How Musk's Engineering Obsession Outpaced Patents in the EV Race

Tesla, under the leadership of Elon Musk, has not only revolutionized the automotive industry but also provided a masterclass in Philip Fisher's investment philosophy: "Constant leadership in engineering, not patents is the fundamental source of protection."

Tesla's journey began in 2003, but it was Musk's entry in 2004 that set the company on its revolutionary path. While traditional automakers jealously guarded their innovations behind walls of patents, Musk took a radically different approach. In 2014, he announced that Tesla would not initiate patent lawsuits against anyone who wanted to use their technology "in good faith."

This move seemed counterintuitive to many. After all, weren't patents the lifeblood of technological innovation? But Musk understood something deeper - something that resonated with Fisher's wisdom. He recognized that in a rapidly evolving field like electric vehicles, the true competitive advantage lay not in legal protections, but in the ability to innovate faster than the competition.

Think of it like a race. Patents are like setting up roadblocks for your competitors. But if you're running fast enough, you don't need roadblocks - you'll be too far ahead for them to matter. That's the essence of Tesla's strategy.

By focusing on constant engineering innovation rather than patent protection, Tesla has maintained a significant lead in crucial areas like battery technology, power electronics, and software. While competitors were still figuring out how to match Tesla's 2012 technology, Tesla was already working on their next breakthrough.

This approach has paid off handsomely for investors. Since its IPO in 2010, Tesla's stock has delivered a return of over 20,000%, turning it into one of the most valuable companies in the world. But more importantly, it has allowed Tesla to maintain its technological edge in a fiercely competitive market.

Consider the Model S Plaid, introduced in 2021. While other automakers were just beginning to match the performance of Tesla's earlier models, the Plaid set new benchmarks in acceleration, range, and charging speed. This wasn't achieved through some closely guarded patent, but through relentless engineering innovation.

Tesla's story illustrates the profound wisdom in Fisher's quote. In today's fast-paced technological landscape, patents can quickly become obsolete. A company that relies too heavily on patent protection might find itself resting on its laurels while more agile competitors race ahead.

It's like the difference between building a fortress and training an army. A fortress might seem impregnable, but it's static. An army, constantly training and evolving, can adapt to new threats and seize new opportunities. Tesla chose to build an army of engineers rather than a fortress of patents.

This doesn't mean patents are worthless. They still play a role in protecting specific innovations. But Tesla's success shows that true long-term protection comes from creating a culture of constant innovation - always pushing the boundaries of what's possible.

For investors, the lesson is clear. When evaluating technology companies, look beyond their patent portfolios. Ask instead: Does this company have a culture of constant innovation? Are they leading in engineering, or just defending old territory?

The race doesn't always go to the one with the most patents, but to the one who never stops innovating. And that, my friends, is the kind of company that can really generate some high-voltage returns for your portfolio.