturers would benefit from an assessment of their own portfolios to understand how standardisation and corresponding patent portfolios might affect them.
The EV market remains young but is entering a period of substantial and sustained growth. Prudent investors and managers should be proactive in understanding their own and their competitors’ patent positions. Those able to appreciate the risks and opportunities first will be best placed to profit as the EV market grows.
OxFirst has assisted clients in innovative industries to utilise their IP for over a decade. Our patent valuation services help businesses understand the patent landscape they operate in, the strengths and weaknesses of their own portfolio, and potential commercialisation opportunities.