Does Open Source Pay off in the Plug-in Hybrid and Electric Vehicle Industry? A Study of Tesla's Open-Source Initiative

Yihan Yan ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: In June 2014, Tesla, a leading manufacturer of electric vehicles, announced it would make its software and hardware available for free to other automakers. This paper analyzes the effect of Tesla's open source initiative on the plug-in hybrid and electric vehicle (PHEV) industry in the US. On the one hand, open source allows PHEV manufacturers to use the advanced technology of Tesla, which could lead to lower investment costs and a higher incentive to invest. Open source also partially removes the entry barriers and could attract more entrants and induce economies of scale, leading to decreased manufacturing costs. On the other hand, underinvestment of Tesla's rivals may occur as a result of free riding, which could result in slower quality improvements in the industry. I quantify these impacts by estimating a dynamic structural model, where players make investment and entry decisions to maximize discounted future returns. My results show that Tesla's initiative was beneficial for the industry and Tesla. I find a 60% drop in investment cost, and a decrease of 100 million in entry cost into the PHEV industry. Counterfactual analysis shows that, had Tesla not provided open source, the industry would have had 33% fewer PHEVs and Tesla would have had one billion less in profit.

Keywords: Open Source; Dynamics; Quality; Differentiated Products; Discrete Choice; Automobile Industry (search for similar items in EconPapers)
JEL-codes: L11 L15 L62 (search for similar items in EconPapers)
Pages: 41
Date: 2020-10
New Economics Papers: this item is included in nep-com, nep-dcm, nep-ene, nep-ind and nep-tre
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