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.
The only reason I’m surprised (I knew he didn’t found it before) is because it’s a major news network.
Really nice interview! It gives insight into the hurdles they went through.
Apart from this being a well known fact, it doesn't even matter.
The company is what is today because of its current team. These guys seem like great people but I'm guessing the first CEO wasn't doing a good job in 2008 when he was voted of. He's still a shareholder at least.