China Testing Elon Musk's Open Patent Strategy - China Ripping Tesla Off

By Jacob Shindler - Blog

Last week, the automotive press was abuzz – and more than a little puzzled – over the debut of the Youxia X, a Chinese-built electric vehicle (EV) with what appears to be an eclectic set of influences. Most prominent is that of the Tesla Model S: the sedan has been described variously as a ‘clone’, ‘copycat’ and ‘rip-off’ of the US company's best-selling model. While closer scrutiny of the start-up suggests that it is not a serious competitor to Tesla commercially (for the time being, at least), the launch of Youxia's new model provides a useful reminder of why automakers create intellectual property in the first place, and why they should hold onto it even as they embrace more collaborative approaches to innovation.

The Youxia X was unveiled to the media in Shanghai on July 26th. The initial reaction was confusion, given that journalists had expected to meet a sports car called the Youxia One (the company’s investors reportedly didn’t enjoy the surprise, either). The X, by contrast, is a four-door sedan inspired by KITT, the sentient car from the US television series Knight Rider. The name Youxia, it turns out, comes from the Chinese title of the NBCUniversal-owned series, while the Youxia X features an operating system called KITT OS and a holographic front grille that can be programmed to display KITT’s signature red running lights.

Potential copyright and trademark issues aside, observers immediately seized on the car’s resemblance to the Tesla Model S. An analysis by Car and Driver ticks off the similarities: the same track and wheelbase dimensions, a “dead ringer” interior, including iPad-like central display with the same graphics, a skateboard-style chassis which bears a “close resemblance” to the Model S’s, and wheels which are virtually identical.

Moreover, Youxia and its 28-year-old CEO Huang Xiuyuan have made no secret of their desire to build the ‘Chinese Tesla’. According to Car News China, the start-up has openly admitted that it used part of its development budget to buy a Tesla Model S and strip it down in their Shanghai facility. Huang claims that the Tesla chassis is still at his factory and was not used to make the Youxia X, but the close similarity and the fact that press were not allowed to photograph the car’s interior have fuelled speculation that the company has done exactly that.

Perhaps most revealing of Youxia’s intentions is this slide that Huang showed at the launch event. It translates to: “Thank you Tesla for opening up your patents”. The CEO stopped short of actually saying that Youxia is practising on Tesla’s assets, or specifying which ones. But depending on how one observes the situation, it may well seem that Youxia has interpreted the US EV maker’s vaunted pledge (not to sue any company which uses its patents “in good faith”) as an invitation to a free-for-all on Tesla technology as well as its design elements.

It is hard to imagine this is what Tesla had in mind when he taled about "good faith", especially given that imitating the look and feel of the Model S does little to advance EV technology itself which is the apparent motivation behind its 'open patent' undertaking. But then again, if Youxia has got the wrong idea, perhaps it is partly because Tesla’s pledge was pretty vague in the first place, with the exact meaning of "good faith" never having been specified.

Of course, Tesla’s approach to intellectual property is likely more nuanced than some of CEO Elon Musk’s comments might suggest. This blog reported last year that Tesla has in the past monetised its patents by using them as collateral for loans, so it clearly appreciates their potential as a value-creator for start-ups at some level. Moreover, as one recent analysis points out, large parts of the company’s most important technology are protected either by trade secrets or by other companies’ IP rights: "Much of the key tech that the firm runs on is not patented. […] Tesla’s advantage in the EV market is in its batteries, and it doesn’t even own most of the patents related to the tech in the cells. […] They’re owned by firms like Panasonic, which Tesla works with to make batteries fit for its cars.”

Tesla may not feel the need to go after Youxia, given that it seems unlikely to become a serious competitor. This is a company which reportedly has just 25 R&D staff, no factories or equipment, a reliance on crowdfunding, a bunch of angry investors and a product that has been covered negatively in both Chinese and foreign media. But even if it only proves to be a minor headache, Tesla may want to consider whether a bit more clarity about its ‘openness’ might prevent similar misunderstandings in the future. Then again, if a company which more directly threatens Tesla’s market share comes along and starts using Tesla’s patents, it might be glad it has left itself some wiggle-room with its open-ended policy.