‘Tesla death watch’: How Elon Musk’s EV maker survived its early years despite major glitches in its first vehicle 

Before Elon Musk, came M&M. Martin Eberhard earned a bachelor’s degree in computer engineering from the University of Illinois in 1982 before beginning his career in the Silicon Valley. There he met Marc Tarpenning who also earned a bachelor’s degree in computer engineering from UC Berkeley. Together they founded a company in 1997 named NuvoMedia, which developed and sold one of the first e-readers, Rocketbooks. This venture was moderately successful with Gemstar–TV Guide International acquiring it for $187 million in 2000. Meanwhile, Martin and Marc were set for life but not out of ideas, thus, the pair focused their entrepreneurial sights on building an electric vehicle.

Eberhard and Tarpenning founded Tesla Motors in July 2003 with a passion for cars and concern for dependence on imported oil and climate change. They served as CEO and CFO, respectively. The pair developed a set of three guiding principles:

• An electric car should not be a compromise. With the right technological choices, it is possible to build electric cars that are better cars than their competition.
• Battery technology is key to a successful electric car. Lithium-ion batteries are not only suitable for automotive use. These are game-changing innovations that bring a decent driving range into reality.
• If designed right, electric cars can appeal to even the most serious car enthusiast, as electric drive is capable of seriously outperforming internal combustion engines.

Ian Wright joined the M&M pair a few months later, with J.B. Straubel coming on board as chief technical officer in May 2004. Not until February 2004 did Elon Musk make his debut fresh off the $100 million bonanza from his PayPal sale proceeds two years prior. Musk provided almost 90 percent of the $7.5 million in Series A funds the group raised and became Chairman of the Board and Tesla’s largest shareholder. This investment would eventually result in Musk becoming the richest human on the planet and J.B. Straubel becoming a billionaire. The other three founders did not benefit as magnificently from the financial upside of Tesla. Following a lawsuit initiated by Eberhard, a settlement was reached in 2009 that agreed that there were five founders of Tesla, in order of joining the company—Eberhard, Tarpenning, Wright, Straubel, Musk.

The founders’ strategy was to debut a premium sports car targeted at early adopters. This would allow premium pricing and an ability to profit (survive?) while building the company and transforming the supply network (really developing one) before a later pivot to mainstream vehicles and affordable compacts. Over the next few years, the company completed three rounds of financing bringing on board over $100 million in investment and such giants of the technology industry as Google cofounders Sergey Brin and Larry Page, as well as eBay president Jeff Skoll. Musk’s deep connections within Silicon Valley and the venture capital industry undoubtedly were a foundational component of the nascent company’s coming triumphs. At the same time, the drive, beliefs, and persistent passion of Eberhard, Tarpenning, Wright, and Straubel were elemental as well. Alas, there is a saying—“to the victor go the spoils”—and often, there can only be one victor.

The company’s first car, the Roadster was intended to be an ultra-premium car priced at over $100,000 when the concept vehicle debuted in 2006, roughly $150,000 today. By January 2005 Tesla had expanded to a couple dozen employees and was working on prototypes in a two-story industrial building in San Carlos, CA. The company finished a quarter-scale model that month, and a full-scale model in mid-April. By May 2006, the company was passing one hundred employees and believed it had a winning product. Tarpenning said at the time “You can feel it. It’s a real car, and it’s very exciting.” So exciting, that Arnold Schwarzenegger helped debut it with a photograph of J. B. Straubel driving with Schwarzenegger appearing in Automotive News on September 25, 2006. 

‘Tesla death watch’

One small problem. The difference between building a concept car by hand and mass producing one at any level of affordability is huge. Auto manufacturers routinely spend several million dollars hand-crafting a concept car that cannot be produced at scale. One primary reason is to tease customers with potential features and technology that might not reach the broad market for several years.

In 2006, Tesla sought to show a concept car using electricity to a public addicted to internal combustion engines. The leap from a concept car to one produced at scale and sold to thousands of people was a huge one.

Just as Arnold Schwarzenegger was photographed driving the first Hummer—which had a great run—before being killed off, an early photo op for Tesla included J.B. Straubel riding in a prototype Roadster with Arnold. The terminator called the Roadster “hot.” Having Arnold’s endorsement is a huge marketing coup, but not nearly sufficient to successfully launch a new car brand. Prior to Tesla, the last entirely new American brand still in play today is Chrysler, born in 1925.

The Roadster that the company eventually brought to market drove exceptionally smoothly, but the road from concept car in 2006 to “success” was like driving a Tin Lizzie over an unpaved road—breakdowns happened, frequently. The first and second transmission/power management systems were failures, necessitating a third effort. Finding suppliers was like climbing Mt. Everest on one leg. One step was establishing a battery factory in Thailand, three hours south of Bangkok. The partner supplier used a building left primarily open due to extreme heat. While this worked well for the stoves and tires the company was making, it was an utter failure for the far more sensitive batteries Tesla required. Eventually, the partner paid over $70,000 to correct the conditions with temperature controls and drywall. Further, the Tesla expats spent hundreds of hours seeking to train the Thai workers on the intricacies of handling fragile electronics properly. This challenging episode was repeated with slight variations many times.

In August 2007 Eberhard, who had served as CEO, was asked to step down by the board of directors and given the title “President of Technology” before ultimately departing in January 2008. Marc Tarpenning, who had served as VP of Electrical Engineering, left at the same time. Meanwhile, the website TheTruthAboutCars.com launched a “Tesla Death Watch.” The company was burning through cash faster than an Olympic sprinter covering one hundred meters.

In December 2008, a fifth round of financing infused an additional $40 million, and in June 2009, Tesla was approved to receive $465 million in low-interest loans from the US Department of Energy. At this point, Elon had contributed $70 million of his own money, roughly half the payout he received from PayPal’s sale to eBay. Willing to commit, indeed.

Two of the cofounders followed their time at Tesla with additional efforts in the EV space. J.B. Straubel founded Redwood Materials, which seeks to produce battery materials for Li-Ion batteries via recycling. On June 21, 2022, Toyota and Redwood announced a collaboration to develop a closed-loop electrified vehicle battery ecosystem. At the time, Redwood processed 6 GWh of batteries per year, roughly enough to power one hundred sixty thousand cars, with a stated goal of growing to 100 GWh and one million vehicles per year by 2025. In 2019 Eberhard founded Tiveni with the goal of making intelligent battery systems, which in turn was acquired by American Battery Solutions in September 2022.

The classic product life cycle has four stages: birth, growth, maturity, and decline/death. The Roadster carried Tesla, Musk, and Straubel through birth. The Model S transitioned the company into the growth phase. The company produced and sold twenty-four hundred Roadsters, fewer than a week’s production for a legacy manufacturer such as General Motors or Honda. Yet it was enough to keep the company alive for the Model S, which was produced and sold at a much higher rate. On New Year’s Day 2015, the company was valued at $35 billion, having produced roughly sixty thousand cars—approximately $600,000 per car.

Excerpted and adapted with permission from The Electric Vehicle Revolution: Five Visionaries Leading the Charge © 2024 by Kenneth K. Boyer. Used with permission of Rowman & Littlefield Publishers. All rights reserved.