The Making Of Tesla: Invention, Betrayal, And The Birth Of The Roadster
Mike Nudelman/Business Insider
Mike Nudelman/Business Insider
Tesla Motors probably shouldn't exist.
The last successful American car startup was founded 111 years ago. It's called Ford.
Barely a decade old, Tesla is already gigantic and adored. Its market capitalization hovers around $28 billion. Morgan Stanley calls it "the world's most important car company," and a 2014 nationwide survey found that Tesla's Model S was the "Most Loved Vehicle in America."
So how has Tesla flourished where others have flopped?
Today, everybody thinks Tesla was created by its charismatic CEO, Elon Musk, a PayPal cofounder who is the face of the company.
The truth is way crazier than that.
Tesla was the brainchild of a tiny band of obsessive Silicon Valley engineers who would go on to collaborate with - and collide with - the young billionaire.
This is the tale of that collision.
In reporting the story, Business Insider conducted several in-depth interviews with most of the key players and pored over little-noticed documents made public in a lawsuit. We also met with a curious lack of cooperation from the usually press-friendly Tesla Motors.
This is Tesla, the origin story.
AP Photo/Mark Lennihan
Try And Touch The Dashboard
In the summer of 2004, a product designer named Malcolm Smith got a call from a hardware guy he used to work with, one Martin Eberhard.
"I can't tell you what we're doing," Eberhard said, "but why don't you come check out this car I have."
Smith headed over to Eberhard's tiny office in downtown Menlo Park, California. Eberhard and his partner, Marc Tarpenning, showed Smith a rough business plan and some rough specifications for a new car they wanted to build.
Not just any car: an electric car.
Smith was skeptical, quizzical, curious.
He realized that Eberhard and Tarpenning didn't need to reinvent physics; they just needed to combine barely available technologies to form a technological breakthrough.
"Well," Eberhard said, "let's go for a ride."
He hopped into this strange tiny yellow car with Eberhard.
A decal on the side read "tzero," a reference to "To," a symbol that mathematicians use to denote the beginning of time within a system.
As they pulled onto Sand Hill Road, the now famous thoroughfare that's home to Sequoia Capital, Kleiner Perkins, and every other venture capital firm you've ever heard of, the hobby car was noticeably quiet.
Eberhard slowed the car to 10 mph.
"Try and touch the dashboard," he told Smith.
As Smith reached out, Eberhard hit the accelerator.
Smith's hand never made it to the dash. The tzero, an all-electric two-seater built by AC Propulsion, could leap from zero to 60 in under 4 seconds. G-forces threw Smith deep into his seat.
That's when it hit him. "I get it," Smith thought. "This isn't a nice little science experiment."
It was a highly technical vehicle.
No other car gives you 100% torque in an instant, he realized, but a high-performance electric ride does.
Another realization: Not all electric cars are clown cars or golf carts, even if the auto industry didn't have the will to show otherwise.
Smith would become one of the first 20 employees of Eberhard's new car company. His official title: vice president of vehicle engineering for Tesla Motors.
As Eberhard's young company grew, he'd continue to ask would-be recruits to touch the dashboard, before throwing them into their seats with the torque of an electric sports car, properly unleashed.
The Roadster, Tesla's flagship sports car, made waves when it was released in 2008. Car and Driver said, "It is not just a car, but one of the strongest automotive statements on the road."
The Model S, the sports sedan released in 2013, earned the distinction of Motor Trend Car of the Year. That year, the Model S outsold the Mercedes Benz S Class, the BMW 7 Series, and every other large luxury sedan.
But Tesla really began around 1990.
An engineer named Marc Tarpenning was working for Textron in Saudi Arabia. On a visit home to his native California, he met up with a longtime friend, Greg Renda, who worked for Wyse Technology in San Jose. Renda insisted that Tarpenning come into his office to see the terminals that Wyse was working on.
There he met Martin Eberhard, an engineer whose energy, thoughtfulness, volubility, and charisma were immediately apparent. Eberhard commanded a room. Tall and lanky, he brought Abraham Lincoln to mind for some, at least when he grew out his beard.
Tarpenning was a different animal: shorter, quieter, unassuming, but with an intensely dry sense of humor.
They quickly became friends, having long dinner-party conversations about the nature of government.
"He was always trying some new gambit to see how to hack the rules," Tarpenning told Business Insider.
Eberhard would take the same approach to entrepreneurship.
Mobile products were clearly becoming a thing.
Crucially, battery efficiency was ramping up. Tarpenning called it "slow Moore's law." Instead of doubling in power every 18 month, as was the case with processors, batteries doubled in power every 10 years.
This got the two thinking: Could they start a company to take advantage of all this technological momentum?
What product could benefit from a better battery?
They settled on an electronic book.
After all, this internet thing was going to allow people to buy books. Displays weren't perfect, but they were getting better. Amazon.com was selling people physical books, Tarpenning remembers thinking, but you could also buy an image of those pages, which at the time would download smoothly on 9,600-baud modems.
By late 2000, they had a serious itch to start another company.
About the same time, Eberhard got divorced.
"I was thinking that I should do what every guy does and buy a sports car," he told Business Insider, but "I couldn't bring myself to buy a car that got 18 miles to the gallon at a time when wars in the Middle East seemed to somehow involve oil and the arguments for global warming were becoming undeniable."
The better option, a high-performance electric vehicle, didn't quite exist.
He started sorting through energy options, building out a spreadsheet with every power source he could think of. Hydrogen fuel cells, various kinds of gasoline and diesel, natural gas, several types of batteries. His calculus: How much of the energy that comes out of the ground makes your car go a mile?
"The results were quite startling," Eberhard recalled.
For one, "Hydrogen fuel cells are terrible. Their energy efficiency is no better than gas."
And two, "Electric cars were head and shoulders above everything else," he said, "even if you made the electricity out of coal."
He started looking into the electric-car hobbyist community and came upon AC Propulsion, a boutique electric-car maker that was doing lots of consulting for the major car companies in light of California's zero-emissions mandate. They had this bullet of an electric sports car called the "tzero."
In the original Tesla business plan, Ian Wright, the company's first VP of vehicle development and original car guy, rhapsodized about the power of the tzero:
The first time I drove the AC Propulsion tzero, I was immediately struck by the way the power didn't fade as the car accelerated - it felt like a race car in first gear, but a first gear that just kept going and going, all the way to 100 mph.
The second revelation was how quickly I came just to expect the power or engine braking to be there when I wanted it - not even to think about downshifting. The power control had become as simple and instinctive as basic steering control.
Thirdly, at the end of the run, I was amazed at how smooth, precise and easy the speed control was a parking speeds. After all, I'm still in the same gear I was just using to do 100 mph, and there's not even a clutch! How can this be? But it is.
Intrigued by the tzero, Eberhard invested in AC Propulsion with hopes of getting a copy of the car.
He thought about joining forces with the company. With his skills and AC Propulsion's expertise, they could make a production-level electric car rather than a hobbyist vehicle. But he soon realized it might be impossible to mesh his ambitions with the culture of the firm. He considered launching his own enterprise.
But if the electric car was so powerful, why wasn't the auto industry taking advantage of it?
Well, some of the big boys had taken a big swing and missed.
GM said it gave it its best shot with the EV-1, star of the 2006 documentary "Who Killed The Electric Car." The Washington Post reported that GM had spent over $1 billion developing it.
And there was a lingering problem: The EV-1 could never get out of the green ghetto.
GM said it couldn't market the car to anyone other than environmentalists and tech enthusiasts.
"There is an extremely passionate, enthusiastic and loyal following for this particular vehicle," GM spokesman Dave Barthmuss told The Post. "There simply weren't enough of them at any given time to make a viable business proposition for GM to pursue long term."
Nearly all the EV-1s, which had been leased, were repossessed. Many were crushed.
Plug In America, Wikimedia Commons.
To Tarpenning, the auto industry was sleeping on its would-be killer app: taking full advantage of electric power.
"One of the things we kept running across was these articles that would say the reason why electric cars will never succeed is that battery technology has not improved in a hundred years," Tarpenning said. "Literally, articles would say that, and it's true of lead acid batteries."
Yet it's not true of lithium-ion batteries.
"They get better, on average, at around 7% a year," Tarpenning said. "It goes in fits and starts as they roll out new chemistries ... They get cheaper and better."
So if he and Eberhard positioned the company the right way, they could ride the current of technological history.
"What that [dynamic] implies is that you can design stuff now, and unless that trajectory is broken for some reason, you can be assured that, over the next 10 years, everything just gets better for you," Tarpenning said. "Everything becomes easier, and it just keeps getting easier and better, cheaper, higher energy density, perhaps higher power density depending on what you're looking for. You want to be in industries where everything gets easier for you."
By the summer of 2003, Tarpenning and Eberhard knew that they wanted to found an electric-car company, starting with a two-seater sports car and then moving into more accessible markets.
As their research - and Martin's ride in the original tzero - suggested, electric motors allow cars to do things that internal-combustion engines are terrible at, such as generating oodles of torque the moment you stomp your foot on the accelerator, or employing regenerative braking, where the energy usually lost when the car slows down is fed back into the car's battery.
By the time summer hit, they knew they wanted to put together a two-seater sports car with lithium-ion batteries and an induction motor.
"We had no experience making cars, and we had a lot to learn," Eberhard said.
They had a realization: The automotive ecosystem had quietly made itself inviting to startups.
"We discovered that in the preceding 20 or 30 years, the car industry had completely refactored itself," Tarpenning said. "It turned out that no car company made windshields anymore. They always bought them from the windshield makers, and the rear-view mirrors were purchased from the rear-view-mirror makers."
The car companies had even outsourced their electronics people, he realized, since they didn't think that was a part of their core competency. They really only kept the internal-combustion-engine design, final assembly, and sales and marketing on the inside, plus auto financing, which is where they made most of their money anyway. Even styling was outsourced.
They'd always been confident about the electronics half of things - that's what Silicon Valley does - but they'd worried about the Detroit stuff, the nuts and bolts of automobile manufacturing.
Now it seemed the manufacturing partners were already there. They just needed to connect with them.
"In previous iterations, whether it was DeLorean or Tucker or whatever, which we were constantly asked about, those people really had to either sell their souls to get into GM's part bin, like DeLorean did, or they had to actually manufacture their own windshield wiper blade," Tarpenning said. "All of that stuff you can just buy now. You have to be Ford to get a good price, but at least you don't have to have an engineering group trying to make a windshield wiper motor. That would kill us."
After all this education, Tarpenning was convinced it was time to start an electric-car company.
On Jan. 25, 2003, Eberhard went on a date to Disneyland with Carolyn, his now wife. They walked around the park, settling into the Blue Bayou, a restaurant inside the Pirates of the Caribbean ride.
It was about as romantic you could get at Disneyland.
He had been pitching her on car-company names for months, but the right branding proved elusive. This was to be a high-performance car that happened to be electric, so any overly "eco" or "engineery" name sounded tone-deaf - volts, surges, and leaves would be set aside. It would have to be easy to say and remember, and sound like a car company, not another high-tech startup.
Eberhard wanted to give credit to the man who patented the type of motor he planned on using, the AC induction motor, invented by the Serbian-American genius Nikola Tesla.
He said to her, "What about Tesla Motors?"
Her reply: "Perfect! Now get to work making your car."
On April 23, 2003, Tarpenning bought the domain name Teslamotors.com.
On July 1, 2003, they incorporated.
That August, Eberhard and Tarpenning moved into the company's first office in a professional office building in downtown Menlo Park, California. Eberhard said that before they rented the office the sign said "Bushtracks African Expeditions," whatever that was. So they just turned the sign over and wrote the car company's name on the back: Tesla Motors.
Workshopping The High-Performance Electric Car
Heading into the fall of 2003, Eberhard and Tarpenning set upon refining their idea before making formal pitches to investors, people they would have one shot at showing their outlandish idea.
They came up with an alternative strategy for workshopping the Tesla business plan. They would mock-pitch it to VCs who would never consider Tesla, acquaintances they knew from three rounds of NuvoMedia financing who invested only in optical routing or website designs.
By looking through their original plan, we can see the arguments they made to would-be investors.
Martin Eberhard v. Elon Musk, Tesla Motors
In the opening lines of the executive summary, the company promised it would build high-performance electric sports cars.
"This sounds impossible - both the idea of building cars in the first place, and further, the idea of building a high performance electric car," the plan read. "But key technologies have recently been developed that make electric cars suddenly very attractive, and the international business climate makes it now possible to build a 'fab-less' car company - a car company without a factory."
The summary went on to enumerate the promised Roadster's vitals:
? 0-60 mph in less than 3.9 seconds
? World-class handling
? 100 mpg equivalent
? Zero tailpipe emissions
? 300 mile range
? Zero maintenance for 100,00 miles (other than tires).
? A selling price less than half that of the cheapest competitive sportscar.
The plan described the electric sports car as a "disruptive" technology, borrowing a phrase from Harvard professor Clayton Christensen. The Roadster would provide the value of a high-end sports car at a lower cost to the customer and a lower resource cost to the planet.
Martin Eberhard v. Elon Musk, Tesla Motors
The plan argued that "with a gasoline engine, performance comes with a big penalty - if you want a car that has the ability to accelerate quickly, you need a high-horsepower engine, and you will get poor gas mileage when you are not driving hard."
This would not be the case with Tesla.
"On the other hand, doubling the horsepower of an electric motor from 100 hp to 200 hp only adds about 25 pounds, and efficiency is, if anything, improved. It is therefore quite easy to build an electric car that is both highly efficient and also very fast."
Therein lies the disruption.
"At one end of the spectrum, the Tesla Roadster has higher efficiency and lower total emissions than the best of the most efficient cars," the report said. "At the other end of the spectrum, the Tesla Roadster accelerates at least as well as the best sports cars, but it's six times as efficient and produces one tenth of the pollution."
With the business plan finally completed, the pitch honed, and the presentations prepared, Eberhard and Tarpenning were ready to try raising money in earnest.
As VCs volleyed back with challenges, Eberhard and Tarpenning saw that there were details they hadn't thought through.
The Tesla partners also realized that they'd need to position themselves as palatable to both Democrats and Republicans. Those on the left would see benefits in decreased fossil-fuel use, while those on the right would see a path to energy independence.
Another breakthrough: They quickly realized they couldn't possibly build an entire car - the human and financial costs would be way too much. They wouldn't have to. Instead, they'd simply build on top of, and within, an existing car.
That appropriation is not uncommon in the auto industry. The tzero was built upon the Piontek Sportech kit car.
The car needed to be small. The batteries were barely good enough, Eberhard recalled, and any heavier automobiles would rein in the car's range. Plus, he reasoned that the motor should be behind the driver for the sake of weight distribution and safety, so he focused the search on companies that made lightweight midengine cars.
Founded in 1952, Lotus had made a name for itself by building Formula One race cars and slick consumer sports cars.
Lotus had its financially separate Lotus Engineering division, so they were already working with other carmakers. Eberhard briefly considered going after Porsche, which has a similar consulting arm, but he remembers the German company's rate being three times that of Lotus.
So the Lotus Elise it was.
The tiny British sports car had already been used as a base by other companies. The Vauxhall VX220, also known as the Opel Speedster in Europe and the Daewoo Speedster in Asia, was built on the Elise chassis.
Dec. 28, 2003, the two founders muscled their way into the Lotus booth, introduced themselves, and invited a member of the Lotus team to drive the tzero.
That same winter, Eberhard went back to AC Propulsion and sketched out a license to use some of the company's technology in the development of Tesla's motor and controller.
With those pieces put together, the new year of 2004 became the time to start pitching to VCs in earnest.
Actually Raising Funds
The thing about having a product that's really "out there" - like building an electric sports car, as opposed to launching a messaging app - is that it screams risk to possible investors.
In raising their first round in 2004, Eberhard and Tarpenning secured small investments from family, friends, and a handful of VCs, but there wasn't anybody to lead the round, to make the gigantic keystone investment to allow the young company to rapidly start maturing.
But there was this one guy.
By this time in 2004, Musk was already deep into SpaceX, though the company had yet to successfully launch anything into orbit.
Eberhard had previously made a handshake deal with the head of AC Propulsion, agreeing that they wouldn't pitch to the same investors.
On March 31, 2004, Eberhard sent him an email.
"We would love to talk to you about Tesla Motors," he wrote, "particularly if you might be interested in investing in the company. I believe that you have driven AC Propulsion's tzero car. If so, you already know that a high-performance electric car can be made. We would like to convince you that we can do so profitably, creating a company with very high potential for growth, and at the same time breaking the compromise between driving performance and efficiency."
Musk replied that evening.
"Sure," he said. "Friday this week or Friday next week would work."
Eberhard and Ian Wright, the third member of their team, flew to Los Angeles, where SpaceX was based, and pitched Musk in his SpaceX office.
The pitch was supposed to be 30 minutes, Eberhard recalled. It lasted two hours.
Eberhard realized that Musk was the first guy he had met who shared his vision for electric cars: Make a vastly superior car, not just a car that sucks less.
A car like that would redefine what an electric car could be. And given the relatively small size of the sports-car market, a new automaker could have an effect on its first at bat, rather than trying to force its way into the crowded economy market.
Then, once the Roadster had destroyed the myth that electric cars had to apologize for being cars, Tesla could move into more accessible price points.
AP Photo/Jae C. Hong
Tarpenning was out in Washington, D.C., and he spent the weekend getting peppered with due-diligence questions:
"How do you know you're going to get your partnerships in line?"
"Can you really build the electronics for the proposed amount of money?"
Tarpenning returned to California, and he and Eberhard made a final pitch at SpaceX. Musk said he was in, but they would have to make it quick. His then wife was pregnant with twins, and once those boys came into the world he wouldn't have time to deal with the guys from Tesla.
The paperwork was quickly drawn up and finalized on April 23, 2004.
Musk led the $7.5 million round and became the chairman of the board.
It was time for Tesla to grow.
The way Ian Wright describes it, working with Lotus was an education in Tesla's ignorance.
The New Zealand-born Wright, who used to build and race sports cars back in the day, had come on as the "car guy" for Tesla when he joined as the third member of the team in 2003. Thin, thoughtful, and unavoidably from Down Under, Wright had equal parts Gandalf and Crocodile Dundee.
As part of the fellowship of Tesla, Wright's biggest responsibility was nurturing the relationship with Lotus.
The first time he visited the Lotus factory, in Hethel, England, he was amazed by two things. The first was the ingenious way Lotus had managed to intersperse Vauxhall 220s with Lotuses on the assembly line. The second was what a ridiculously difficult project Tesla had signed up for.
He was shocked when a Lotus engineer told him that it was easier to redesign an engine than remake a door. In what would become a theme for Tesla, seemingly simple parts revealed unending intricacies. You have to fit locks, switches, and windows into the confines of a door, all while keeping rain and wind out and getting that satisfying thunk when you close it. Perhaps most maddeningly, a would-be carmaker has to navigate manufacturing tolerances.
In car manufacturing, a tolerance is the allowed variation of some measurement in a part, whether it be a dimensional factor such as length or an electrical one like resistance. Part of an engineer's job is to make sure that the car's design will work within those tolerated variations - so that, for instance, the longest length of one part still works when mated with the shortest allowable version of another.
"All these things that we thought were easy were really not that easy," Wright said. "We didn't know anything about building cars."
What made things harder, of course, was that Tesla was trying to build a new kind of car. The Elise chassis would require tons of modifications - with Tesla's electric powertrain and battery pack included.
The other big task for Wright, who would amiably leave the company about a year after joining, was to form a relationship with AC Propulsion, the manufacturer of the tzero, which was so effective at convincing people that electric cars didn't have to suck. Tesla's original plan was to acquire the company and get its powertrain technology, motor tech, and the management system. The AC Propulsion executives didn't want to be acquired, but they agreed to a license deal instead.
With those partnerships in place, Tesla could start creating cars.
Designing The Roadster
Powell couldn't help feel skeptical. While Lotus was always a progressive company, he said lots of people would approach the carmaker trying to make their ill-conceived ideas into a reality.
"Most people outside of the industry have little idea how complex and difficult it is to design and develop a production vehicle, even one using conventional technology," Powell told Business Insider. "Don't forget, at that time, no one was making a high-performance electric vehicle, nor was anyone achieving adequate range. Their product was therefore out of the ordinary."
And Eberhard and Tarpenning - two dudes who blew up by making an e-book - were unconventional automakers, to say the least.
"They didn't have experience building production cars," he said, but "they knew they didn't have that experience."
After serving as the point of contact within Lotus for Tesla, Powell moved to the other side, taking a job as the VP of vehicle integration about six months after that first meeting. He acted as a bridge between the companies - he knew everything you could about the Elise, and he had worked intimately with the whole team at Lotus.
In those days, Lotus held a lot of the cards. Tesla was an unheard-of startup; Lotus was an established name in racing. Powell recalls that Lotus didn't want to do anything that might dent the reputation of its ace product.
The Roadster was to be new in a way that almost every other new car was not, Powell recalls, because when GM or Ford or Toyota wanted to roll out a product line, they were limited to a pool of parts from preexisting vehicles.
In that sense, a new car from one of the major manufacturers couldn't be truly new.
But the Roadster - with parts sourced from the dispersed ecosystem of auto manufacturers and Tesla's proprietary technology - was legitimately new.
With that came headaches and opportunities.
How would it look? Equally as important, how would it feel?
The following summer, Eberhard had a clear understanding of what he wanted the Roadster to look like, so he sent out his first call for design submissions.
The proposals that came back were "awful," he recalled. They were all loaded with doodads and thingamajigs that screamed "electric."
No matter how clearly he could picture the Roadster in his mind, he couldn't communicate the vision to designers.
The London-born Moggridge, now deceased, was something of an elder statesman of industrial design. He was a cofounder of IDEO, the legendary design consultancy. He's credited with styling the first modern laptop. He served as the director of the Cooper-Hewitt, National Design Museum in New York City.
In his upper-crust English accent, the Santa Claus-looking Moggridge spent two afternoons with Eberhard talking about what he wanted out of the car and the place it would have in the world.
The Tesla intrigued Moggridge because IDEO had designed almost every consumer product the world had seen, but never a car.
Ignoring the view of the Pacific stretched out before them, the two slowly untangled what this mystery car would look like. After a few glasses of wine, Moggridge suggested a way for Eberhard pinpoint his vision.
"OK, let's consider this axis, from retro to futuristic," Moggridge said. "On one end here's a car that's an electric car and on the other end, here's the car that's futuristic. Where would you want your car to be on that axis?"
Eberhard leaned toward retro. The Roadster needed to say "sports car" the moment you laid eyes on it, plus anything futuristic would put the vehicle in the uncomfortably crunchy territory of the Prius or Leaf.
"Here's another axis, masculine to feminine" Moggridge said. "Where do you imagine your car on that axis?"
In the middle, Eberhard replied. It should be appealing to men, but it didn't need to be a Mustang.
"Curvaceous or boxy," Moggridge said. "You could look at the classic old Ferraris, which are very curvaceous, and the modern Lamborghinis, which are very boxy."
"Where do you see your car?" he asked.
"Somewhere in between, but closer to the curvaceous end," Eberhard replied.
While the Roadster certainly leaned toward the future, it was designed to be rooted in timeless forms.
After all that articulation, Moggridge created a presentation. It was "magic," Eberhard said. Moggridge had translated his engineerspeak into something design people could understand.
Eberhard put out another call for styling, and this time people understood it.
Submissions came back, and he knew just the way to evaluate them.
For the company Christmas party, Eberhard invited the 15 other members of the Tesla team, advisers, and their families to a company holiday party at his home in San Mateo County. Aside from Elon Musk, everyone who mattered to the company was there.
Eberhard stripped his guest bedroom of anything but the white walls. On those walls he placed the sketches and computer renderings from the four design finalists. The guests were each given three red Post-it notes and three green Post-it notes.
He told his guests that red was bad, green was good, and they could put the Post-its wherever they wanted.
Throughout the course of the night, guests drifted down to the guest room, studied the designs, and placed their Post-its.
By the end of the night, one wall was full of green: that of Barney Hatt, then principal designer for Lotus Design Studio.
The Roadster had found its form.
The Roadster's First Flight
By November 2004, Tesla built their first "mule," an Elise stuffed full of Tesla technology.
In interviews with other employees, Straubel was repeatedly described as a wunderkind. The guy rebuilt an electric golf cart when he was 14. He had cofounded the Aerospace firm Volacom. The MIT Tech Review wrote that "more than anyone else, [Straubel] is responsible for the car's impressive acceleration," the engineer who engineered the Roadster's electronic controls, electric motor, and battery pack.
Pretty fitting, then, that he got the first ride in the first true Tesla.
The car was missing all its body panels, but it had a revised battery pack, software, and hardware.
Straubel hopped in and stepped on the accelerator. The mule rocketed down the pavement.
Everybody stood slack-jawed.
The wheels didn't fall off, the software didn't crash.
The Roadster, embryonic as it was, could drive, and drive like hell.
"The first fully functioning mule was the real proof of concept and would lead us to the production design," said Smith. "Any time you have some new tech that you're not sure is going to work or not, you get a little bit of that Wright Brothers feeling - it did get off the ground."
That proof helped secure more funding too. A $13 million Series B came in February 2005, led by Valor Equity Partners and Elon Musk.
The Roadster Meets The World
In the spring of 2006, Tesla was still in stealth mode.
But it's hard to stay stealthy when you're making something as crazy as a high-performance electric vehicle. The creators of the documentary film "Who Killed The Electric Car" had already come a-knocking, and more buzz was gathering around Silicon Valley.
Though it wasn't his quite his job, Mike Harrigan, who was brought in as VP of customer service and support, realized that the time for staying quiet had passed. Tesla needed to announce itself to the world. It would need to do something spectacular.
A publicity plan was hatched. Tesla hired one PR firm to set up the event and another to wrangle Hollywood stars.
On July 19, 2006, the Roadster had its debutante's ball at the Barkar Hangar in Santa Monica.
For Eberhard, the day was a "complete panic," between setting up the event, getting the whole team arranged, and taking care of the friends and family who had flown in from all over the world for the big day.
It was showtime.
Hollywood responded. The 350-strong guest list included Ed Begley Jr., Michael Eisner, and Arnold Schwarzenegger, who was then governor of California. Everybody who came to the party was told to bring a checkbook. Tesla would be taking preorders for what they called the "Signature One Hundred" - 100 cars sold at $100,000 each with the signature of the company's principles written on a plaque inside.
At the center of the hanger was a stage. A track looped around the inside of the hanger, went out the door, ran down the airport runway, looped around on a straightaway, then back into the hanger, as if you took a long rubber band, made a rough T shape out of it, and laid it on the tarmac of Santa Monica Airport.
By the end of the day, both cars were making some alarming noises.
The drivers were hearing a loud clunk in the back of the car whenever they punched the accelerator. The upper motor mount - which they had built out of magnesium - had broken. You couldn't see it by popping open the trunk; you had to crawl around inside the car.
"The cars nonetheless did a perfect service," Eberhard said. "From the audience perspective they didn't have a problem. Anybody who got into one of those cars had their opinion of electric cars instantly changed."
Stephen Casner was a friend of Eberhard's and a colleague when they both worked at Packet Design, attended the event. Now retired, Casner had a long-time interest in electric vehicles; he had once given Martin a ride in his own EV-1.
At the time, Eberhard was Mr. Tesla, Harrigan said. He was confident and knowledgeable enough to inspire a following, but nerdy enough to feel accessible.
Musk, who had nowhere near the cult following that he has today, was still finding his footing as a public figure. His presentation wasn't as free-flowing. He seemed nervous.
"Elon's ability to speak in public and convey the sense of the company was not nearly as good as what Martin had done," Casner said. "I don't know if its a matter of what language is used or colorful phrases. He just didn't seem to be nearly as effective in making people excited and believe in this trend."
As a result, Casner remembered, Eberhard was the one doing one media interview after another. He did dozens that day - some in front of a camera, some for radio, some for print, with some reporters just listening while he spoke with others.
In any case, the event worked.
Within two weeks of the event, Tesla had sold 127 cars, Harrigan recalled.
One of those was Stephen Casner's. On July 28, he and his wife gave Tesla a $100,000 check to become "Signature One Hundred Members," which meant they had a reservation for one of the Signature One Hundred special-edition Roadsters.
Congratulations on becoming a member of the Tesla Signature One Hundred
You have joined an elite circle of automotive visionaries who have chosen to reserve the world's first high performance, electric sportscar.
We look forward to delivery dates in summer of 2007 and will keep in touch with you on a regular basis regarding the status of the Tesla Roadster as well as Tesla Motors company updates.
As a Signature One Hundred Member, we welcome you to the Tesla Motors Family
The note was signed by Eberhard, Tarpenning, and Musk.
Meanwhile, the media plan appeared to be working.
The press was glowing. CNET reported that "as soon as the driver hits the accelerator, you are thrown back against the seat." The Washington Post raved "This is not your father's electric car. The $100,000 vehicle, with its sports car looks, is more Ferrari than Prius - and more about testosterone than granola."
The New York Times told readers that Tesla was making a car that was "very specialized, very expensive and very, very fast."
Eberhard was becoming a star. He was featured as a face of Research in Motion's campaign for the BlackBerry Pearl in 2006. His claim to fame, according to the ad, was that he "created the first electric sports car."
While the media attention may have been good for Tesla, it left Musk feeling neglected.
In an email to Harrigan on July 18, 2006, he wrote that he would "like to talk with every major publication within reason."
The way that my role as been portrayed to date, where I am referred to merely as 'an early investor' is outrageous. That would be like Martin [Eberhard] being called an 'early employee.'
Apart from me leading the Series A & B and co-leading the Series C, my influence on the car itself runs from the headlights to the styling to the door sill to the trunk, and my strong interest in electric transport predates Tesla by a decade. Martin should certainly be the front and center guy, but the portrayal of my role to date has been incredibly insulting.
I'm not blaming you or others at Tesla - the media is difficult to control. However, we need to make a serious effort to correct this perception.
Two days later, after The Times ran its write-up of the Signature One Hundred event, Musk felt slighted again.
"I was incredibly insulted and embarrassed by the NY Times article" - he wrote in an email cc'd to Eberhard and Harrigan on July 20, 2006 - "where I am not merely unmentioned, but where Martin is actually referred to as the chairman. If anything like this happens again, please consider the PCGC [public relations firm] relationship with Tesla to end immediately upon publication of such a piece. Please ensure that the NYT publishes a correction as soon as possible."
In a column about Tesla a week later, the paper of record gushed that "Martin Eberhard, the company's chief executive, recognizes that new technologies usually start out as high-end products. He and his team are making their car the newest hot gadget, a status symbol. If rappers and football stars buy them, maybe the company can make a dent in the market."
There was no mention of Musk.
"The first time we really bumped heads was over that press coverage of the debut," Eberhard said. "We had technical disagreements that we worked through, and it was always very collegial. We would work through our opinions and come to a conclusion. That was the first time where it was this emotional."
Shortly thereafter, Musk took Harrigan aside, letting him know that if he wanted to keep his job with Tesla, he'd have to start getting him some recognition.
A Bump In The Road
Eberhard thought that Tesla would start shipping the Roadster in 2006, ramp up to 500 cars by 2007, and be profitable by 2008.
He was off by a few years. The Roadster wouldn't ship until February 2008.
In October 2006, it seemed to Musk that the Roadster was at a crossroads: Tesla could either "sacrifice a six month first mover advantage in a market that is like the Internet circa 1992 (but slower moving) or focus every bit of energy on getting our product right," he said in an email.
"We have a tremendous number of difficult problems to solve just to get the car into production," Eberhard wrote to Musk that November, "everything from serious cost problems to supplier problems (transmission, air conditioning, etc.) to our own design immaturity to Lotus's stability. I stay up at night worrying about simply getting the car into production sometime in 2007."
When he'd originally promised a 2006 delivery date, Eberhard said, the Roadster was a lower-risk proposition. The original plan was simple: Tesla would supply the drivetrain components for Lotus to build. Production would be low cost and low friction. As Smith remembers, the idea was to reduce cost and headcount by sourcing as complete a vehicle as possible, then adding a few pieces of swank technology and finishing the car. They'd throw on a few body panels and make sure it didn't look like a Lotus.
But that didn't happen, thanks to what Smith called "elegance creep." They could keep making the car a little nicer, so they did.
The original plan called for Tesla to be responsible for five or so subassemblies in the car - discrete chunks of car that come in complete and are bolted on. Tesla would be in charge of the battery-pack subassembly, for instance, then Lotus would take care of most of the chassis (wheels, tires, shock absorbers) and Tesla would bolt on the parts.
But instead of Tesla being responsible for five assemblies, it wound up taking care of hundreds of them.
The complications began piling up.
They decided to go with a carbon-fiber body instead of a polyester glass composite. At Musk's request, they lowered the doorsills - the lowermost part of the door - to make it easier to get in and out of the car. They switched out standard headlights for bespoke ones. Musk thought that the seats were uncomfortable, so they were retooled. Musk didn't like the material of the dashboard, Eberhard recalls, "and wanted something less cheap." Then there was the transmission, which got delayed again and again. As Musk put it, the transmission "is not an inherently difficult item, but if you have two suppliers screw the pooch on you," then you're looking at some tardiness.
"Each of these is a reasonable decision," Eberhard said. "You have to consider that it's going to cost more money and cost on the schedule, and that was never accounted for."
With all those switches, Tesla became responsible for the entire supply chain of a diverse set of automobile ingredients.
"We had to figure out how to supply hundreds of components for a company in England by a team in Silicon Valley that had never done that before," Eberhard said. "That was the hardest thing that I didn't expect."
While all this was going on, Eberhard realized that Tesla would have to switch its bookkeeping to the enterprise software management system SAP, a project he recalls as a "bloody nightmare." All the while, Tesla rolled along without a chief financial officer. Between those factors, the finances at the company were getting "very murky," Eberhard said.
"I had never run a company that was getting that big," he added. "It was time for us to bring in some professional management capability."
Over dinner with Musk in San Carlos the following January, the night before the board of directors meeting, Eberhard floated the idea of bringing in a new CEO, pointing out that sorting out the company's financial picture and getting SAP up and running was beyond his skill level. He couldn't pull SAP together because of its complexity, and he couldn't get a handle on costs because SAP wasn't working.
And, oh yeah, there was the challenge of running the organization, which had grown to 140 people.
The next day at the board meeting, Musk and Eberhard pitched the idea of bringing in a new CEO so that Eberhard could focus on product, particularly the next car, codenamed "Whitestar," what we know today as the Model S sedan.
Eberhard received a lot of support.
"Several board members thanked me for my service thus far, and encouraged me to remain with the company in a technical and visionary role," he recalled. "It was a completely friendly discussion, with a couple of speeches from board members about how it was very much the normal course of a startup for the entrepreneur-founder to move into a different role as the company grew. Someone on the board cited Google as an example."
That same month, Musk traveled to Lotus Engineering headquarters to check on the progress of the Roadster - without Eberhard. According to Powell, the purpose of the visit would have been to "give Lotus confidence in the financial commitment so that Lotus would continue supporting the program."
"I'm sure you can imagine I find this a rather awkward situation where Elon has asked for Lotus' own view of the production timing of the project," Lotus Engineering director Simon Wood subsequently wrote to Eberhard.
According to Lotus, which bore much of the responsibility for the success of the Roadster and Tesla as a whole, the car that would change the world was already three months behind schedule.
In his presentation to Musk, Wood noted that Lotus was worried about the number of "concerns," or outstanding issues, with the Roadster, from production design to procuring parts to reliability testing. While 94 had already been taking care of, 846 remained incomplete in the tracking system.
Musk's voice grew more urgent after the visit to England.
Musk said the greatest value he saw in hiring a CEO is that it would allow Eberhard to concentrate on making the Whitestar and future models "superlative."
Stress was building - as is perhaps to be expected given the magnitude of Tesla's ambitions - but, fortunately, Musk and Eberhard were still on speaking terms.
"We certainly disagree sometimes," Musk wrote to Eberhard, "but 90% of the time are on the same page or can get there with a short discussion."
But according to employees who worked at Tesla at the time, Musk himself bore some responsibility for the Roadster's delays. While he had a keen eye for styling and always offered constructive feedback, he was rarely present in the office - which meant that his infrequent dictates created chaos.
"Musk wasn't the CEO, and he wasn't the president," Malcolm Smith, the VP of vehicle engineering, told Business Insider. He would "sweep in every few weeks" to see the development, learn the details, then want changes for a variety of reasons. And disrupt the workflow.
"It wasn't the most efficient way of working, because the development teams and the marketing teams moving along trying to get the job done," Smith said. "It was three steps forward, one and half steps back."
Tesla employees cited the doorsills, the door handles, and the seat as the primary Musk-related delays.
Powell said that the biggest challenge was the doorsill.
Doors, as we now know, are rather complex.
The shape of the aluminum chassis made getting in and out of the vehicle difficult, and Musk was adamant that they needed to lower the side rails by three full inches, Smith said. The original design required some yoga-style contortions on the part of the driver. If you had the ragtop on, you had to get in butt-first, fold yourself over your legs, get your head under the ragtop, and swing your legs into the footwell. Pretty hard to do gracefully.
Elon had spent some time with one of the mule prototypes, and Smith recalls that he was really trying to push the car into a swankier space - more accessible to potential buyers who were used to more elegant cars.
"This was going to be a $100,000 car," Smith said. "In that marketplace you're dealing with nicely refined vehicles, yet we're forcing our users to go through this gymnastics exercise."
Still, the structure of Elon's involvement made it a difficult situation to work in. While employees say that his reasoning for making changes was nearly always quite sound, he wasn't able to deliver his feedback in real time. The feedback came in chunks.
Meanwhile, Musk had heeded Eberhard's request to move out of the CEO role. Musk emailed about getting the CEO search started in earnest in February 2007. The executive search firm Russell Reynolds was engaged to pull in a successor.
But none of the candidates were good enough. And neither, apparently, was Eberhard.
Emails indicated that on June 13 he began receiving calls from reporters asking if Tesla's board was planning to hire a new CEO to replace him.
The "best strategy would be to get out in front of this and embrace it, just as Larry and Sergey did at Google," Musk advised in an email.
"I would be happy to correct the perception that you are being fired," he wrote later that day. "The objective fact is you brought up the CEO search yourself several months ago."
In August, Eberhard was speaking at a conference put on by the Motor Press Guild, the trade group for automotive magazines, when he got a call from a nervous-sounding Musk.
The Tesla board had held a meeting without him, Eberhard said, and decided that it was time for him to go.
"There was no discussion," Eberhard said. "I didn't get to hear what they said. I didn't get to defend myself. I felt totally stranded."
Eberhard had an uncle who was a lawyer, so he sought some insight from him. He learned that the board meeting had been held in violation of the company's bylaws. So the board agreed to have another board meeting via conference call so Eberhard could actually step down.
On Aug. 8, 2007, Eberhard resigned from his executive position, taking the title "president of technology."
Marks became the new CEO.
"I never figured out what was said about me to those people," Eberhard said.
Though he stayed on the board and remained on staff with the company, Martin was off everything but troubleshooting and tending to peripheral issues.
He'd been shut out of the company he founded.
The whole exchange was classic Musk, said Harrigan, the VP of customer service and support who would become the VP of marketing.
"[Musk] is the kind of boss where day to day you don't know if you have a job or not," he said.
"Once he's convinced that you can't do the job, there's no way you can convince him back again," Harrigan added. "That happened many times to many people, and that's what happened with Martin. Once he determined that Martin couldn't be the CEO of Tesla any longer, that was it. He was fired."
The Roadster Is Born
The divorce between Eberhard and Musk got messy - suits and countersuits were thrown in either direction.
It was messy inside the organization, too.
"There was a lot of turmoil after Martin left, " Harrigan said. "Everybody knew Marks was a temporary CEO until we supposedly found the right guy. He didn't know anything about electric vehicles or our business - he's manufacturing guy. He didn't try to do a lot of house cleaning. He just ensured that the company kept running."
Michael Marks had made a name for himself running Flextronics. In the 13 years he served as CEO, he expanded the company into 35 countries, made 100 acquisitions, and grew the manufacturer's annualized revenue from $93 million to about $16 billion. Like Eberhard and Musk, Marks was the kind of guy who could walk into a room and command everybody's attention. With a forelock of dark brown hair, Marks was your classic California executive. You could work with him for years and never see him wear a tie.
He had invested about $2.5 million in Tesla in 2007, simply because he had worked with Malcolm Smith at Flextronics, and stopped by to visit every few months.
Earlier in the summer of 2007, Musk had asked if he'd come in and serve as interim CEO. It wasn't going to be an easy gig.
"Clearly the cost of the product was going to be well beyond the opportunity to make any money," Marks told Business Insider. Plus, projections were being missed on a regular basis.
"That created a lot of distress in the company," he said, and so "Elon was concerned and asked if I would be willing to come in and stabilize it. I had made an investment in the company and it was obvious that my skill set would be valuable there in the near term."
Marks was never an elected officer of the company. He didn't take any pay, he never signed any paperwork to be the executive, and he wasn't officially "hired to be the CEO," he said.
The story of Eberhard's exit is the story of Silicon Valley, Marks said.
"Martin is a very good technical guy, and he had a vision, but he wasn't a particularly good CEO," Marks said. "But that's not the least bit unusual. Martin is an engineering visionary, not the guy to run a business. If he was, he would have done the things I did. He came up with a lot of the technical aspects of the car. Most guys who can do what Martin could do aren't very good at running businesses. Maybe they should have made that move earlier. The company wasn't getting the best use out of him, he was spending a lot of time running the business where he wasn't well equipped."
Marks likened his time at Tesla to a relay race: In the months he helmed the company, he did what he had to do to move the baton forward before passing it along - as Eberhard did before him.
"When I got there, the economics, the business structure were terrible." Marks said. "If it wasn't terrible, they wouldn't have brought me in."
Marks said he did three things for the company.
First, when he arrived that summer, Marks learned that Tesla was planning on bringing $30 million worth of materials to build the car in their California office, even though the product design wasn't finished yet. Realizing that disconnect, Marks promptly killed the shipment.
Second, Tesla had started doing R&D for other companies, just like Lotus Engineering did. But Tesla still didn't have its own car, so that had to go, too.
Third, within a few weeks of being hired on, he got all the executives in a room together and created what became known as the "Marks List," a tally of 30-some items that needed to be completed before the Roadster could be shipped. Then each item was assigned its own caretaker on the executive team, and weekly meetings were initiated to make sure that all those things got done.
"This is how you manage," Marks said. "I'm no rocket scientist. I had to get my arms around what I needed to spend my time on. Eventually those problems all got solved."
"There is a lot of activity, and a lot of things to be done," Drori said in an interview two weeks after he took over. "And we are doing it. We will get the car out there into the hands of our customers."
He promised that Tesla was on schedule for shipping the Roadster in the first quarter of 2008.
Regular production started on March 18, 2008.
In keeping company style, Drori announced it in a blog post.
"Our key focus with the Roadster will be on gradually ramping up our production in a deliberate and controlled manner, reaching a rate of over 100 Roadsters per month early next year," he wrote. "With this milestone, the Tesla Roadster is the only zero emission electric vehicle in production today."
The Roadster, like the Vauxhall VX-220 and the Opel Speedster before it, was slotted into the production schedule at Lotus.
Stephen Casner had plunked down the dough to snag No. 33 of the Signature One Hundred series back in the summer of 2006. It would finally be delivered in the fall of 2008.
That October, he and his wife flew to the UK to see his car as it was being born. Eberhard helped arrange the tour with the Lotus team.
They arrived in Hethel about 10 o'clock for the hour-plus tour.
"It normally takes about two and a quarter days to complete the assembly process," Casner wrote in a blog post about his trip. "About 12 Roadsters get started down the assembly line each week, and Tesla is steadily ramping up production starts. The number of vehicles finishing the line varies depending on parts availability, quality controls and inspections, planned stops and other factors."
Lotus had a test track just beside the factory.
That's where Casner and his wife headed next.
The driver asked him if fast driving made him feel concerned.
"Don't hold back," Casner replied.
And they were off.
"I think we got up to about 115 on the straight," Casner said in the blog post. "This car sticks like glue in the corners. Coming around to the skid pad, he intentionally threw the car into oversteer to demonstrate recovery."
After about 15 minutes of careering around the test track, they were done.
"I enjoyed this immensely, and I only wish I had the time and opportunity to develop some of that driving skill for myself," Casner wrote. "What I took away from this demo ride was that there is a significant margin between this car's limits and my own."
Casner's Roadster would meet him in California on Oct. 31, 2008.
He's been driving it ever since.
The Musk Era Begins
Drori stayed on as CEO until October 2008, when Musk took the helm and fired a quarter of Tesla's employees.
By that time, Musk had invested $55 million in Tesla himself.
"I've got so many chips on the table with Tesla," he said in an interview. "It just made sense for me to have both hands on the wheel."
By May 2009, Tesla had recalled 75% of its Roadsters made between March 2008 and April 2009, promising to send technicians to people's homes to fix loosened bolts that were critical to handling.
The car's dependability was leaving a few of those high-profile customers disappointed.
George Clooney told Esquire he ended up selling his.
"I had a Tesla," he said. "I was one of the first cats with a Tesla. I think I was, like, number five on the list. But I'm telling you, I've been on the side of the road a while in that thing. And I said to them, 'Look, guys, why am I always stuck on the side of the fucking road? Make it work, one way or another.'?"
Musk, who by this time was being treated in the media as the love child of Tony Stark and Steve Jobs, had the perfect response.
"In other news, George Clooney reports that his iPhone 1 had a bug back in '07," he tweeted.
In 2010, Musk would navigate Tesla all the way to filing a $100 million initial public offering. The stock promptly went bonkers.
On Oct. 1, 2014, Musk sent out a provocative tweet to his 1.2 million followers.
What could it be? Tesla had taken long strides in making good on its proposal of delivering a supercar that changed everyone's minds about electric vehicles with the Roadster, then making a more affordable sedan in the Model S. The Model X SUV is next on the line-up - originally scheduled for 2013, then delayed to 2014, then delayed again to early 2015.
The unveiling happened at the Hawthorne Municipal Airport in Los Angeles on Oct. 9.
Kevork Djansezian/Getty Images
The tech, business, and automobile press all swooped in to see Musk do the honors, with some assistance from a gigantic robotic arm that swung the skeleton of the new car around.
Social analytics firm Crimson Hexagon told Business Insider that there were more than 7,500 tweets about the event, with the top topics being "Model D Car," "New Tesla Model D," and "Elon Musk."
There were 377 news articles published about the event within a day, according to LexisNexis.
The spotlight was entirely on Musk, who sent the thousands assembled into a roar when he appeared on stage.
"The whole thing felt more like a concert than a product unveiling," Ashlee Vance wrote in Bloomberg Businessweek.
Musk was the rock-star solo act, sending the crowd into stitches with his newly discovered easygoing style.
"There's been a lot of speculation as to what the D stands for," Musk said. "You'll notice that my pants have Velcro seams."
The crowd howled.
Then he got serious.
Kevork Djansezian/Getty Images
And hence the insane speed: the D is a sedan that goes 0-60 in 3.2 seconds, same as a McLaren F1 supercar.
The media ate it up.
Our headlines in Business Insider were representative: "ELON MUSK REVEALS TESLA D SUPERCAR, PLUS AUTOPILOT FEATURES" and "Watch Elon Musk Unveil The New Tesla In True 'Iron Man' Fashion."
Though Eberhard got the invite and still holds stock in the company, he skipped the festivities.
"I don't pay attention to Elon's superlatives," he said.
The two no longer speak.
Eberhard can't say what exactly he was doing that day. He thinks he read about the launch online with his coffee the following morning.
Meanwhile, Musk had become quite the showman.
"This car is nuts," he said during the reveal. "It's like taking off from a carrier deck. It's just bananas. It's like having your own personal roller coaster."
Even though the Model X SUV was just pushed back again to late 2015, Musk insisted that the Tesla D is going to ship in February. And it just might.
In true Tesla fashion, the performance modes on the D are as unconventional as they are maximal.
"In fact, in the option selection, you'll be able to choose three settings," Musk said. "Normal, sport, and insane."
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