Elon Musk is the most famous Tesla CEO. "Hi everyone." But Martin Eberhard and Mark Tarpenning were the original, founding executives. CNBC sat down with them to talk about the earliest days at
Tesla. There are a lot of people who don't realize you two started the company. How do you respond to people who think Elon is the creator of Tesla? Elon was, you know, investor in Series A. He was very supportive, always, you know, financially and on the board. And then he became the CEO. He is actually the fourth, I think, the fourth CEO of Tesla.
And he was second chairman of the board . And he's taken it to to heights that are fantastic. So he's done an amazing job. But yeah. And he was always supportive, you know, from the beginning.
But he wasn't the founder in the sense of he wasn't you know, we started it. Well, I mean, this is one thing that I found kind of fascinating about him is that, you know, he's actually accomplished some amazing things in his own right. He's totally amazing. Yeah SpaceX is amazing.
And he's done some interesting things with Tesla for sure. I'm not sure why he has to also say that he was a founder when he wasn't. I don't understand that . Whatever. Eberhard and Tarpenning met in the 1980s and in 1997, they founded NuvoMedia, where they created the first ever e-book reader called the Rocket eBook. The idea for Tesla came from Martin's love of sports cars.
For various reasons. I had been thinking about buying a sports car. And this was at a time when one of many sports cars that he had. Well, I was thinking about buying more serious.
OK, all right. I had just gotten divorced and it was what you do when you get divorced. So so in the end, you know, I'm looking at these cars that looked like a lot of fun, but got, you know, 18 miles to the gallon or something. And this is at a time when it seemed very obvious to me that the wars that we were having in the Middle East had something to do with oil. And it seemed also becoming more and more obvious that this global warming thing was real and that I couldn't buy a car like that. That was just at the time when the car companies who had been selling electric cars in California had managed to get the zero emissions vehicle mandate gutted just at the time when I thought I might go buy an electric car, maybe an EV1 or something.
They were no longer available. They were actually being taken off the market. And in fact, if it was EV1 or any of the other, leased EVs they're actually taking back from the owners and destroyed. I had talked about this with Marc and Marc was reasonably skeptical.
And asked me a lot of questions about, well, I mean, what is the right technology if it's not going to be a gasoline powered car? Well, so I wound up doing the math. I wound up calculating the well-to-wheel energy efficiency of every kind of transportation I could think of. Of course, fuel cells, gasoline, diesel, biofuels, electric cars, electric cars where the electricity is made from coal was made from natural gas was made from oil.
And it was a surprise to both of us that every which way I did the numbers, the electric cars were a lot better than everything else. Though Eberhard and Tarpenning had worked together in hardware and consumer electronics, neither of them had any automotive experience. Before I had thought about starting a car company before I proposed that I had searched the Internet for who might make a car.
Still, not all the big guys were out and there was a there was a small company in Southern California called AC Propulsion that had made exactly three of a little kind of a handmade kind of a sports car thing. It was very homemade. Go- cart- ish right. And so I contacted this company and spoke to them, and they were actually busy going out of business because the majority of their income had come from doing small projects for the car companies as they were trying to make electric car demonstrations. But now that the electric car, the zero emissions vehicle mandate had
been gutted, all that business went away. So they were going out of business. So I reached out and actually rescued them.
I invested some of my own money into the company and tried to get them to build me personally, a car. The car was a lead acid powered car and was therefore a very short range and the batteries were persnickety and dangerous. And 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 electronic books. Our first generation of that product used nickel metal hydride batteries, and then we learned and switched over to to lithium ion batteries for the second generation. So I had proposed with this possible and it turns out that some of the folks there had been thinking about that, too. So I basically financed them to convert their car to a kind of a crude lithium ion battery pack for that, because that's where it began.
And that was a proof of concept that actually would work despite the limitations of that car. One of the things in terms of how we found investors and how we kind of figured out how to make the car at the beginning was electric car is a bunch of computers, its batteries, its motors, and then there's the sort of car around it. And the problem is, is that Silicon Valley does those first things really, really well. So I was pretty convinced working with Martin and we were looking through the numbers and it was going to be possible to make the thing that made the car go. But I was very concerned we weren't going to be able to make the car to go around it. After Eberhard and Tarpenning came up with the idea for the battery, the next hurdle was to build the car around it.
They discovered it was fairly common for automotive companies to outsource certain aspects of manufacturing. So they started looking for a partner and reached out to an English company called Lotus. We flew down to Los Angeles for the 2002, I guess, the auto show, the L.A.
Auto Show, and had to run and found the Lotus Booth and basically forced ourselves upon the Lotus people. We forced him to sit and listen to our presentation, which he did and was intrigued. Yeah was intrigued enough that he said, well, you know, come to Hethel, which is in England, and we can talk more about this basically. And I think that was a great gatekeeper because anyone who wasn't serious wasn't going to fly to England and go do that.
But of course, we did. Lotus was able to write a letter for us that said. I f this company can do what it says and gets funded and everything else we will be their partner, we might be their partner. I mean, it wasn't legally binding, but it was it was what we needed, though, to show investors that we had a plan, we had at least a plan, and we had a couple of backups as well and how to make the car. And we had shown through my investment AC Propulsion that one could build a battery pack that way. On July 1st, 2003, Tesla Motors was incorporated.
We s elf-funded it at first, some of my money, some of my brothers and friends and stuff like that, little bits of money here and there, and we were also touching the VC community, particularly ones that had made money on our previous investments. But it was pretty clear early on, a lot of the VCs you have to get sort of, if not consensus among the partners, like, you know, if you have a big fight and you have five partners, they all kind of have to say yes, or at least you can't have one veto. It depends on the structure of the firm. But our reality distortion field wasn't good enough to get like all five partners to believe. The crazy thing is we come into these firms and we convinced the tech guy who's in our space perfectly, totally understand it. We commit a bunch of others and we get we get actually vetoed by by their biotech guy. You know, that's what happened.
I don't like sports cars, Yeah or more than that I'm an expert in sports cars and you don't know anything . Because almost every VC is actually an expert on cars. Yeah, yeah. They're actually above average drivers. All of them, I'm sure. Yeah, yeah. And then we encountered Elon and you can talk about
well so we had we had met Elon before in a different way that we're both space enthusiasts or whatever. And we were we were founding members of the Mars Society, number 14 and 15, I believe. I think that we have our lifetime membership. And we we went to a talk that the Mars Society put on the conference. Just happened to be 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 on, I had the gentlemen's agreement with the management at AC Propulsion who was also out trying to get money. And they had they had chased down Elon Musk and had 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 that just not going to get the deal.
And the president of AC Propulsion called me up at that point, says, OK, I'm giving up on those guys. You can go ahead and talk to Musk now. So I sent an email off to to to Elon saying, well, basically saying, you know, we met at the Mars Society, I don't remember that. But we have this idea and I'd like to come and talk to you. That was interesting because this is so when we met him at the Mars Society, he hadn't started SpaceX yet. He hadn't that was not in his vision yet.
He was trying to launch the experiment with missiles from Russia or something. I'm not exactly sure what it was, but he gave up on that and decided to do SpaceX. So when we went down, it was at SpaceX, his original first headquarters down there in Hawthorne or wherever it is. And one of the great things about pitching to Elon in this context is that a lot of times we would pitch to the VCs and to other angels and they would say, what are you trying to do is so crazy. You know, you're trying to make an electric sports car. That's insane. And we are pitching to somebody who is actually trying to make
rocket ships. And so you can't really saw that right. In context. He was like, oh, yeah, I got that. This this seems this is a no brainer.
And he got our idea, our vision right away. I mean, in our original presentation, we said, look, we need to change the way the world thinks about electric cars, OK? Today, people think about electric cars as little ugly things that nobody wants to drive. And we know we can make an electric car that's very different. So to change the way people think about it, we need to make something is radically different than what than what people expect.
And so we like to make something as a High-Performance sports car to to to destroy that old image of what electric cars were and then follow that up with with more mainstream cars getting more moving down market as it becomes more more possible. And he got that. He got it . In April of 2004, Musk invested $6.35 million dollars of his own money in the 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 you, could we architect a battery system using the battery management knowledge that we had from from the Rocket e-book and scale it up to the size of a car battery and we pencil that out, maybe even on napkins or something in that coffee shop and engineering pads W e always had our engineering pads with us, but we persuaded ourselves that it was it was it was it was actually feasible.
What was challenging? What was it like? Everything was challenging. We were inventing from scratch. This was something had never been done before. Yeah and just handling that many cells was a problem mechanically and sort of making sure that they're safe and you're dealing with. So do you remember when they came back from that conference where they had done a somebody who was talking about the danger of these lithium ion batteries? It was just at the time when in the news were suddenly a bunch of laptop fires. There was very many of them, but there are quite dramatic.
And the videos went viral on the Internet. And so our team took some of the cells outside, charged them up and forced them into thermal runaway. And there were very exciting. So then we made a a small representation of what we thought are our large battery pack was going to be like.
We went up to my house up here in the hills, dug a big hole in the ground, put that down on the ground, put a camera down in there, put a big piece of plywood on top of it and a lot of weight and then force that that group of cells into thermal runaway to see what happened. And it was very exciting. And the result of that was our first really big schedule. That was when we said until we get a handle on this lithium ion safety issue, it's a day-by-day schedule until we figure it out.
And I want to say we never did that again. After after that, the only thing at your house I mean, know, we then rented a fire pad, you know, fire pad on the bay know, controlled by the fire marshal. From that point on, that was partially we' d learned just like, oh, we really need to take this in in a way that we had.
And that was the right thing to do. I mean, and this was, you know, what these things were. We we saw there was a potential problem and we went and learned that lesson pretty quickly. And there was it was.
And this is where, you know, basically, I said as the company's gold standard that you have to prove on the battery design that that you should be able to assume that any of your cells in your battery system will, for reasons you don't understand, go into thermal runaway. And you have to prove that when it does, it does not propagate to itself. That was the rule we set and it took a while before we could do that. How would you describe the greatest innovations around that battery pack and safety. We had we had a crew of of people working out how to do 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 of doing electrical connection to cells to to lithium ion cells.
Until we came along, we discovered that that was was unreliable and worse and that you couldn't tell if you made a good weld or not at the time of assembly. And we experimented with a lot of different ways to do that. And finally settled on wire bonding, which has then become what everybody copies now when you're making a cylindrical substrate to invent a lot of stuff and it a lot of trial and error trying different kinds of glues to make the cooling system work, inventing different kinds of cooling tubes, different kinds of insulation, everything had to be invented from scratch.
There was no state of the art. Nobody had ever, ever considered taking nearly 7,000 cells and putting them all together into a battery pack. Nobody had ever done that at all. It was insane when we described it to people. So today, all of the battery management systems in every electric car today is based on that work, all of them.
In 2006, Tesla unveiled the prototype of its first car, the Roadster. The all electric sports car sparked a lot of interest before it was even for sale. The launch of a ton of people inside of a big tent, it was really, really loud. I had my kids there. There were little at that point my my daughter was dressed up in a
beautiful little white dress and my son was in a tuxedo, is very proud of himsel f. And we had these cars going around and, you know, I sit up and talk about what the car was doing and welcoming people and so on and inviting everybody to get in the car and drive. And I don't know, it went on for until we're all exhausted. I have a very distinctive memory i s that before the event starts. So we're still setting up.
We still you know, we're no visitors are coming in for another two hours. So it's really early. And there had been a rumor that Governor Schwarzenegger, who was governor at the time, might show up. But, you know, like who knows? Right. So we're there and I'm with one of the other engineers and we're literally moving chairs around and getting stuff. And in walks Schwarzenegger and his sort of entourage of other cars.
And he comes out and that neither of us we were both it was such a surprise and it was hours before we were ready and we just kind of pointed. We didn't say anything. And he walks over, gets in, but it was great. Can you tell us a little bit about how you innovated in terms of the sales and why you did that in terms of taking preorders? And correct me if I'm wrong, but that was really not in our original plan.
We would do a show and tell the show and tells of various prototypes. And we had receptions at the R&D center, our offices in San Carlos. And, you know, and it was all about, you know, keeping our customers engaged and letting them come along on the journey because it really was a journey and we didn't really know exactly the timing. And, you know, we were quite open about, oh, we had a setback here or or this went really well. And and that we put pictures up of the internals of the things we
just had to literally say. Like, this is the most exciting thing I've been involved in, even though in some level they just wrote a check. But they were. But they they believed in the vision enough to write that check. And now they're participating in this process that we were going through. You know, what ended up happening is as people as we were coming out of stealth mode and people would or we were still in stealth mode because more people found out about us, they would come and say, I want to be on the list.
Even before that. Some a bunch of our smaller investors. Right. Would say, well, I want to buy a car and I'll just give you I'll pay for it now. Yeah a whole $100,000 now. And I want to be on the list and I want to know what place I am on the list. And we didn't have a list and it was not part of... I did it's a spreadsheet on my computer.
But we made it in response to incoming demand, which was it wasn't like we had this clever marketing thing. We were going to I mean, we just people kept asking. So then we said, well, actually, there's clear interest in this. What can we do from a business perspective to make this work and a way of supporting the customers as they as they make these commitments to us? And that's how we came up with the whole program. You know, there were many technical setbacks, and that just happens at a start up.
For us, I would say the thing that turned out to be the hardest that we didn't know at all, though, totally caught us by surprise, was the difficulty of getting suppliers to supply stuff for us. Right. We originally planned to use a lot more standard technologies, for example, ordinary door handles rather than electric door handles.
And and as we as we changed to more and more exotic ideas along the way, we took on more and more risk of that. But nonetheless, I mean, just getting a supplier to supply us with airbags. I mean, the airbag supplier would look at us and say, first of all, the amount of airbags you're going to buy is what a normal car company would buy for for a prototype run for their cars that never get sold. And that's it. And on the other hand, you don't have deep pockets.
So all we see is risk. So it's hard to persuade them to actually be willing to sell us airbags, seatbelts, door latches, you know, any kind of safety component. It was everyone was a struggle. That was something we just didn't anticipate. And we know the hard, but we didn't know. I mean, we just assumed that the suppliers would be willing to work with us in a way that they were. And that was something that Lotus really helped us with because they had
those existing supplier relationships. Do you want to say anything about key players who were there in their early days with you? You know, I kind of think the whole gang of them were pretty good. I don't know. I mean, what that early crew put up with in the early days when JB likes to call himself a founder, it's funny because Triston started the same day. That's right.
So if he's a founder, so is she right? She was a one of our software engineers, really first rate. And and now she's just quietly going 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 fo rth CEO of the company and has held that role since October of 2008.
Can you describe the moment that you realized you could no longer be part of? No. Is there anything you can say about why you left? No. Well, you know, I was voted off the island and in a rather rude way. And it wound up with some lawsuits and some settlements. And I, you know, it's history now, so I can't say a lot about it. When I left, the Roadster was essentially finished and we were waiting on one particular super annoying thing, dealing with the transmission and changing some power electronics, which nearly tanked the company.
That's one of those near-death experiences of the company. And we were reassigning all of the engineers to the new sedan project, which we've been working on a small level for the previous year or so. And as the engineers would come off the design team for the Roadster, we were shifting over to the Model S. And I looked at that and I had three little kids at home and I'd been doing nothing but Tesla for five years. And I thought it's going to be another five years.
And Martin wasn't there anymore. It wasn't as much fun. And I thought it's time to leave and I don't have any regrets.
It was an awesome time. The whole thing was wonderful from the beginning to the end. It was the worst and the best and and it's worked out great. Tessa restarted the electric vehicle revolution.
Without Tesla, there would not be electric cars today. And electric cars are the most important change in the automotive industry it's transforming the entire auto industry and it all comes from what we did at Tesla. If you look at the original business plan we wrote for Tesla, we describe in great detail the Tesla Roadster.
And we said once this car is successful, the next car we should make is either a large SUV, an expensive SUV or a large sedan. And once that's successful, the next car would be down market a sedan for smaller size markets. It is more or less following what we predicted. I mean, not in the details, but in the big picture is exactly what we thought be. The sedan market is enormously large. It's much, much bigger than than the sports car market, the Roadster market. And then below that is the sort of model three segment of that market.
And if you're going to have a big impact, you have to play there. But you can't start there because the capital requirements are just too vast 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 actually really smart, not just because it changed the image of the electric car, but it was a small market. And the typical sports car buyer is fairly forgiving of, for example, very crude interiors of the car.
We had a very, very simple entertainment system. The seats were not electric. Everything was fairly simple on it. And the kinds of customers, the sports cars actually like that kind of stuff. They like the quirkiness of it.
And they'll tolerate even mistakes in the car that require recall the car as long as you treat the customer well. Does the Elon today, does look like the Elon you knew in 2003. I think Elon's, Elon-ness has increased over the years.
Yeah. If you had to describe him in a nutshell. No, I mean, if you want to describe Elon Musk in a nutshell, I don't think he would fit in a nutshell. Yeah Elon is complicated. You know, he is real smart and delves into everything which can be both a positive and negative. He pushes on certain things in the development that you you kind of wonder why. And sometimes it makes sense and sometimes it doesn't. And he's you know, he's very much into risk.
You know, he's willing to take on risks, you know, financial risks for himself personally and and technology risk when he's working on something new that are a little out there. But when it works, it's really amazing. But, of course, there's lots of sort of collateral damage along the way. But, you know, it's a way you know, it's a way that to make things work. Tesla has done a great job of building a loyal fan base. They still have their their followers will will accept anything from them. People want to you know, they want to do something that makes a
difference. And I think it's it's still you know, it's still has that excitement. At least I hope it does. I mean, it's reached across from the early adopters into a more mainstream audience. And that's critical. And of course, a lot of people now who are buying the cars are just
buying a car in some sense, which is in a way better. If we did it, we got across that chasm, although even then, you know, I will hear people have no idea that I'm associate with Tesla in anyway. They'll say, oh, we just got our Model 3 or whatever, and it's so great. And I just love I mean, they're into it in a way that they're not into Porches'.
The main thing is that they just drive differently. Yeah, we're driving in Tesla and it does not drive like your previous gasoline car. It's more fun. Would you say you're still rooting for Tesla today? I'm, of course, rooting for Tesla. I'm still a shareholder. And I'm I'm still very
interested to see that the mission that we pushed Tesla in the beginning succeeds for sure. Yeah. The mission is so important. And, you know, as a shareholder, I want it to be successful. Yeah. So, yes, we want Tesla to be successful. One of the kind of aha moments.
Early on in the days of Tesla, before Al Gore came out with his movie, he was lecturing at various places around the country. And we and a couple of our staff went to go hear him speak at Stanford. As we walked out, one of our one of our colleagues, Ron, said, because he was shaken by the talk also, and he said, we've got to do something about this, we have to do something. And I said, Ron, what do you think we're doing? That's the whole point of the company.
2021-02-14