Born in 1856, Tesla became a productive scientist, and has given name to the units of magnetism, which are units of tesla [T]. At the end of his life, he went a little crazy. He became fascinated by the pigeons in the park and he designed death-rays that would end all wars. “Tesla’s problem was that he wasn’t entirely sane, and that got worse later in his life,” Elon said. “Retaining sanity is important.”128
In 1943, Tesla died poor and alone in a hotel room. The reason why he was poor was that he could build his inventions in his brain – he almost never made the physical products – so he couldn’t make any money. When he finished the design in his head, he became bored, and moved on to the next idea. “I need no models, drawings, or experiments,” Tesla said. “I could picture them all as real in my mind. I do not rush into actual work. When I get an idea, I start at once building it up in my imagination. I change the construction, make improvements and operate the device in my mind. It is absolutely immaterial to me whether I run my turbine in thought or test it in my shop.”
Tesla and Elon are quite similar to each other. As children, both of them read many books and made experiments. Both studied physics and they moved from other countries to the US. While Tesla decided not to join the military by living in the forest for a year, Elon moved to Canada to avoid joining the military.
In February 2004, the founding team behind Tesla finished writing a business plan. Their idea was to license the electric powertrain technology from AC Propulsion and to use an existing car manufacturer to build the rest of the car. What they needed now was money, lots of money, so they began looking for outside investors.
One interesting thing they did was to present Tesla in front of investors and friends they from the beginning knew wouldn’t invest in the company because they invested in other areas. “We asked them if we could pitch to them this goofy car company idea we had,” Tarpenning said. “We wanted the feedback before we shot our silver bullets with the real people that might fund us.” Because of the feedback they received, they changed their business plan, including the entire distribution model.453
One of their friends they practiced in front of was Ian Wright. He had met Eberhard in 1998 when they sat next to each other on a flight between San Francisco and Tokyo. They began to talk and realized that both were interested in cars and they lived only a short distance from each other. Wright worked as a senior director of engineering at Network Equipment Technologies and was an amateur race car builder and driver.384
Wright was also an entrepreneur and he practiced to present his business idea in front of Eberhard and Tarpenning. It turned out that Wright’s idea never worked, but he thought Tesla’s idea was so interesting that he joined the company. “They were keen to get me to join up because I used to build and race sports cars as a hobby in Australia,” Wright said. “I knew a bit more about how cars worked than they did. The tipping point for me was when Martin borrowed the tzero from AC Propulsion, and I got to drive it. That was the thing that persuaded me – although I wouldn’t want to buy that car, I could certainly see how you could make something new and interesting with electric drive.”26
The NASDAQ stock market index was at an all-time low and most investors licked their wounds from the dot.com bubble. They were not interested in financing heavy industry, especially not in companies involved in environmental friendly technology when the price of oil was low. “Back then the only electric vehicles you could buy were golf carts, and the VCs couldn’t imagine themselves wanting to buy one of those, so it was a very uphill battle at that time,” Wright said. A few investors were interested, but only if Tesla found a lead investor.205
Eberhard had earlier met a person called Elon Musk at a conference arranged by the Mars Society. He contacted Elon by e-mail when AC Propulsion told him Elon was interested in electric cars. Elon replied with an invitation to a meeting at SpaceX.
In April 2004, after a two-hour meeting, Elon decided to invest $6.3 million in the company Tesla Motors.196 “It’s kind of crazy, who in their right mind would start a car company?” Elon asked. “But I guess I have more than my fair share of hubris. I’ll do it. I’m in, we’ll draw up the paperwork, but we have to close it in three weeks, because my wife is having twins and if we don’t get it done by then it’s not going to happen.”205 Elon wasn’t the only investor, but he contributed with 98 percent of the funding. The other investors consisted of smaller venture capital firms and individuals like Eberhard.199,209
But the founders of Tesla and Elon didn’t agree on all points. The main difference was that Elon had a larger vision. While he wanted to build a company as large as General Motors, the founders wanted to build a small company. “Well, there are a few things that I disagreed in what they showed,” Elon said. “I didn’t want to be a niche sports car company. I wanted it to be something that would aim for the mass market as soon as possible.”199 But Tesla didn’t have any other options. Tesla needed a deal with Elon far more than Elon needed an investment in Tesla. “You take money from the people who offer it to you,” Eberhard said. “People think I’m some kind of rich guy, but I’m not. I still clean the bathrooms in my house, I wash my own laundry, I change my children’s nappies.”196,205
The total number of employees at Tesla was now five. Eberhard became the CEO, Tarpenning became the CFO, Ian Wright became the VP of vehicle development, Elon became the chairman and the head of product design. Straubel joined the company and worked as an engineer for about a year before he became the CTO.199
To save the world from its dependency on oil, Tesla needed to manufacture many cars. But that would have been impossible for a newly founded company. A better idea was to begin with an expensive car that might not save the world, but it will start the snowball. Any new technology on the market is expensive: the first computers, the first mobile phones, and the first gasoline cars. “You can look at the early days of the cell phone – like when you look at the original Wall Street movie where the guy is walking around with the brick phone with a lousy signal and 30 minutes of battery time and it was really expensive,” Elon said. “In those days, if you asked people if eventually everyone would have a portable phone with the power of a supercomputer you would be told ‘no way.’ That’s how it is when you have a new technology – you have to look at where it’s headed. To quote Wayne Gretzky, ‘skate to where the puck’s going to be.’ That’s how it is with electric cars.”375
You need two things to make a technology available to the mass market and at the same time make it affordable: economies of scale and optimize the design. Usually at the third version of a product, it starts reaching mass market potential.322 “Any car that we make at low volume, which is the first version of technology will be expensive,” Elon said. “It didn’t matter what that car look like. We can make something that look like a very standard vehicle, such as a Toyota Corolla, and it would have cost $70 000. But nobody would pay that for what looks like a mid-size economy sedan. But people are willing to pay $100 000 for a fast sports car.”339
So the strategy Tesla had was to begin with a high-price, low-volume car. This model’s codename was DarkStar after a classic science fiction movie.272 You can only charge a high price for a limited number of cars, and you can expect a customer to pay a high price for a sports car. DarkStar would prove that the customers wanted a high-performance electric car. It would also give the company credibility. The suppliers would be willing to write contracts with Tesla and Tesla could find more money from investors who now trusted the company.