Tesla's Founders On Elon Musk And The Early Days

Elon Musk is the most famous Tesla CEO. "Hello everyone." But Martin Eberhard and Mark Tarpenning were the original founding executives. CNBC sat down with them to talk about the

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of Tesla. There are many people who don't realize that you two founded the company. How do you respond to people who think Elon is the creator of Tesla? Elon was, you know, an investor in Series A. He was very supportive, always, you know, financially and on the board of directors. And then he became CEO. Actually, I think he's the fourth CEO of Tesla. And he was the second president of the board.

And he has taken it to fantastic heights. So he's done an incredible job. But if. And he always supported me, you know, from the beginning. But he wasn't the founder in the sense that he wasn't, you know, we started it. Well, I mean, one thing I found fascinating about him is that, you know, he's actually accomplished some amazing things on his own. He is totally amazing. Yes, SpaceX is amazing. And he sure has done some interesting things with Tesla. I'm not sure why he has to also say that he was a founder when he wasn't. I do not understand that.

Whatever. Eberhard and Tarpenning met in the 1980s and in 1997 founded NuvoMedia, where they created the first e-book reader called Rocket eBook. The idea for Tesla came from Martin's love of sports cars. For several reasons. He was thinking of buying me a sports car. And this was at a time when one of the many sports cars he had. Well, I was thinking about buying more seriously. Okay, everything correct. I had just gotten divorced and it was what you do when you get divorced. In the end, you know, I'm looking at these cars that looked like a lot of fun, but they had, you know, 18 miles per gallon or something like that.

And this is at a time when it seemed very obvious to me that the wars we were having in the Middle East had something to do with oil. And it also seemed increasingly obvious that this global warming thing was real and that I couldn't buy a car like that. That was right around the time that the car companies that had been selling electric cars in California managed to eliminate the zero-emission vehicle mandate, right around the time that I thought I might go buy an electric car, maybe an EV1 or something like that. They were no longer available.

In fact, they were being taken off the market. And in fact, if it were the EV1 or any of the others, leased EVs are actually being taken away from owners and destroyed. I had discussed this with Marc and Marc was reasonably skeptical. And I got a lot of questions about, well, I mean, what's the right technology if it's not going to be a gasoline-powered car? Well, I ended up doing the math. I ended up calculating the well-to-wheel energy efficiency of every type of transportation I could think of. Of course, fuel cells, gasoline, diesel, biofuels, electric cars, electric cars where electricity is produced from coal are made from natural gas, and they are made from oil.

And it was a surprise to both of us that every way you ran the numbers, electric cars were so much better than everything else. Although Eberhard and Tarpenning had worked together in hardware and consumer electronics, neither had automotive experience. I had previously thought about starting a car company, before proposing I had searched on the Internet to see who could make a car. Still, not all the big boys were out and there was a small company in Southern California called AC Propulsion that had made exactly three of a small, hand-built sports car. It was very homemade. Go-car-ish right.

So I contacted this company and talked to them, and they were actually busy going out of business because most of their income was coming from small projects for car companies while they were trying to demo electric cars. But now that the electric car, the zero-emission vehicle mandate, had been destroyed, that whole business disappeared. So they were closing the business. So I went over and rescued them. I invested some of my own money in the company and tried to get a car built for me personally. The car was a lead acid powered car and therefore had a very short range and the batteries were finicky and dangerous.

So in my conversations with them, I said, well, why don't we consider lithium-ion batteries? We had learned a lot about lithium-ion batteries from our work on the e-books. Our first generation of that product used nickel metal hydride batteries, and then we learned and switched to lithium-ion batteries for the second generation. So I proposed with this possible and it turns out that some of the people there had been thinking about it too. I basically funded them to convert their car into some sort of lithium-ion battery pack, because that's where it started. And that was proof of concept that it would actually work despite the limitations of that car.

One of the things in terms of how we found investors and how we figured out how to build the car at the beginning was that the electric car is a bunch of computers, its batteries, its motors, and then there's the type of car around it. . And the problem is that Silicon Valley does those

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things very, very well. So I was pretty convinced about working with Martin and we were running the numbers and it would be possible to do what made the car tick. But I was very worried that we couldn't get the car around it.

After Eberhard and Tarpenning came up with the idea for the battery, the next hurdle was building the car from it. They found that it was quite common for automotive companies to outsource certain aspects of manufacturing. So they started looking for a partner and approached an English company called Lotus. We flew to Los Angeles for the 2002, I guess, auto show, the Los Angeles Auto Show, and we had to run and find the Lotus booth and basically beat out the Lotus people. We made him sit and listen to our presentation, which he did and was intrigued. Yeah, I was intrigued enough to say, well, you know, come to Hethel, which is in England, and we can basically talk more about this.

And I think he was a great gatekeeper because anyone who wasn't serious wasn't going to fly to England and do that. But of course we did it. Lotus was able to write us a letter that said. If this company can do what it says and get financing and everything else, we will be your partner, we could be your partner. I mean, it wasn't legally binding, but it was what we needed, to show the investors that we had a plan, that we had at least a plan, and that we also had a couple of backups and how to make the car.

And we had shown through my investment in AC Propulsion that you could build a battery pack that way. On July 1, 2003, Tesla Motors was incorporated. At first we self-funded it, some of my money, some of my brothers and friends and things like that, small amounts of money here and there, and we were also reaching out to the VC community, particularly those who had made money from our previous investments. But it was pretty clear from the beginning, in a lot of VCs you need to get some kind of consensus, if not among the partners, like, you know, if you have a big fight and you have five partners, everyone has to do it.

Say yes, or at least you won't be able to have a veto. It depends on the structure of the company. But our reality distortion field wasn't good enough for the five partners to believe. The crazy thing is that we go to these companies and convince the technician who is in our space to understand it perfectly and completely. We compromised a bunch of others and got their biotech guy to veto us. You know, that's what happened. I don't like sports cars, yes or more than that. I'm a sports car expert and you know nothing. Because almost all venture capitalists are car experts.

Yes Yes. In reality, they are above average drivers. All of them, I'm sure. Yes Yes. And then we met Elon and you can speak well that we had met Elon before in a different way, we are both space enthusiasts or whatever. And we were founding members of the Mars Society, numbers 14 and 15, I think. I think we have our lifetime membership. And we went to a talk that the Mars Society put on at the conference. Turns out one of the speakers was Musk, and he was intriguing. So we cornered him afterwards and talked to him for a while.

And that was nice. And then later I had a gentlemen's agreement with the management of AC Propulsion, who was also trying to get money. And they had pursued Elon Musk and tried to persuade him to invest in AC Propulsion. And the chemistry between the AC Propulsion team and Musk was not going to work. And they tried for a while. And after a while they realized they just weren't going to get the deal. And the president of AC Propulsion called me at that time and said, OK, I'll give up on those guys. You can go ahead and talk to Musk now.

So I sent an email to Elon saying, well, basically saying, you know, we met at the Mars Society, I don't remember. But we have this idea and I would like to come talk to you. That was interesting because when we met him at the Mars Society, he hadn't started SpaceX yet. He hadn't done it, that wasn't in his vision yet. He was trying to launch Russia's missile experiment or something. I'm not exactly sure what it was about him, but he gave up and decided to do SpaceX. So when we dropped, he went to SpaceX, the first original headquarters of his there in Hawthorne or wherever it is.

And one of the best things about introducing Elon in this context is that a lot of times we would introduce him to VCs and other angels and they would say, what are you trying to do is crazy? You know, you're trying to make an electric sports car. That's crazy. And we're introducing you to someone who's actually trying to make rockets. And then you can't really see it well. In context. He said, oh yeah, I got it. This seems like a no-brainer. And he grasped our idea, our vision immediately. I mean, in our original presentation we said, look, we need to change the way the world thinks about electric cars, okay?

Nowa

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, people think that electric cars are small, ugly things that no one wants to drive. And we know that we can make an electric car that is very different. So to change the way people think about it, we need to do something that is radically different from what people expect. And that's why we like to do something like a high-performance sports car to destroy that old image of what electric cars were and then follow up with more conventional cars that move further into the market as it becomes more possible. And he got it. He got it.

In April 2004, Musk invested $6.35 million of his own money in a Series A round to help get Tesla Motors off the ground and became chairman of the board. We sat down at one of our local coffee shops and I proposed to them: could we design a battery system using the battery management knowledge we gained from the Rocket e-book and scale it up to the size of a car battery? Pencil it in, maybe even on napkins or something in those cafeteria and engineering pads. We always had our engineering pads with us, but we convinced ourselves that it was really doable.

What was a challenge? As was? Everything was a challenge. We were inventing from scratch. This was something that had never been done before. Yeah, and just handling so many cells was a mechanical problem and somehow making sure they were safe and that you were dealing with. So remember when you came back from that conference where you had seen someone talking about the danger of these lithium ion batteries? It was right around that time that a bunch of laptop fires suddenly appeared on the news. There were a lot of them, but they're pretty dramatic. And the videos went viral on the Internet.

And then our team took some of the cells outside, loaded them, and forced them into thermal runaway. And there were very exciting ones. So we made a little rendering of what we thought our big battery would look like. We went up to my house here in the hills, dug a big hole in the ground, put it in the ground, put a camera in there, put a big piece of plywood on top and a lot of weight and then forced that group of cells into a thermal runaway to see what happened. And it was very exciting. And the result of that was our first really major calendar.

That's when we said until we solve this lithium-ion safety issue, it's going to be a day-to-day schedule until we solve it. And I mean we never did that again. After that, the only thing in your house, I mean, we rented a fire platform, you know, a fire platform in the bay, controlled by the fire marshal. From that point on, that was partly what we had learned, like, oh,we really need to digest this the way we did. And that was the right thing to do. I mean, and this was, you know, what these things were. We saw there was a potential problem and we learned that lesson pretty quickly.

So it was. And this is where, you know, I basically said, as a company gold standard, that you have to demonstrate in the battery design that you should be able to assume that any of the cells in your battery system will, for reasons not You know. If I don't understand it, it enters into a thermal leak. And it must be shown that when it does so, it does not propagate itself. That was the rule we made and it was a while before we were able to do it. How would you describe the biggest innovations around battery and security?

We had a team of people working on how to make this battery system. I mean, how to make the cells, how to cool them. We invented this cooling tube that went through them, how to make the electrical connection. We originally tried to use resistance welding, which was the normal way to make the electrical connection to the lithium-ion cells. Until we arrived we discovered that this was unreliable and worse and that you could not know if a good weld was made or not at the time of assembly. And we experimented with many different ways of doing it.

And finally I decided on wire bonding, which has become what everyone copies now when you're making a cylindrical substrate to invent a lot of things and there's a lot of trial and error, trying different types of glues to make the bonding system. cooling to work, inventing different types of cooling tubes, different types of insulation, everything had to be invented from scratch. There was no state of the art. No one had ever considered taking almost 7,000 cells and putting them all together in one battery pack. No one had ever done that at all. It was crazy when we described it to people.

That is why, today, all the battery management systems of all electric cars are based on that work, all of them. In 2006, Tesla presented the prototype of its first car, the Roadster. The all-electric sports car sparked a lot of interest even before it went on sale. Throwing a ton of people into a big tent was very, very loud. I had my children there. There was little at that time my daughter was dressed in a beautiful little white dress and my son was in a tuxedo, he is very proud of himself. And we had these cars driving around and, you know, I sit and talk about what the car was doing and welcoming people and stuff and inviting everyone to get in the car and drive.

And I don't know, it continued until we were all exhausted. I have a very distinctive memory is that before the event begins. So we're still setting up. Still, you know, visitors won't arrive for another two hours. So it's very early. And there had been a rumor that Governor Schwarzenegger, who was governor at the time, might show up. But you know, who knows? Good. So we were there and I was with one of the other engineers and we were literally moving chairs and getting things. And in comes Schwarzenegger and his entourage of other cars. And he comes out and it was neither of us, it was a big surprise and it was hours before we were ready and we just pointed.

We didn't say anything. And he walks over and walks in, but it was great. Can you tell us a little bit about how you innovated in terms of sales and why you did it in terms of pre-orders? And correct me if I'm wrong, but that really wasn't in our original plan. We would do a show and tell the show and talk about various prototypes. And we had receptions at the R&D center, our offices in San Carlos. And, you know, it was about keeping our customers interested and allowing them to come along with us on the journey because it really was a journey and we didn't really know exactly the timing.

And, you know, we were pretty open about, oh, we had a setback here or this went really well. And that we published images of the inside of the things we literally had to say. This is the most exciting thing I've ever been involved in, although on some level they just wrote a check. But they were. But they believed in the vision enough to write that check. And now they are participating in this process that we were going through. You know, what ended up happening is that when we went out of stealth mode and people were still in stealth mode because more people found out about us, they came and said, I want to be on the list.

Even before that. Some of our small investors. Good. I'd say, well, I want to buy a car and I'll give it to you. I'll pay it now. Yes, a full $100,000 now. And I want to be on the list and I want to know where I am on the list. And we didn't have a list and it wasn't part of... I did, it's a spreadsheet on my computer. But we did it in response to incoming demand, and it wasn't like we had this clever marketing trick. We were going to do it, I mean, people kept asking. So we said, well, there's actually a clear interest in this.

What can we do from a business perspective to make this work and be a way to support customers as they make these commitments to us? And that's how we came up with the whole program. You know, there were a lot of technical hiccups, and that just happens at the beginning. For us, I would say that what turned out to be the most difficult and that we didn't know at all, although it took us completely by surprise, was the difficulty of getting suppliers to supply us with things. Good. We originally planned to use many more standard technologies, for example ordinary door handles instead of electric door handles.

And as we shifted toward more and more exotic ideas along the way, we took on more and more risks of that. But still, I mean, just get a supplier to supply us with airbags. I mean, the airbag supplier would look at us and say, first of all, the number of airbags you're going to buy is what a normal car company would buy for a prototype of their cars that never sell. And that is. And on the other hand, you don't have much money. So all we see is risk. So it's hard to persuade them to actually be willing to sell us air bags, seat belts, door latches, you know, any kind of safety components.

The whole world was a struggle. That was something we just didn't anticipate. And we know how difficult it is, but we didn't know it. I mean, we just assumed that suppliers would be willing to work with us the way they were. And that was something that Lotus really helped us with because they had those relationships with existing suppliers. Do you want to say something about the key players who were with you in your early days? You know, I think they were all pretty good. I don't know. I mean, what that initial team endured in the early days, when JB liked to call himself founder, it's funny because Triston started the same day.

That's how it is. So if he is a founder, is she right? She was one of our software engineers, really top-notch. And now she quietly moves on with her life. And she was as much a founder as J.B. was. In the summer of 2007, Everhard was replaced as CEO and left the company a few months later; Musk eventually became the company's fourth CEO and has served in that role since October 2008. Can you describe the moment he realized he could do it? no longer be part? No. Is there anything you can say about why you left? No.

Well, you know, they kicked me off the island and in a pretty rude way. And it ended with some lawsuits and some settlements. And I, you know, it's history now, so I can't say much about it. When I left, the Roadster was practically finished and we were waiting for one super annoying thing in particular: dealing with the transmission and changing some power electronics, which almost bankrupted the company. That's one of those near-death experiences for the company. And we were reassigning all the engineers to the new sedan project, which we've been working on at a small level for the past year.

And as the engineers were coming out of the Roadster design team, we were moving to the Model S. And I looked at that and I had three little kids at home and I hadn't been doing anything but Tesla for five years. And I thought it would be another five years. And Martin was no longer there. It wasn't that fun. And I thought it was time to go and I don't regret anything. It was a wonderful moment. Everything was wonderful from the beginning to the end. It was the worst and the best and it worked very well.

Tessa restarted the electric vehicle revolution. Without Tesla, electric cars would not exist today. And electric cars are the most important change in the automotive industry; They are transforming the entire automotive industry and it all comes from what we did at Tesla. If you look at the original business plan we wrote for Tesla, we described the Tesla Roadster in great detail. And we said that once this car is successful, the next car we should make is a large SUV, an expensive SUV or a large sedan. And once this is successful, the next car would be a sedan for smaller markets.

It's more or less following what we predicted. I mean, not in the details, but in the big picture, it's exactly what we thought it would be. The sedan market is enormously large. It's much, much bigger than the sports car market, the Roadster market. And below is the type of segment of the model three of that market. And if you want to have a big impact, you have to play there. But you can't start there because the capital requirements are too great and you don't know what you're doing. You have to learn and develop the technology along the way.

Starting with a sports car was really smart, not only because it changed the image of the electric car, but it was a small market. And the typical sports car buyer is quite forgiving of, for example, the car's very rough interiors. We had a very, very simple entertainment system. The seats were not electric. Everything was quite simple. And the types of customers, the sports car types, really like that kind of stuff. They like his extravagance. And they will even tolerate mistakes on the car that require a recall, as long as you treat the customer well. Does the current Elon look like the Elon you knew in 2003?

I think Elon's Elonity has increased over the years. Yes. If you had to describe it in a few words. No, I mean, if you want to describe Elon Musk in a few words, I don't think it fits in a few words. Yes, Elon is complicated. You know, he is very intelligent and delves into everything that can be both positive and negative. He pushes certain things in development and you wonder why. And sometimes it makes sense and sometimes it doesn't. And he, you know, takes a lot of risk. You know, he's willing to take risks, you know, financial risks for him personally and technological risks when he's working on something new that's a little bit out there.

But when it works, it's really amazing. But of course, there is a lot of collateral damage along the way. But, you know, it's a way to make things work. Tesla has done a great job of building a loyal fan base. They still have followers of his who will accept anything from them. People want you to know that they want to do something that makes a difference. And I think there's still, you know, there's still that excitement. At least I hope so. I mean, it's reached from early adopters to a more mainstream audience. And that is critical.

And of course, many people who buy cars now are simply buying a car in some sense, which is, in some ways, better. If we did, we'd cross that chasm, although even then, you know, I'll hear that people have no idea that I'm associated with Tesla in any way. They'll say, oh, we just got our Model 3 or whatever, and it's fantastic. And I love it, I mean, they like it in a way that they don't like Porches. The main thing is that they drive differently. Yes, we drive a Tesla and it doesn't drive like the previous gas car.

It's more fun. Would you say you still support Tesla today? Of course, I'm rooting for Tesla. I am still a shareholder. And I'm still very interested to see that the mission that drove Tesla in the first place will surely succeed. Yes. The mission is very important. And, as a shareholder, I want it to succeed. Yes. So yes, we want Tesla to be successful. One of those aha moments. In Tesla's early days, before Al Gore released his movie, he gave lectures at various locations around the country. And we and a couple of our staff went to hear him speak at Stanford.

As we were walking out, one of our colleagues, Ron, said, because he was also shocked by the talk, and he said, we have to do something about this, we have to do something. And I said, Ron, what do you think we're doing? That is the objective of the company.