In parallel, JB Straubel and Elon Musk had driven the AC Propulsion T-Zero prototype roadster EV and they were impressed. Musk asked them to make one for him. They said they were not making cars, the prototype was only to demonstrate their motor and controller products. If they wanted a car, they should talk to the folks at Tesla.
Straubel and Musk looked into Tesla and saw that (at that point) they had not made much progress. Musk and Straubel discussed the idea of creating their own EV start-up to compete with Tesla. From his PayPal days, Musk saw firsthand that two competitors (Confiniti and X.com) could merge, rather than compete, and the resulting company could achieve their goals faster. So, rather than creating a competing start-up, Musk and Straubel would invest in and join the fledgling Tesla.
Musk invested $6.5 million in February of 2004 in the company's series-A investment round. This made Musk the largest Tesla shareholder and chair of the board of directors. Straubel joined Tesla in May 2004 as Chief Technology Officer.
Innovation is Tesla's Lifeblood
The legacy automakers are being disrupted by 4 simultaneous megatrends (Electrification, Mobility as a Service, Self-driving Cars, and a Relentless Pace of Innovation). If the legacy automakers cannot navigate all four of these, they will not survive.
Whereas, Tesla is in a position to be propelled by each of these trends. Tesla has a culture of innovation. Their very first product was one that the auto industry said no one wanted. Then Tesla made their second vehicle, the Model S, and again the auto industry forecasted Tesla's demise. These waves of doubt have preceded each of Tesla's products (the Semi was called impossible by multiple "experts") and doubt still precedes planned product introductions like the Cybertruck and the Robotaxi.
Tesla has a series of moats, but they frequently actively work against their own selfish interests to move the entire industry forward such as opening the Supercharger network to EVs from other manufacturers and open-sourcing their patent portfolio.
More on how they perform these marvels of engineering later, let's get back to the founding storyline.
Internal Struggles
Wright and Eberhard could not agree on the Roadster engineering direction. How much should they rely on external vendors like AC Propulsion and Lotus, and how much should they do themselves... The disagreements between Wright and Eberhard became heated to the point that the two men could not be in the same room without a firestorm erupting.
Wright approached the board attempting to oust Eberhard and name himself as Tesla's CEO. As chair of the board, the decision fell to Musk. It was clear that one of them had to go. Musk chose Eberhard to stay and continue as the CEO. Wright was asked to leave the company. Wright left Tesla in 2004 to start his own EV company, Wrightspeed.
This was not Eberhard's only struggle with Musk and Tesla's board. In August 2007, Eberhard was asked to step down as CEO. Eberhard did step down and ultimately left the company in January 2008. Co-founder Marc Tarpenning also left the company at the same time.
When Eberhard stepped down as CEO, Michael Marks was brought in as interim CEO. Just 4 months later, Ze'ev Drori replaced Marks. Nine months later, in October 2008, Musk succeeded Drori, becoming the 4th person to hold the title of CEO at Tesla.
Founder Lawsuit
Eberhard may have left Tesla in 2008, but his scrap with Musk was not over. In June 2009, Eberhard filed a lawsuit against Musk for allegedly forcing him out. Of all of the allegations thrown back and forth during the lawsuit, one of the more trivial and heated fights during the lawsuit was about who gets to refer to themselves as a founder of Tesla. Eberhard argued that there were only two people there when the company paperwork was filed, founding the company. Musk argued that the company was just two people with an idea on a napkin (more likely engineering paper) before he funded it. The net result of the lawsuit was that five people were named by the court as official co-founders of Tesla (Eberhard, Tarpenning, Wright, Musk, and Straubel).
Roadster
Despite the fighting within the C-suite, the mission moved forward and on July 19th, 2006 in Santa Monica, California, Tesla unveiled the Roadster!
Tesla began production of the Roadster in 2008.
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| Tesla faced many doubters |
After the launch of the Roadster, it was not immediately obvious to the industry, media, or most of the public that EVs were the future and that Tesla would change the auto industry forever. Instead, they were met with skepticism and derision.
This attitude also applied to many auto parts suppliers too. This meant that many suppliers would not return Tesla's calls, or if they did, Tesla did not receive top-shelf service. Why would a supplier put their best team on a niche, small-volume player that is likely to be out of business soon? They didn't. This made it painful for Tesla, but it also meant that they developed the muscles(skillsets) that they'd need to do that no one else was doing. Tesla makes their own circuit boards, writes their own software, and even makes their own seats. This in-house design, engineering, and vertical integration allows the company to have more control over the driver experience, adapt to supply-chain issues, and innovate more quickly. The lack of support from the industry forced Tesla to vertically integrate and now vertically integration is one of their greatest strengths.
Despite the auto media's mockery of the Roadsters and the EV market in general, Tesla persisted. Two thousand ten was a big year for the company, they purchased their first factory and the company became publicly traded.
What Makes Tesla Different?
We'll cover more about the internal workings (and occasional dysfunction) of the company later. Now, we'll look at the north star of the company. Tesla is a mission-driven company; they are an innovation company. The products are the means, not the end. Here's a (far from exhaustive) list of ways that Tesla is unlike legacy automakers:
- Tech company first: Tesla comes to the automotive industry from a very different angle than every car company that preceded them. Tesla is a technology company first. A technology company that makes cars (and other things), rather than a car company that uses technology. One obvious example of this is the connected car. Every car that Tesla has made since 2012 has cellular wireless connectivity. Over-the-air updates are pushed to the car several times each year. This allows Tesla to add new features, improve performance, fix bugs and address recalls, all without bringing the car in for service. Even though this has been a standard feature from Tesla since 2012, it is still highly uncommon for legacy automakers.
- Mission Driven: Tesla has a long-term plan to use their technical prowess to move planet Earth from fossil-fuel energy sources to renewable energy. This includes energy production, energy storage, and energy use. This is not a plan that requires you to drive a limited short-range vehicle, or huddle under a blanket for warmth while wearing multiple layers in the winter. Instead, this is a plan where humanity has more comfort and more conveniences. With renewable energy, when done right, energy will be more abundant. With renewable energy, every kilowatt-hour does not require mining, drilling, or some other extraction process. Humanity can move beyond "mine & burn."
- Customer Experience: All automakers manufacture vehicles and parts, but usually sales and service are handled by dealerships, not the automaker themselves. Dealerships are independently owned and while they have contracts with the automakers, they are their own business and they may have a very different agenda than the automaker's banner that flies over their lot. Tesla, on the other hand, provides the sales and service directly via service centers that they own.
- Charging Network: When you fuel up an internal combustion vehicle, you are generally buying gasoline from an oil company, rather than the company that made your car (you don't go to a Toyota or Ford branded gas station). Tesla, on the other hand, has a vast network of Superchargers where owners can recharge (while paying Tesla directly).
- Insurance: Similar to service and recharging, Tesla also offers insurance in some regions. Allowing another option for owners and another revenue stream for Tesla. This is yet another example of vertical integration by the company.
First Factory
In May 2010, Tesla purchased a factory in Fremont, California from Toyota that would become the Tesla Fremont Factory. Tesla paid $42 million in cash and stock for the plant and opened the facility in October 2010 to start production of the Model S.
IPO
On June 29, 2010, Tesla became a public company via an initial public offering (IPO) on NASDAQ with the ticker symbol TSLA. Tesla was the first American car company to IPO since the Ford Motor Company had gone to market more than five decades prior in 1956.
The IPO price was $17 per share. Today, the stock trades at around $200 per share; but that's only part of the story. The stock has split twice since its IPO. The first split was 5 for 1 and the next was 3 for 1. So rather than $200 per share today, the split-adjusted share price is around $3,000 per share. If you bought Tesla stock in the summer of 2010, you'd have 15 times more shares than you bought and the split-adjusted share purchase price would be only $1.13 per share and you'd be up 175 times or 17,500% on your investment.
Vehicle Introductions
If Tesla had only made the Roadster, they could have been a niche high-end electric sports car maker, but they had much bigger plans. The Model S luxury sedan was introduced in 2012 (and won Car of The Year), the Model X SUV in 2015, the Model 3 sedan in 2017, the Model Y crossover in 2020, and the Tesla Semi-truck in 2022. They also plan to start production of the Cybertruck later this year (2023).
The Model 3 is currently the all-time bestselling EV car worldwide. In June 2021, Model 3 became the first electric car to sell 1 million units globally. Model Y sales have ramped even faster than the Model 3 and Model Y is on track to usurp the bestselling crown from its older sibling this year.
Tesla's 2022 full-year deliveries were 1.31 million vehicles, a 40% increase over the previous year. The company's cumulative sales from the first Roadster (2008) through Q1 2023 is 4,061,776 vehicles. That's over 4 million EVs in total. This year, 2023, will likely be Tesla's 2 million production year. If things go according to plan, Tesla will have produced about 4.5 million EVs when they slice the 20th birthday cake and about 5.5 million by the end of the year; each one with zero tailpipe emissions.
SolarCity
In November 2016, Tesla acquired SolarCity, in an all-stock $2.6 billion deal. This launched Tesla into the solar photovoltaics market. The solar installation business was merged with Tesla's existing battery energy storage products to form the Tesla Energy division of the company.
This was a major step in Tesla's progress to become more than "just a car company." Soon after the acquisition, the company changed their name from Tesla Motors to just Tesla; indicating the broader scope of the company's ambitions. Some investors sued Tesla because of this merger. In my opinion, these investors never truly understood the company. The original 2006 Master Plan states that Tesla's goal is to "expedite the move from a mine-and-burn hydrocarbon economy towards a solar electric economy..." So it should not be a surprise to investors that understand the company, that they would move into solar energy production products. The vision of Tesla as a full-cycle energy company has only recently been laid bare, front and center in Master Plan 3.0.
S&P 500
Tesla reported four consecutive profitable quarters in the second half of 2019 and the first half of 2020. This made them eligible for inclusion in the S&P 500. Tesla was added to the index on December 21, 2020. Tesla was the largest company ever added and the sixth-largest company in the index at the time its of inclusion.
What Makes Tesla Different - The Agile Manifesto
We've covered Tesla's product development in some detail recently (here). Tesla fundamentally designs and develops vehicles differently than legacy automakers. Tesla uses technology development methods and deploys improvements as soon as they can. This means there are no model years for Tesla's products.
To support this rapid pace of change, each vehicle has a suite of built-in self-tests. These tests know how the vehicle hardware and software are supposed to work. If a change is made and a self-test fails, you know that change didn't account for all of the interactions that it needed to.
These built-in automated self-tests allow for rapid feedback. Rapid feedback allows for experimentation. Experimentation enables innovation. This allows Tesla to do things that are impossible at legacy automakers.
The pace of innovation allows problems to be solved, costs to be reduced, and the product to be improved. Having a rapid pace of change inherent in the system has other advantages too. When the supply chain problems hit in 2021, Tesla was able to adapt. Rapid innovation combined with their verticle integration, allowed them to change to new control chips when the ones they had been using were not available. They had to change their software, but when the built-in self-tests passed, they can have a high level of confidence in the new hardware and software components.
Tesla Energy Comes Into Its Own
Tesla's Energy Generation and Storage division brought in $1.3 billion in Q4 of 2022. This is more than 12% of the company's revenue for that quarter. To be clear, Tesla has a business, outside of electric vehicles, that brings in several billion dollars annually. Tesla's energy business is currently growing *faster* than Tesla's vehicle business (although starting at a lower level).
We've covered solar energy in the SolarCity section above. The bulk energy revenue primarily comes from selling energy storage products from industrial-scale to residential. Megapacks are their biggest industrial-scale battery systems. Powerpacks are the smaller (but still industrial-scale) units. These are well suited for critical operations buildings (such as a hospital). And last on Tesla's energy storage list is the Powerwall. This is for residential use. These provide blackout backup and solar energy storage (and they are
a lot of fun!).
Tesla is an electric utility in deregulated regions of Texas. This is yet another direct-to-customer relationship that legacy automakers would never even consider.
Tesla Becomes the Most Valuable Automotive Brand In The World
In early 2023, Tesla surpassed Mercedes-Benz and Toyota to claim the top automotive spot in automotive brand recognition. This is level of recognition is estimated to be worth a valuation of $66.2 billion. Quite an achievement for a company that spends little on advertising.
As recognizable as the stylized Tesla T has become, most people don't know that the logo comes from a cross-sectional view of an electric motor. The "T" is part of the rotor and the curved bar across the top is a portion of the motor's stator. The shield that used to surround the logo (shown at the top of this post) was dropped in one of the few updates that Tesla has made to their mark over the years.
