The Evolution Of Tesla | CNBC Marathon

The Evolution Of Tesla | CNBC Marathon

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High-end sports car, faster than a Ferrari, faster than a Lamborghini. Nothing compared to this. Every which way I did the numbers, the electric cars were a lot better than everything else.

Tesla is pushing the bounds of what is possible with self-driving. On the other hand, they're taking a huge, huge gamble with this by putting an incomplete or a buggy piece of software on the roads. Tesla didn't keep their word when it came to the quality of service.

Elon's Elon-ness has increased over the years. Elon Musk is the most famous Tesla CEO. But Martin Eberhard and Marc 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 that Elon is the creator of Tesla? Elon was an investor in Series A.

He was very supportive always, you know, financially and on the board. And then he became the CEO. He's actually the fourth, I think that's right, the fourth CEO of Tesla.

Second chairman of the board. Second chairman of the board, and he's taken it to heights that are fantastic. So he's done an amazing job.

But, again, he was always supportive from the beginning, but he wasn't the founder in the sense of, we started it. Well, I mean, this is one of the things that I found kind of fascinating about him is that 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. Yeah, 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 . One of many sports cars that he had. Well, I was thinking about buying a more serious one, yeah.

Alright, I had just gotten divorced and it was what you do when you get divorced . So, in the end, 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 in the end, 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 taken off the market. And in fact, if it was an EV1 or

any of the other leased EVs, they were actually taken 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, where it's made from natural gas, where it's 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 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 Kart-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 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. That 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 is 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 thing. So 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 an electric car is a bunch of computers, it's batteries, it's 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, you know, working with Martin, and we were looking through the numbers, that 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, auto show, the L.A. Auto Show, and hunted around 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 do that. But of course we did. Lotus was able to write a letter for us that said, If this company can do what it says and gets funded and everything else— We'll be their partner. We might be their partner. Might.

It wasn't legally binding, but yes. But 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 back ups as well and how to m ake the car. And we had shown through my investment in AC Propulsion that one could build a battery pack that way.

On July 1st, 2003, Tesla Motors was incorporated. We self-funded 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.

Right. 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 if you have a big fund and you have five partners, they all kind of have to say yes, or at least you can't have one veto it. It depends on the structure of the firm.

But our reality distortion field wasn't good enough to get all five partners to believe all at once. The crazy thing is, we'd come into these firms and we'd convince the tech guy who's in our space, perfectly, totally understand it, and we'd convince a bunch of others, and we'd get actually vetoed by by their biotech guy. Right. That's what happened. He goes, 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. They're actually above average drivers.

All of them. I'm sure, yeah. Yeah. And then we encountered Elon and you can talk about that. We had met Elon before in a different way. We're both space enthusiasts or whatever.

And we were founding members of the Mars Society, number 14 and 15 I believe we are. Yeah, we have our lifetime memberships. And we went to a talk that the Mars Society put on. It was their conference, it was their annual conference. And 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. That was sort of it. And then later on, I had a gentlemen's agreement with the management AC Propulsion who was also out trying to get money. And 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 they're just not going to get the deal. And the president of AC Propulsion called me up at that point and says, okay, I'm giving up on those guys. You can go ahead and talk to Musk now. So I sent an email off to Elon basically saying, We met at the Mars Society, I don't know if you remember that, but we had this idea and I'd like to come and talk to you. That was interesting because when we met him at the Mars Society, he hadn't started SpaceX yet.

That was not in his vision yet. He was trying trying to launch some 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 Space X. So when we went down it was at Space X's original 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 you're 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, in context, he was like, Oh, yeah, I got that. This seems, you know, 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. 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 that, we need to make something that's radically different than what people expect. And so we'd like to make something as a high performance sports car to destroy that old image of what electric cars were and then follow that up with more mainstream cars, moving down market as it becomes more possible. And he got that.

Yeah, he totally got it. Yeah. In April of 2004, Musk invested $6.35 million 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 the Rocket Book and scale that up to the size of a car battery? And we penciled that out, maybe even on napkins or something in the coffee shop. Our engineering pads. We always had our engineering pads with us. But we persuaded ourselves that it was actually feasible. What was challenging? What was it like? Everything was challenging. Everything's hard.

We were inventing from scratch. This was something that had never been done before. Right. And just handling that many cells was a problem mechanically and sort of making sure that they're safe and you're dealing with all. So do you remember when we came back from that conference where somebody was talking about the danger of these lithium ion batteries. It was just at the time when in the news there were suddenly a bunch of laptop fires. There weren't very many of them, but they were 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 they were very exciting. So then we made a small representation of what we thought 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 in the ground, put a camera down there, put a big piece of plywood on top of it and a lot of weight, and then forced 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 slip. That was when we said, until we get a handle on this lithium ion safety issue, it's a day-for-day schedule until we figure it out. Yeah. And I want to say we never did that again.

After that one thing. No, at your house. I mean, we then rented a fire pad on the bay controlled by the fire marshal from that point on. Well that was partially we then learned just like, oh, we really need to take this in a way that— That was the right thing to do. I mean, and this was, it's one of these things where we saw there was a potential problem and we went and learned that lesson pretty quickly. And this is where basically I set as the company's gold standard that you have to prove on the battery design 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 adjacent cells.

That was the rule we set. And it took a while before we could do that. Right. How would you describe the greatest innovations around that battery pack and safety? We had a crew of people working out how to do this battery system.

I mean, how to mount 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 lithium ion cells, until we came along. we discovered that that was unreliable.

And worse than 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 cell battery power. So we had to invent a lot of stuff and it was 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 7000 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 event. It's a ton of people inside of a big tent. It was really, really loud.

I had my kids there. They were little at that point. My daughter was dressed up in a beautiful little white dress and my son was in a tuxedo, was very proud of himself. He was four or something. And we had these cars going around and I stood up and gave a 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 were all exhausted. I have a very distinct memory. It's that before the event starts, so we're still setting up, no visitors are coming in for another 2 hours. It was really early.

And there had been a rumor that Governor Schwarzenegger, who's governor at the time, might show up, but 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. He goes, Where are the cars? And he comes here. And it was such a surprise. And it was hours before we were ready and we just kind of pointed.

We didn't say anything. We just he walks over and gets in. 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 show-and-tells of various prototypes, and we had receptions at the R&D Center, at our offices in San Carlos, and it was all about 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 we were quite open about.

Oh, we had a setback here or this went really well. And we put pictures up of internals of the things. Customers 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 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 people, as more people found out about us, they would come in and say, I want to be on the list. Even before that, a bunch of our smaller investors or individuals would say, Well, I want to buy a car and I'll pay for it now. The whole thing. I'll put $100,000 down 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.

I did. I made one. It was a spreadsheet on my computer. But we made it in response to incoming demand. It wasn't like we had this clever marketing thing we were going to do. I mean, people kept asking. So then we said, Well, actually there is 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 make these commitments to us? And that's how we came up with the whole program. There were many technical setbacks, and that just happens in a startup. For us, I would say the thing that turned out to be the hardest that we didn't know at all, that totally caught us by surprise, was the difficulty of getting suppliers to supply stuff for us. We originally planned to use a lot more standard technologies, for example, ordinary door handles rather than electric door handles. And and 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 air bags you're going to buy is what a normal car company would buy 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 to persuade them to actually be willing to sell us airbags, seat belts, door latches, you know, any kind of safety component.

Every one was a struggle. That was something we just didn't anticipate. We knew it'd be hard, but we didn't know how hard. We just assumed that the suppliers would be willing to work with us in a way that they weren't. 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 the early days with you? 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 it's funny because Tristan started the same day. So if he's a founder, so is she. She was one of our software engineers, really first rate, and now she's just quietly going on with her life and she was as much a founder as JB was. In the summer of 2007, Eberhard was replaced as CEO and left the company a few months later. Musk eventually became the fourth 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 Tesla? No. Is there anything you can say about why you left? No. Well, you know, I was voted off the island in a rather rude way. And it wound up with some lawsuits and some settlements. And it's history now, so I can't say a lot about it.

Yeah. So. He got to wear the white hat. I know, I did. When I left Tesla, 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'd been working on in 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, Yeah, 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 it's worked out great. Tesla re-started 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, 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 described 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 a smaller sized market. It is more or less following what we predicted. I mean, not in the details, but in the big picture, it's exactly what we thought should be done. The sedan market is enormously large.

It's much, much bigger than the sports car 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 yet. You know, you have to learn and

develop the technology along the way. Starting with the 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 of 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 of the car as long as you treat the customer well. Does the Elon today, does that look like the Elon you knew in 2003? I think Elon's Elon-ness has increased over the years. 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. He's real smart and delves into everything, which can be both a positive and a negative. He pushes on certain things in development that you kind of wonder why. And sometimes it makes sense and sometimes it doesn't. And he's very much into risk.

He's willing to take on risks, financial risks for himself personally. And technology risks 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 it's a way. It's a way to make things work. Tesla has done a great job of building a loyal fan base. They still have. Their followers will accept anything from them.

People want to do something that makes a difference. And I think it still has that excitement, at least, I hope it does. 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, right? We did it. We got across that chasm. Although, even then, I will hear people that 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 so great. And I just love it. I mean, they're into it in a way they're not into a Porsche. The main thing is that they just drive differently.

Yeah, they're way more fun to drive. If you drive in a Tesla, 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 still very interested to see that the mission that we pushed Tesla on in the beginning succeeds for sure. Yeah the mission is so important. And as a shareholder I want it to be successful.

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 colleagues, Ron, said, because he was shaken by the talk also, 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. High-end sports car. Faster than a Ferrari, faster than a Lamborghini. Nothing compared to this.

0 to 60 and 3.7 seconds. It's fun from the moment you turn on the key. It's like being shot out of a slingshot. Any place I'd go, they'd put it in front. They'd move the Ferrari out and put the Roadster in front of the restaurant. What's that car in space? It's a Tesla Roadster.

The first time I hit the accelerator pedal, I couldn't tell if I was in the future or the past. This is the car that made the dream happen. The technology has reinvigorated the automobile industry. Tesla sort of slowly lost the memory of these cars. Tesla didn't keep their word when it came to the quality of service. The Roadster owners were abandoned.

A lot of them sold their cars because they just couldn't get service. I don't know a single Roadster owner who takes their Roadster to Tesla, the company that made the damn car, to service it. Welcome to Medlock and Sons. I'm Carl Medlock and this is our Tesla Roadster repair shop.

My dad and I worked at Tesla early on. He worked in the server side. I worked on the parts side.

Carl is known in the industry as being sort of the godfather of Roadsters. He truly is an answer to so many people's prayers. It's better for the community that we just get these cars back on the road. If it weren't for Carl, I don't know if these cars would be salvageable because no one would be around to maintain them, but instead they're out on the road and they're still running and they're still showing people this is where it all began.

The Tesla Roadster came out in 2008. 2500 were made total. You really didn't have to say anything to sell one of these cars.

You just had to go take somebody for a ride. Nice truck. The Roadster in terms of electric vehicles, is the turning point in viability for the industry.

It's the proof of concept that a car can be sexy and fast and electric. First electric cars, let's face it, looked like smart cars. Goofy. And they were still expensive. I think he thought, all right, you know, if it's going to be expensive, let's make it expensive. But let's make it look cool.

It's based on a Lotus car. You had a technology team trying to put an electric drive train in an existing chassis, and it just seemed like a one off kind of modified, hot rodded version of something. And no one ever imagined that it would be what Tesla has become today. I bought my Roadster new in 2009. Back then, Tesla wasn't a thing. Like no one had ever heard of Tesla. The big dare was I dare you to buy a Tesla and an equivalent number of stock in Tesla. If you really believe in the company, do both.

I mean, I bought my car when Tesla stock was selling for like $22 a share. I had no idea who Tesla was. Electric car. Hahaha. Click.No thanks.

None of us really believed in this company. We believed in the technology. It was hard not to recognize that this is where the future was going and it was hard not to get excited about that.

If you look at the client list of Tesla Roadsters, they were the who's who of the world. The Google founders bought then, and the first few hundred of these were in parking lots at Microsoft and Google and Facebook. This car used to belong to the lead counsel of Microsoft. That was one of the original Microsoft 11 cars. The yellow car here belonged to one of the guys who helped create the iPad.

The blue one here belonged to Sam Simon, the co-founder of The Simpsons TV show. This large one here belonged to David Vaskevitch, the ex-CTO of Microsoft. If you ever watched the TV show Bewitched, this car belongs to Tabitha. Her name is Erin Murphy. The group of Tesla owners, especially the Roadster owners, it's a fraternity of sorts. We're not just here to own a car. We're here to support Tesla, support the EV movement. They really have a passion for not just the cars themselves, but the other owners. It's kind of a big family, almost.

I've been a part of the Tesla community for probably seven, eight years. Other Tesla owners were always open to talking, helping. It's like we're a part of a movement. The Roadster community is like taking that and 10xing it. I was in on the original order.

That was back in 2007. It took 22 months before my Roadster 282 was delivered. One of the first ten or so roadsters that were in the area. We all even came to each other's deliveries. I drive it a lot, and as far as I know, it's the highest mileage roadster in the United States. It's got 172,799 miles.

Its VIN number is 687 and it's sister car VIN number 686 is currently on its own orbit around the sun. In the early days, we had this expression we called Tesla time. Whenever you went someplace, you had to add some Tesla time because there were going to be people there asking questions. When you buy a car like this, you have to expect to talk to strangers in parking lots. It's just part of the experience.

We spent a lot of time educating the public about Teslas and Roadsters in particular. We were very much advocates, ambassadors, even evangelists for the car. The community has changed. I mean, a lot of them abandoned the Roadster for a Model S when it came. When the Model S launched, the customers were afraid of what was going to happen to service for them because they weren't the priority anymore.

They kind of got backburnered. Tesla kind of went from, this is our car, you know, we will take care of it to, oh shit, we're making money for the first time on the Model S, wait in line, to, yeah, we still care about you guys to, Roadster, what? It always saddens us when we hear that one is wrecked. It's always kind of a moment of silence. The fire down in Arizona that destroyed like 30 of them. That was that guy's second fire.

You realize that this species is endangered. We figure that there is probably 1500 left worldwide. I would say probably 250 cars got totaled out just on poor estimates. I was in an accident, a really bad accident. It sheared off the whole front end of the car and the insurance company. And Tesla, of course, wanted to just say, no, let it go, because they didn't have the parts, they didn't have a way to fix it.

And we were able to find Carl that could put it back together. How you been? Good. Long time no see. The word got out there's people that are taking care of the Roadster again. It was a familiar face, you know. These people knew my dad and they knew what kind of guy he was and what kind of service he provided. Always have a tool guy among your friends.

The thing that really impressed me about Carl the first time I brought it in for service, he just took care of everything. He didn't even need to be told what's wrong with the car. He just fixed it all. He detailed it. The level of customer service, it was above and beyond.

He's a smart guy. He's found a niche where he's the best person at the world in doing this niche car and everybody loves him. My family is through and through motor heads.

We love cars. My dad built cars. We built cars together. We've all built our own custom cars. We do just about everything from bodywork, paint work, mechanical work, restoration work, electrical work. If you can crash it, there's a good chance that we can fix it. When Carl first left Tesla and opened up his own shop, it was big news.

Most of the Tesla Roadster owners would continue a service or two with Tesla, and then it all started just moving over to Carl's shop. People just started sending us their cars from all over. All over the United States, Canada. We've got cars that are being put on containers coming over here from Europe and China. And I even traveled to a car in Costa Rica.

We're traveling to Australia. Just kind of exploded. We have now like 30 or 40 Roadsters that we have at this facility right now. I'm in Texas.

I've had two cars sent 2000 miles to Washington state to get worked on by Carl because I trust him the most. He knows more about these cars than anyone else out there. Early on at Tesla we got to work directly with the engineers who developed some of these systems. And so we've got a knowledge that others didn't get. I actually helped write the shop manual for this car.

And the reality is there are no diagnostics. Everything I do here is in my head. This is my nemesis right here.

This car has a very abnormal problem where you can disconnect everything in the system and the water pump still runs. So it's got a wire shorted to power, and I just haven't found it yet. In the meantime, it's just wiping the street with me and my pride. I saw him as this mechanic guy.

He's an electrical engineer it turns out. We've had a few Tesla service centers call us up that I've never seen one of these things before. And one of them actually said, Look, we don't know anything about the Roadster, so we're just going to send it to. This is the brains of the Tesla Roadster. It's the power electronics module.

It handles all of the drive functions. These parts are incredibly hard to find, and they're not easy to replicate. To make this board specifically to reverse engineering is bout 60 grand. These are Tesla Roadster battery sheets.

So in a battery pack, you have 11 sheets. This is the inside of a sheet. Each one of these plates denotes a series, so you get a positive and negative. There's little bond wires here, and it actually is what the

voltage goes through. There's 6831 cells in one of these batteries. Any one of them can short and cause a problem. You have to know how to find it.

You would think that this toolbox would be full of tools. It is not. It's full of electronics. This is old tech when it comes to electric cars, but it's still high tech for auto repair. Eventually, this will be standard, but there's going to be a lot fewer. Electric cars break a lot less.

The good news is nobody died and my car is worth more. The top's good. If I ever need a new top. So this one's totaled. I haven't told the owner yet, but there's a dent in the frame right there.

And with that, then they're going to make me total. Yeah, they will. This car just left here four months ago. It's a rough four months. Wow. That's frightening. But it's also encouraging that, you know, a wreck this bad is survivable if you're in a good car . Not so survivable. If you can save those, that's a miracle.

Oh, you haven't seen this picture. Save all the green parts you can for my car in case I never need them. Were you really good at Legos when you were little? I was. You know, people see crashed cars. I don't see crashed cars.

I see opportunities. I see a $30,000 job there. Another one here. And the parts right here to fix them. I like doing this.

The minute the last car rolled off the assembly line, that was the end of the parts. I contact people all over the world. I find out where the wrecked ones were, the last home that they were at. Do you have any parts left over? I buy stuff every day from people who have bought these cars and have a little something on their shelf. I could buy a parts car, and I did, for five grand

three years ago. I could buy a parts car for $10,000. I bought one for 15.

And those were cars that were complete. Now I'm buying cars that are missing from the windshield forward for 40 grand. This car right here is VIN 767. It was originally sold here in Seattle.

I bought it at the auction for $43,000 for a parts car, which sounds crazy, but the battery'd worth 25. The PEM was worth 10,000. All the suspension. That's a $4,000 trunk. $1000 bumper. $2000 trunk box.

This car was coming to us from Georgia. And I know it looks like a pile of junk here. And pretty much for the most part it is.

But the transmission, at least the case would be good. This board is still good. I've had five or six calls from these cars from the accident scene. And I tell them, pick up everything bigger than a quarter and throw it in the front seat. A clip, a bowl, a screw, everything on this car is special.

If I can just harvest one piece, I'll call it a success. These are our spare batteries. These are 1,000 pounds apiece. These are our hoods. We make a whole hood, including the frame. Those are the last 15 good headlights up there.

Right side only. There are no left headlights available. I'm going to take and hoard every single thing I can get my hands on.

It's the only way I can stay in business is to be able to fix the cars. To fill that need, we've built a lot of these carbon fiber parts. We make pretty much every piece of carbon fiber that goes on the car. We make all of these pieces that are on here except for these. This is the factory Bilstein suspension. It's the last new set we know of in the world.

We actually had custom suspension made for these cars. We had this grille made for the 2.5 cars because the plastic grilles are obsolete.

Oftentimes these cars, you know, he can make them a little bit faster. He can make them a little bit more reliable. He can make them last a little bit longer. Back when Martin Eberhard was terminated from Tesla, these two tops were hanging on his wall. I'm going to give these back to Martin because he said he'd like to hang them on his wall. So I thought, you know, what a nice gesture for the

guy who created Tesla, give him back his parts. Why not? This is a rare breed now. A few more years, they'll start turning 20. You know, the age of a classic car. Values are going to go up, but it really is the maintenance of a species. The difficulty of buying a Roadster is overwhelming.

For 2020 and most of 2021, the transactions were a listing that either got sold within an hour of being listed or a day. So the values now have gone from $40,000 two years ago to $150,000, $130,000 depending on the car that you have. Recently, one has sold for $182,000, another one sold $190,000. We started seeing that median price jumped from $68,000 to I think about $112,000, $114,000, but with some really amazing examples of auction prices in the $200-250,000 range. And that tells you when a car has really arrived.

I mean, it's funny because it's what everybody was saying when the cars were new, that it will eventually become a collector car because if Tesla takes off, it's the first real electric vehicle and it's the first vehicle from a company that now obviously is really successful. For me, it was owning a piece of the original Tesla journey was important, but also just the transition from EVs in general was important. People do look at them as investments and the best part about it is they're fun. You can't take your stock portfolio out for a drive, you can't take your Bitcoin out for a drive, but you can take the Tesla Roadster out for a drive. It's really cool, honestly, that so many people trust us with their cars and that we've kind of become this big Roadster shop.

Now he's in this big shop and he has parties. I remember last summer there were probably 100 people here. People flew in from France.

Just to come and see the largest collection of Tesla Roadsters on the planet. I think somebody flew from Asia to come . It's like, wow, I just drove. On the way over here today, twice, I looked in my rearview mirror and the person behind me has got their phone up taking a picture of my car.

This car is special and it still looks special. People come up and say, Well, that's a weird looking sports car. What is that? And I say, it's a Tesla. And they say, I've seen Teslas. They don't look like that. Is that their new sports cars? It's like, No, no, it was the first Tesla.

You get all kinds of reactions from people. What you don't get is I've never heard of Tesla anymore. We're going to make this left turn. And I'm getting honked at. Now it just turned right.

We were supposed to go left. We just ran a red light. We just ran a red light. I'm going to get a ticket for that.

This is Taylor Ogan. He's the founder and CEO of Snow Bull Capital, a hedge fund that invests in green and high tech sectors. Ogan is a self-proclaimed Tesla fan and says that he's owned the stock since the company went public. Recently, he invited CNBC to ride along with him in his 2020 Tesla Model Y as he tested out Tesla's FSD Beta 10.8.1 software in Brooklyn, New York. Geez, I don't know if you realize what just happened, but that's the closest thing I've ever seen. Ogan is not a professional test driver, nor is he a Tesla employee.

Instead, he's one of the over 50,000 customers that Tesla has allowed to access FSD Beta. FSD Beta, which stands for Full Self-Driving Beta, can be best summarized as a host of new driver assistance features that are not yet debugged. Chief among them is autosteer on city streets, which enables drivers to automatically navigate around complex urban environments without moving the steering wheel with their own hands. Okay, I'm going to take over there. So it wanted to change lanes in the middle of an intersection there and cut off the guy behind me.

The system is anything but self-driving and still requires constant attention and intervention from the driver. A caveat that Tesla highlights on its website. With it being a beta.

You know, I've seen that any time the car could just make a mistake and I have to be ready for that. Right now, my stress levels go up, not down, from using full self-driving, but that's the cost of making it better. Tesla's FSD Beta program is heavily scrutinized by regulators and has earned Tesla side eye from competitors who usually have professionally trained drivers, not customers, test driver assistant features in their vehicles.

But for now, the program is still available for thousands of Tesla owners to access without the knowledge of drivers and pedestrians around them. Tesla is pushing the bounds of what is possible with self-driving and they've got to be applauded for that. On the other hand, they're taking a huge, huge gamble with this by putting an incomplete or a buggy piece of software on the roads. CNBC went for a ride with three FSD Beta testers in different parts of the country to see how the system performs in the real world and explore what this program could mean for the future of vehicle automation. Before we get into our ride alongs, it's important to understand what FSD Beta can and can't do.

The way that Tesla markets its driver assistance packages has historically been confusing. Tesla's Standard Driver Assistance package is marketed as Autopilot. Its functionality includes automatic emergency braking, forward collision warning, lane keeping and adaptive cruise control, which matches the speed of your car to that of the surrounding traffic. For an extra $12,000 or $199 per month, Tesla sells an option it calls Full Self-Driving or FSD.

The premium package includes more sophisticated features like automatic lane changing, automatic parking, and Smart Summon, which lets drivers call their car from a parking spot to come pick them up. FSD Beta takes this one step further with unfinished features like autosteer on city streets and traffic light and stop sign control, which identifies stop signs and traffic lights and automatically slows your car to a stop upon approach. Although they may sound advanced, none of these packages come even close to making Tesla's vehicles autonomous. When we're talking about FSD Beta here, we're talking really about a system that is an SAU level two system that is designed to assist the driver in a wide variety of different situations. But the driver at all times is responsible for the control of the vehicle.

By comparison, a Robotaxi would be level four or higher. It's unbelievable. It's unbelievable that people think that this is somehow going to be a Robotaxi.

Listening to Tesla CEO Elon Musk, who's been promising driverless cars since 2016, it's easy to see why people may believe that. My personal guess is that we will achieve full self-driving this year at a safety level significantly greater than a person. Over time, we think full self-driving will become the most important source of profitability for Tesla. If you run the numbers on Robotaxis, it's not good from a financial standpoint. In order to gain access to FSD Beta, participants have to first allow Tesla to monitor their driving for a period of time until they can earn a high enough safety score.

The score is calculated based on five metrics specified by Tesla. Those who qualify are allowed to download FSD Beta via an over-the-air update. While some testers say that earning a high score is hard and required driving even more cautiously than they typically would, Ogan says he was able to easily game the system. The way I got a 100 on the safety score was I drove like a grandma for 103 miles and then I didn't drive it for a week and then I had 100 safety score and then I was granted access to the Beta software. Newer Tesla vehicles have in-cabin cameras which are supposed to monitor drivers and alert them if they're not paying attention. If a driver gets enough warnings, the car can disable driver assistance features temporarily.

After several warnings, a driver may get kicked out of the FSD Beta program entirely. But not all Teslas have camera-based driver monitoring and those with cameras are far from perfect. Kelly Funkhouser has been testing Tesla's autopilot and FSD Beta on a closed route for Consumer Reports and says that a lot of the time Tesla's driver monitoring systems simply didn't work. In our testing, we weren't able to really get that camera to be sufficient for monitoring attention because we could cover it and there would be no difference, as if the camera wasn't even there.

And as long as you have your hands on the wheel, even if you're looking at your phone or totally distracted or asleep, you'd never get any of those warnings to pay attention. For a full self-driving Beta, that's when Tesla claims that they have these additional messages that say things like the camera's blocked or to please pay attention. We've never experienced any of those warnings. We decided to run our own tests with the in-cabin camera using Ogan's Model Y . The first time, we covered the camera before attempting to engage FSD Beta and were unable to do so.

Cabin camera is covered or blinded. When we covered the camer after FSD Beta was already engaged, we were able to drive for about a block before the system turned off and gave us a strike. During our drive in Brooklyn, FSD Beta struggled with pedestrians. Here's a pedestrian. We have the right of way. We have a green.

And look that, it just slammed on it. She wasn't crossing. She was waiting to cross. Traffic lights. I don't know why we're stopping here. So now we just miss the light. Sorry. This woman's laughing at me.

We can't help but laugh. And complex intersections. It doesn't want to go. There's a bus behind this. It's just not going anywhere. And now it's creeping a little. Now it's trying to go right. We're in the middle of an eight way intersection.

Just stuck in the middle. So of course I have to take over. At one point during the drive, Ogan restarted the system and was able to engage FSD, even with the screen still black. Yeah, the screen is black. And the car is driving itself. I have no idea what it can see.

I don't know if it's engaged or not. You can see the wheel turning. I don't know which way it wants to turn. It just slams on the brakes. There's a school bus behind me. I just got honked at.

Look at that. You see that, Pete Buttigieg? FSD Beta did not fare much better in San Francisco, where we also tested version 10.8.1. Complex intersections. Hold on one sec. Yeah. Okay. So that's me getting honked out again. It got a little bit confused by that intersection.

Pedestrians. Oh, okay. So it's worried about those pedestrians over there. That was a pretty hard stop. And traffic lights all seem to pose problems. Okay, so now it's confused. It's stopping in the middle.

Okay, So, yeah, so that guy behind me, is, like, justifiably upset because I stopped in the middle of an intersection when the light was green. When I'm using FSD, I'd say I'm less worried about hitting a pedestrian than I am about being the victim of like a road rage incident because I'm not driving in a courteous way. Roundabouts were also tricky.

Okay, here's our roundabout. Let's see what happens here. Okay. Whoa! All right. I don't think it understood how to use the roundabout, because we're

basically going the wrong way now. In fact, Yeah. Yeah, it's kind of like diverting itself a block so that it can avoid that roundabout. So I guess it doesn't understand that yet. Though a second roundabout proved more successful.

This time it found its way through. The car also seemed to struggle with bollards, at one point almost plowing into one while taking a right turn. Woah, okay, so. In nearby San Jose, popular YouTuber AI Addict posted a video that showed his car actually running over a bollard while on version 10.10.

Ooo.We hit that. We actually hit it. We hit it. Wow. Where the system seems to perform better is in a more suburban setting. We have a four way stop.

It's always done well at those. I've never had an issue where it didn't handle the four way stops nice and clean. Intersections were also better.

Here it's trying to yield, but these cars are turning so it'll eventually make its mind up. Okay. Kevin Smith is a software engineer for a print on demand book manufacturer. Smith says he's been testing FSD beta for around 5000 miles and that most of the time updates will mean solving one issue only to encounter another. So basically, before the 10.5 update, and including 10.5, most of the issues that I was having were related to like turn lanes and odd street markings and things like that. With 10.8, all those little turn lane issues and things,

those all kind of went away. So they fixed those little things. But I started to have more and more disengagements for cars it's not yielding two or something like that.

Something else that Smith noticed FSD Beta struggle with is driving in low visibility, such as during a rain or snow storm. In heavy snow, it pretty much is nonfunctional. It just tells you that it can't see and you need to take over. The other issue I had was on our kind of rural roads, whereas our main roads, they'll plow them, the rural roads, they just, we clear the middle of the road. This car, because it could see the center yellow line, it wanted to

stay on its lane and that included keeping two tires in that big pile of ice and snow that you wouldn't drive on as a human. A major concern that experts point to when it comes to FSD Beta is a lack of transparency and oversight in pretty much all aspects of the program, starting with who gets to participate. It's Tesla deciding who is good and who is bad here.

There is no third party. It can't come down to the company alone to decide who is safe and who is not. Bryan Reimer agrees that there needs to be more transparency. He heads the Advanced Vehicle Technology Consortium at MIT, which is made up of a number of insurance providers, research organizations and automakers. Show me the data and prove it to me.

Prove how you're using this data day in and day out, that this is an efficacy system enhancing the risk benefit model on our roads. Much like the FDA requires drug manufacturers to prove the benefits of the pharmaceutical intervention inherently outweigh the risks, that is what I am looking for. Destiny Thomas says we need to think beyond just the safety of drivers. I think the problem with the auto industry is that we center everything around the person behind the wheel. What we lose is the human element and the impact to human beings who are not behind the wheel.

Thomas is the founder and CEO of Thrivance Group, a for profit urban planning organization with a specific focus on marginalized communities. We need to make sure that there's representation within private industry to make sure that the folks who are developing this AI technology understand the very important nuances of what it means to travel through space in a body that's not normative. How is this car going to recognize someone using an assistive device that maybe isn't a wheelchair and doesn't look like one? How is this technology going to be able to recognize someone who has purple undertones in their skin that don't react to the sensors that are in the car? Currently, children under the age of 16 are more likely to be killed by cars while walking down the street or riding their bikes. People with disabilities are more likely to be killed because of the speed at which cars are traveling. Government agencies are increasing scrutiny of FSD Beta.

In a letter to Tesla in October 2021, the Department of Transportation's National Highway Traffic Safety Administration reprimanded Tesla's use of non-disclosure agreements for early participants of FSD Beta, calling the practice unacceptable and saying that it adversely impacts NHTSA's ability to obtain information relevant to safety. In a second letter to Tesla released that same day, the agency requested more details on how Tesla decides who gets Beta access and specific information on the people involved. The NDA asked participants to keep their experience in the program confidential and to refrain from sharing any information regarding the program on social media sites or forums. Additionally, participants were asked not to use their vehicles for services like Lyft, Uber, Turo or Scoop while enrolled in the early access program.

Tesla eventually dropped the NDA requirement for Beta participants, but Ogan thinks many are still nervous to talk about the system's issues from fear that they'll get the software taken away. I think the most dangerous part about this are the people who are posting videos of flawless drives with zero intervention, zero disengagements, and that is incredibly misleading. I think that's really detrimental to the Tesla shareholders, to the other enthusiasts of these technologies, because they are led to believe that this system is a lot more capable than it is by a significant margin.

Tesla has been criticized for using terminology that exaggerates the capability of its vehicles. It's clear that if you're marketing something as full self-driving and it is not full self-driving and people are misusing the vehicles and the technology that you have a design flaw and you have to prevent that misuse. FSD Beta is already being blamed for some accidents. In November, NHTSA announced that it was looking into a driver's complaint in which a 2021 Tesla Model Y was hit by another car after the Tesla went into the wrong lane while taking a left turn. At the time, the complaint to NHTSA says, the car was using FSD Beta. Another consumer complaint to the agency released in February states that a 2021 Tesla Model S misjudged the road and took too wide of a turn, which resulted in the car going slightly off the road. The complaint says Beta was engaged at the time.

Tesla recently ordered a recall of its FSD Beta software for more than 53,000 vehicles to r

2022-12-18 03:40

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