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The story of Tesla’s founding. What does this have to do with Elon Musk?

The electric car company Tesla will celebrate its 16th birthday on 1 July 2019. Its capitalisation has already reached the $50bn mark, but Tesla has never ended the year with a net profit, with a loss of more than $970m last 2018 alone. Nevertheless, Tesla is a brand that has proved to the world that electric cars are not just for the golf course, and gasoline engines have long been reserved for the museum shelf. About the grand substitution of Ilon Musk, Silicon Valley developers and scandalous tweets – in the Real Time article.

At the beginning of the 20th century, Henry Ford was buying electric cars for his wife

When you start talking about electric cars, you have to remember that this market existed and even thrived for a while long before Tesla, Martin Eberhardt, Mark Turpenning and even more so Ilon Musk. Since the beginning of the 20th century, electric cars were already ploughing the streets of America with all their might. According to The Washington Post, in 1901 about 38 % of cars in the United States were electric, 40 % – ran on steam engines and only 22 % – on petrol. Already at that time, the streets of many major cities were getting rid of tons of manure, an indispensable “companion” to horse-drawn carriages, and petrol cars were considered too dirty and hard to drive.

Car lady with a car manufactured by the Anderson Electric Car Company. 1910

By 1915, there were 1,325 electric cars in Washington, about the same number in Detroit, over 4,000 in Chicago and over 3,000 in New York. As American newspapers wrote then, the real lobby for electric cars were women: electric equipment was cleaner, quieter and many times easier to operate than steam and especially gasoline equipment which spewed out acrid fumes and was started with a crank. Charging stations for electric cars were located mostly in numerous city car dealerships. By 1909, electric-powered cars could travel up to 80 miles (about 120 kilometres) on a single charge.

What made electric cars really fashionable in the States was America’s top people. Helen, wife of the 27th President of the USA, William Howard Taft, was the first to drive an electric car and triggered a real sales boom. Henry Ford, who at the time produced his petrol cars in Detroit, bought electric cars for his wife Clara Jane – she preferred them to the cars her husband produced.

The Detroit Electric by Anderson Electric Car Company, driven by the wife of the 27th President of the United States, William Howard Taft 

At that time, several American companies, including Baker Motor Vehicle Co., Milburn Wagon Co. and Anderson Electric Car Company, were producing electric cars. Electric cars were predicted to have a great future on the world market, but it was not to be in the next century.

The era of electric cars came to an end with the ‘Tin Lizzie’, the petrol-powered Ford Model T, launched by the Ford Motor Company in 1908. Ford’s revolutionary model subsequently became the world’s first car to be produced in a million series. The “Tin Lizzie”, thanks to its simplified design and low production costs, simply crashed the market: the Ford Model T sold for $650, while the price of a comparable electric car was as high as $1,750.

“Tin Lizzie” – the petrol-powered Ford Model T from the Ford Motor Company

The Texas oil boom of the 1920s put an end to the development of electric cars: there was a lot of cheap fuel in the country and gas stations were built on roads all over America, including rural areas that did not have access to electricity. By the 1930s, electric cars had all but disappeared.

Martin Eberhard and Mark Tarpenning – the beginning

The Tesla story begins in 1990, when a young electrical engineer, Martin Eberhardt, met computer developer Mark Tarpenning. At the time of their first chance meeting, both were just over 30, and both had quite a bit of professional experience under their belt. Both Tesla founders came from California, already infected with the magic of Silicon Valley at the time. Their youth came at a time of colossal breakthroughs in computer, mobile and energy technology.

Mark Tarpenning was born on 1 June 1964 in Sacramento. After earning a bachelor’s degree in computer science from the University of California, he began his career at the Textron conglomerate in Saudi Arabia. Martin Eberhard, born May 15, 1960 in Berkeley, received his bachelor’s degree in computer science and master’s degree in electrical engineering from the University of Illinois, after which he served as an electrical engineer at Wyse Technology (a cloud computing manufacturer until 2012). While on another trip out of the Kingdom to his native California in 1990, Tarpenning stopped by Wyse Technology’s office to visit an old friend, Greg Rand, and met Eberhard.

Martin Eberhard and Mark Tarpenning speaking at the Stanford University Discussion Club

They were complete opposites, which may be why their business alliance was successful, according to Business Insider. The quiet, modest and thoughtful Mark Tarpenning immediately took notice of the hyper-energetic and charismatic Martin Eberhard, who had a habit of capturing everyone’s attention as soon as he entered the room. Very quickly their relationship evolved from one of friendship to one of business. The engineers began to consult together for portable energy storage manufacturers, working with the nascent forms of mobile computing – early mobile phones and laptops. Both young men realised that the perfect time was coming to take advantage of the technological momentum and monetise their expertise.

In 1997 the choice was made. On April 15, Eberhard and Tarpenning founded their first joint company, NuvoMedia. A year later, the entrepreneurs launched one of the world’s first portable reading devices – an eBook under the brand name Rocket eBook. The developers did not go wrong. In 2000 the start-up received one of those offers that are not to be turned down: the media company Gemstar – TV Guide International offered a nine-figure figure for NuvoMedia. The start-up was soon sold for $187 million. By the end of 2000, the now somewhat wealthy companions began to think about starting a new company. At this time, Martin Eberhard was going through a divorce.

Martin Eberhard with his Rocket eBook. Photo: businessinsider

“I thought I should do what every guy does after a divorce – buy a sports car,” Eberhard told Business Insider in 2014. – But I couldn’t bring myself to buy a car that was going 18 miles and eating a gallon of fuel, while oil wars were raging in the Middle East and the case for global warming was becoming increasingly compelling.

AC Propulsion’s bet failed, giving birth to Tesla Motors

Eberhard went through all possible energy options, compiling a spreadsheet of energy sources: hydrogen fuel cells, different variations of gasoline and diesel, natural gas, several types of batteries. The results surprised the developer – in the race of energy efficiency indicators, the electric car became the undisputed leader. The scientist decided to go deeper into the issue and contacted AC Propulsion, the largest manufacturer of electric cars, which at that time had already produced the prohibitive in cost electric sports car Tzero (Tzero with the original lead-acid battery was not inferior to Lamborghini, only three cars were produced).

The Tzero was living proof that an electric car doesn’t have to be slow. After the test drive, Eberhard was delighted, but was well aware that the $220,000 car would never make it to market. He decided to become part of the AC Propulsion team, one of the developers of the Tzero. His main aim was to turn a luxury electric car into a mass-produced electric car. The developer replaced the lead acid batteries with lithium ion batteries, similar to those used in laptops. Year by year, they became cheaper and were no inferior in performance to the original Tzero batteries.

The Tzero, produced by AC Propulsion. Photo: youtube.com

By September 2003, in six months, Eberhard had completed the refinement of the Tzero. The car could now hit 480 kilometres per hour, weighed just 230 kilograms, and reached 100 kilometres per hour in just 3.6 seconds. The developer invited AC Propulsion founder and CEO Tom Gage and Alan Cocconi to put the lithium-ion powered prototype of the new Tzero into production, but it was turned down. On July 1, 2003, Martin Eberhard and Mark Tarpenning founded Tesla Motors to pursue the commercialisation of electric cars with lithium-ion batteries and an asynchronous engine, already tried out on the Tzero.

What does this have to do with Elon Musk?

As you might guess, the Tesla trademark was born as a tribute to inventor Nikola Tesla, whose AC induction motor Eberhard and Tarpenning intended to use in their cars. They opened the first Tesla Motors office in an office building in Menlo Park, California. Throughout 2003, the companions would refine their idea and form a commercial proposal that would interest potential investors. The developers decided to start with the production of a two-seat sports car, after which they would gradually explore more mass segments.

The car had to deliver all the benefits and absorb all the characteristics of a high-end sports car, at a lower cost to the customer and a lower resource cost to the planet. The plan was to accelerate to 100 kilometres per hour in 3.9 seconds, with zero exhaust emissions and a selling price below half that of the cheapest sports car. As a basis of the new electric car it was decided to use Elise model of the British race car manufacturer Lotus, some of components Tesla borrowed from Tzero. By early 2004, all agreements had been signed and Eberhard and Tarpenning could start looking for investors.

Elon Musk Photo: https://twitter.com/elonmusk/media

Through the combined efforts of venture capital funds, family and friends, the partners managed to raise several million dollars, but it was too little. A key investor was never found. Eberhard and Tarpenning recalled meeting Ilon Musk in 2001 at the Mars Society conference at Stanford, where the well-known co-founder of PayPal Inc. was a keynote speaker, infecting everyone with space ideas. In 2002, PayPal Inc. was sold to eBay for $1.5bn.

The deal transformed 31-year-old Ilon Musk into a wealthy businessman and promising investor. In May 2002, he founded another company, Space X, which designs, manufactures and launches advanced rockets and spacecraft, proclaiming its mission to “reduce the cost of spaceflight” and “pave the way for the colonisation of Mars”. Following the presentation, Musk agreed to invest in Tesla Motors and became chairman of Eberhardt and Tarpenning. According to Business Insider, the first round of investment amounted to $7.5m.

Musk’s spat with Eberhardt: it couldn’t go on like this forever

“Tesla was an unheard of start-up. Eberhard and Tarpenning set their sights on producing a car that would prove to the world that electric cars are not just for the golf course. But they were far removed from the automotive world and everything was new to them. This could not but affect the timing of the first model – literally everything had to be learned from scratch, every little detail was a problem, Tarpenning recalled years later.

Sketch finalists in the design competition for The Roadster. Photo: businessinsider

Tesla continued to grow and develop its first car, The Roadster. The company opened its own production facility in Fremont, in a 5.5 million square foot factory formerly owned by Toyota and General Motors. By 2006, the company had more than a hundred employees. In May, the first prototype of a new electric racing car, the EP1, was ready. According to Forbs, $13 million was invested by Elon Musk and the rest was raised from contributions from major US venture capital funds Valor Equity Partners, Compass Technology Partners, VantagePoint Capital Partners and business angels, Google co-founders Larry Page and Sergey Brin.

It has become apparent that Tesla Motors needs to enter the media field. The company signs agreements with several advertising agencies. On July 19, 2006 Tesla held a big presentation of The Roadster prototype in Santa Monica. The list of 350 invited guests included major politicians, movie stars and billionaires, even then California Governor Arnold Schwarzenegger was among the guests. The purpose of the presentation was to create a “List of a Hundred” – the first hundred buyers of The Roadster. The guests were invited to take a cheque book to the party, test drive the prototype and buy an exclusive model with a special plaque signed by Eberhard, Tarpenning and Musk for $100 thousand.

Arnold Schwarzenegger at the Tesla launch. Photo: wikipedia.org

Following the test drive of the EP1, a new wave of problems and shortcomings with The Roadster has emerged. The entire Tesla Motors team once again set out to fix the imperfections. Meanwhile, the PR has done its job. Within two weeks of the launch Tesla sold 127 cars. The company started to be talked about – publications started appearing in The Washington Post, The New York Times and other messengers of America. However, not all of them were satisfactory to Ilon Musk.

2006 is considered the date Tesla’s chief investor conflict with its founders, Eberhardt and Tarpenning, began. Musk was angered by his role as an “early investor in Tesla”, which was attributed to him by journalists and the public. He insisted that he was equally involved with the founders in conceptualising The Roadster. Looking ahead, Musk would later retroactively refer to himself as co-founder of the company, causing confusion.

Tesla production

Misunderstandings at the top of Tesla were piling up. As work on The Roadster simmered, questions remained unresolved on literally every front – from production design to parts acquisition to reliability testing, Eberhardt told Business Insider. As soon as the team was able to finalize any part, all the new optimization suggestions kept pouring in. The production of the electric car was delayed. The staff was growing, the bookkeeping of the huge company was getting more and more complicated, and Eberhard could no longer combine all the managerial duties with work on The Roadster. The question arose of finding a new CEO who could relieve Eberhardt’s workload.

The responsibility for the delay in the release date of the first Tesla model also largely lies with Ilon Musk, the US media agrees. He has always had his own take on The Roadster’s style and often made constructive suggestions, but was rarely present in the office, which meant that his suggestions always created chaos. Musk and Eberhard would spend hours arguing about the “stuffing” and aesthetics of the electric car, and a new Tesla CEO was never found. Eberhard, on the other hand, was no longer able to cope with all the administrative responsibilities.

The production of components and parts for The Roadster was located in dozens of countries in Europe and Asia, due to lack of attention to the selection of foreign partners, unclear accounting and erroneous calculations the cost of the car increased from an estimated $85,000 to almost $200,000. There are different points of view regarding the culprit for the first failures of The Roadster. We won’t go into hypotheticals, but whatever the case may be, Eberhard resigned as president of technology at the insistence of Tesla’s board of directors on August 8, 2007. The Tesla founder was notified of the board’s decision by a phone call from Elon Musk.

Tesla production.

Eberhardt’s parting with Tesla was messy, with defamation lawsuits and severance packages lasting several years. Michael Marks, the former CEO of electronics manufacturer Flextronics, took over as interim CEO. Already on November 27, 2007 Marks was replaced by Zeev Drori, the former CEO of car maker Clifford Electronics. Ilon Musk, on the other hand, was sinking deeper and deeper into the Tesla business. By then, his management skills were no longer in question. He earned a reputation as a tough, aggressive, at times even tyrannical, but effective manager. During the year Musk actually rebuilt the whole Tesla management system, shuffling the staff significantly. At the end of 2007, Tarpenning leaves the company, not resigned to the innovations.

Let’s go!

Musk’s tight control was paying off: even before the release of The Roadster, the whole world knew about Tesla. By 2008, the company was finally ready to launch its first electric car. However, by that time, after a follow-up audit, Tesla came up with disappointing results: the development of the car cost $140 million, five times the original budget. The declining car market could not be ignored either – the world’s leading car companies one after another declared bankruptcy and Tesla brought out The Roadster. In order to save the company, Elon Musk invested several tens of millions of dollars from his personal budget and again turned to investment funds. After the situation balances out, Musk becomes CEO of Tesla in October 2008.

The Roadster went into production in March. The model proved to be a success – already by 2012 the number of cars rolled off the production line was 2,600. With a top speed of 60 miles per hour in 3.6 seconds and a top speed of 220 miles per hour (350 km), The Roadster reached speeds of 125 miles per hour and was the world’s first affordable all electric car. As Tesla’s contract with Lotus for 2,500 cars expired at the end of 2011, the model went on sale in 2012.

The prototype of Tesla’s second model, the Tesla Model S, was unveiled in 2009 at the Frankfurt Motor Show in Germany. Musk’s second electric car rolled off the production line in 2012. The Model S can travel 426 kilometres on a single battery charge. Full battery charging time has been reduced to 30 minutes. In the most expensive configuration, the car is capable of accelerating to 100 kilometres per hour in 3.1 seconds. Prices for the Model S start at $75 thousand. In 2015, Tesla will begin mass production of its first full-size crossover, the Tesla Model X, capable of covering about 500 kilometres on a single charge.

Over time, Musk manages to bring reality closer to Tesla’s stated mission: the cost of electric cars is going down, and the performance is as good as that of petrol-powered cars. In 2017, the company launches its most fuel-efficient model, the Tesla Model 3, with a standard version priced under $35,000. The model was unveiled to the public on 1 April 2016. The prototype had been unveiled a year earlier, and 325,000 people had already reserved the car in the first week of pre-sales.

Tesla Semi electric truck photo: wikipedia.org

But Musk isn’t stopping there: On 16 November 2017, Tesla unveiled the Tesla Semi electric truck, which will begin delivery in 2019. The Tesla Semi can travel up to 800 kilometres without a battery charge. Not loaded, it can reach 100 km/h in 5 seconds, and with a full load of 36 tons, the acceleration time is 20 seconds. The battery of an electric truck can be fully charged in just 40 minutes. Interestingly, the company has already received orders for the Tesla Semi from global corporations in 2017. It is known that PepsiCo alone has booked 100 electric trucks for its own logistics service.

Tesla unveiled its first SUV, the sixth Model Y, in March 2019. Production of the vehicles will not begin until autumn 2020. The Model Y has an uncharged range of 370 km and will accelerate to 100 kilometres per hour in 5.9 seconds. The vehicle will have a top speed of 193 kilometres per hour. In the base configuration, the car will cost $39,000.

According to Forbes, Tesla’s capitalization was $28 billion in 2014, and over the past five years it has reached $50 billion. Although many experts now call Musk’s company a “bubble” that is about to burst. In 2018 Tesla’s revenues amounted to $21.4 billion, but throughout its existence the company has never ended the year with a net profit, the loss for the past 2018 exceeded $970 million. Ilon Musk himself during his years at the helm of Tesla has become famous for his careless and questionable, often controversial statements on Twitter. On his social networking account, he has repeatedly been found to have made unrealistic promises about ramping up car production, making profits and buying back Tesla’s publicly traded shares in order to take the company private. The US Securities Commission accused the businessman of fraud and attempting to boost the share price. Following court proceedings in September 2018, Musk was suspended as chairman of the board, paid a $20m fine and was forced to agree to coordinate his posts on social media.

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