Tesla Co-founder, Marc Tarpenning

It's great to be here.

Wow. I was not expecting that. So Martin and I met because my high school buddy and actually college roommate worked for him at a company. And then as we were meeting socially, we ended up getting into this Magic: The Gathering game, which turned out to be really crazy because for those not familiar with the game, it's one of these games where it's a card game where you build your own deck, but then the rules change constantly because the cards that you play change the rules of the game. So, you're always trying to change the rules obviously for your benefit and against the other players. And it just has a lot of funny strategy to it. And of course, it's brilliantly designed to want you to buy as many cards as you possibly can. So, we would be up late with a bunch of us. It wasn't just Martin and I. It was four or five of us playing this crazy card game. And then a week later, we'd be back at it. But, of course, everyone had gone out and tried to get different cards in the interim and had reshuffled their deck. And it was fun.

That's a funny thing because you're always resource constrained in that game. The energy is constrained as well as the number of actions you can take is constrained.

Well, I had always been fairly entrepreneurial growing up at a time when computers were not that common. So if you were a total electronics computer head when I was a teenager, I knew everybody who had a computer in Sacramento, which had like half a million people. And when a lot of my dad's business associates would come and say, 'Oh, can you come over and fix this or could you explain to my admin how a computer works, what you're supposed to be doing?' So, I was doing all this consulting as a 14-year-old. So, it felt very natural to not end up working for a big company. And then my first job out of college was working for a giant company, but that was not intentional at all. I actually was not looking for a job at all. And I got tracked down.

While I was in college, I was doing a bunch of consulting. Basically, I was working part-time for these various companies and charging at the time a lot for it. So, when I finished college, I was so burned out graduating and working. And so, I went to Europe with some friends and unlike everybody else, I did not have a plan after that. I thought I'm just going to hang out in Europe for as long as possible. But then when I checked in with my parents because it was at a time when there weren't cell phones or anything. So you actually called places and not people. It was kind of a weird time. Hard to imagine now. But anyway, so I called my parents just to check in. And they said, 'Hey, this guy has been calling every day. You got to call him back.' And then he bribed me to come home and start working on a project which is the project that I ended up going to Saudi Arabia on.

Yeah. Well, I happened to have been an expert in an obscure computer language, weirdly, and they really needed that. There was a project in Riyadh in the capital that was hugely behind schedule and hugely overbudget and a complete disaster. Textron is a company, it's a giant multinational, had a group of misfits that fixed these things, that didn't like process and didn't like stuff that got in their way, and they deployed them on projects that were messed up. They recruited me to come and be one of the misfits and fix this project which was supposed to take I think they said just three months and I was there for six years.

Well, that's a really good question. I see a lot of EV startups and there have been quite a few since Tesla. Motivated largely because of Tesla's success, I think. And Telo was the first one that to me made a lot of sense. Part of it is that it is easier to start a company. Well, I think it's easier to start a company in general now, but even something as complicated as a hardware company that's doing real hardware, you know, like cars and stuff, it's better because you get to focus on only the things that matter. We had to invent so many things at Tesla that we just didn't care about at all. Electric air conditioning and electric power steering, we had to invent that because it didn't exist. And now all that stuff is off the shelf. And that is awesome, which makes it so that you can develop really interesting niche products that don't have to sell millions of units in order to recover your capital costs. So I think it's a really exciting time in the automotive industry in general because you can have really interesting cars again that for a long period you couldn't make anything if it didn't sell a million a year.

So Telo makes and you got to go to the website. They have some great videos and stuff of their vehicles. They make a very compact pickup truck basically that's quite cleverly designed so it can become a pickup truck and haul a whole pickup truck full of stuff or you can fold a couple of things and now it's a four-passenger little car. The great thing is it's the size of a Mini so it really is compact. It really does fit into parking spaces in the city for example which turns out to be a big deal. And it's electric, quick, and it has great range and all the stuff that a modern EV you'd expect and I think it's quite a compelling vehicle.

Oh, yeah. We hired him in the first year probably at Tesla and then he was with us for a year or two, I think.

Well, you really had to dig for that quote. Well, think about Blade Runner. A couple of things I really liked about Blade Runner, but largely it was a place you didn't want to live. And as entrepreneurs, we actually create the future. When you're building a new product, by definition, you're creating something that doesn't exist because otherwise you wouldn't build it. So, you're building that future. And I want to be involved in companies that are building a future that we all want to live in. And the Blade Runner thing, I mean, the flying cars would be cool, but other than that, it was a grim movie. So, the idea of the Star Trek future where you have resource abundance, where everyone is treated well, and there's lots of interesting stuff to go do, that's the future that I want to create.

That was after Saudi Arabia.

That's an interesting thing. So I was in Saudi forever and then came back to Silicon Valley and was looking for something to do and as one does you go to a bunch of parties and actually the very first party I went to I got offered a job to do disc drives which I knew nothing about but they actually turned out to be super cool because they had a mechanical aspect and an analog aspect and a magnetics aspect and then their firmware which is my specialty and have all kinds of power requirements and power saving. There's a lot going on in them. So, I started doing that and the first one was so much fun and the second one was and I love factories and I'm in the clean room looking at a drive or whatever and trying to figure out what's going on with the factory process. Really neat. After the third one and I got really good at them and I was just freelancing so I had all these offers to go and do the next one, the next one, the next one. They're all the same. And actually Martin and I both went to something called DisCon, which is the big hard disk conference. And it was so dull that I thought I was just going to collapse right there. And as we're walking out, I mean, we're literally saved by an espresso cart that was there. Oh my god, we're not going to make it. And then it was an espresso cart. So we walk out and we said, we just can't do another one of these. This is the end. And we started looking for what to do next. And we looked at technologies that were just emerging. So things that were just barely good enough but were continuously getting better. So we knew that if we could make a product that was compelling now that the tailwind would be with us that every year it'd be easier and if we waited too long if it was easy then everyone would be doing it and we wouldn't have any advantage. So we looked at a bunch of different things and one of those was we had seen what we'd heard of display technology and it's ridiculous now to think about but at the time flat panel displays didn't really exist. There was no color flat panel displays. And the ones that were black and white had such poor contrast ratios that if you rendered anything with any detail, you couldn't read it very well. I mean, you would never want to read a book that way. But we had heard that there were some new technologies coming out that were better. So, as an experiment, we went to Japan, which had all the best displays, and we looked around and got intros to every display manufacturer and found one that was good enough, just good enough. And it was actually at the time remarkably beautiful and we knew this is the beginning of having displays that actually are usable for reading. So we figured we'd make an electronic book that you could store many many books in because we traveled a lot. So that was the impetus.

So we had a variety of different fun product ideas, but we wanted to find one where the technology was going to enable it. And so electronic books was one of them. So we had the defining thing there or the critical path is a display that's good enough. So we had to go do that. From the disc drive industry, we knew that something remarkable was happening and that the disc drives were getting fast enough that the data going onto the head and coming off the head was fast enough to keep up with this new MPEG thing for video. So, it'd be possible to actually record video onto a hard drive, which again, this all sounds ridiculous, but in the 1990s, that was really technically not possible, but from the hard drives, we knew it was just now possible. The very cutting edge drives were fast enough. Consumer drives, I mean, the supercomputers could always do it. And so, we looked at making digital video recorders, but neither of us had TVs, and we thought it's funny to do that, and we don't watch TV, so it doesn't seem to work. We looked at multiplayer video games because the internet is all dialup modems, but there was some little bit of broadband. We thought, 'Oh, maybe if we could make something work with multiplayer games, if we could get the latency down, then as that improved, as our connectivity improved.' So, we looked at all kinds of different things, but the one we settled on was this display. We saw the display was just like, 'Oh my gosh, this is going to change everything.'

Yeah, the exit was great. Yeah. So it turned out we were selling books. We had done all the deals with the publishers which was part of the fun. We wanted to go to New York and meet publishers and authors and that was part of the game. That was all great fun. And then out of the blue, totally out of the blue actually, an acquisition offer came from Gemstar TV Guide, which at the time was the largest publisher really in the world because of TV Guide, which we didn't believe the offer at the beginning. And then as we got to know them, we understood what their plan was and thought, 'Oh, okay, that's actually not crazy.' And they acquired us in 2000, which was convenient because the dot-com bubble was just about to burst.

It worked out. Yeah.

It was a funny thing though. I mean, Gemstar TV Guide at the time was run by this crazy but very interesting character named Henry Yuen, who had just exactly the same number of shares as the other shareholder, which was Rupert Murdoch. Except Rupert actually didn't have as many shares, but he did this incredibly tricky deal after our acquisition and took control of Gemstar TV Guide by having one extra voting share than Henry.

It was really crazy. And Rupert ultimately killed all the digital publishing and ebook projects at the time. And he quite famously said on a newscast at the time, he says, 'No one will ever read on a screen.' So he kills the project. And then what was great was about 10 or 15 years later, somebody sent me a news clip of him being asked about that specifically because he went on to say how newspapers were going to be the dominant form forever because they're so cheap to make and they're so easy. And he's a newspaper guy. And they asked him about that exact quote and he said, 'Yeah, that was a mistake. I missed it. I shouldn't have killed all those things.' I thought, 'Oh my gosh, that was great.'

Yeah. But, you know, once you sold the company, they bought it fair and square and they can do whatever they want with it. So, you can't look back. And that freed us up to go do other things.

Oh, actually, I was working for an internet plumbing company. It was called Packet Design and it was doing deep router stuff. Judy Estrin, who was the CTO of Cisco, a friend of mine, had started it right in 2000, right as the world was falling apart. And she said, 'You got to come over and help me out here.' And it was great fun. And I learned all about how the internet actually works and how the plumbing works, which I didn't know about. Super great people, interesting place, but bad timing in terms of an internet plumbing company during the catastrophe. So, they ultimately didn't do very well.

Yes, it was. There's an interesting story about that. So anyway, at 2002ish, the internet plumbing thing, my attention span's not very long. So internet plumbing, deep dive, got really into that and then it's like, wow, I understand how all this works. We have these products. It's a difficult market. Anyway, so by this time ready to go do something else, something new and Martin at that point resurfaces and we're trying to think of what to do next. And he was really interested in electric cars, but then there weren't any. The EV1 got crushed. Literally, they all got crushed.

Yeah. And they only leased their vehicles and all of them were in California.

And it's an example of as a company what you should never do because GM for the first time in their recent history at least was selling into the very most economically advantaged people in California and only was available in California and it was only rich people who leased these things even though they weren't particularly expensive leases but it was only rich people who really wanted them for whatever reason and so when they canceled the leases when they got the laws rewritten so they could kill the thing and they got rid of all the electric cars they canceled the leases and crushed them. And many of these people sued and they put their lawyers from Wilson Sonsini or whatever trying to keep their leases, but GM said, 'Absolutely not. If you read the fine print, we can cancel any time and crush your car.' Just as an entrepreneur, if you're selling something that your customers love so much that they're willing to spend thousands of dollars of their own money on lawyers to try to prevent you from taking it away, to take that away and crush it in front of them, they're never going to forgive you. You're never going to sell another car to them or another product. I mean, only GM would think that was a good idea. So, Toyota had exactly the same deal, and they did exactly the same thing, and they were the only other company that made decent electric cars. When their customers went and said, 'Oh my gosh, we love these things.' They said, 'Oh, okay. Well, you can just buy out the lease. We weren't planning on that, but everyone seems to love these cars, so you can buy out the lease, and we'll come up with a deal that allows it to be serviced because we want to keep all our customers happy.'

Oh, yeah.

Many of our early customers told us these stories of throwing the bodies of their lawyers down trying to prevent their cars being taken because the first question that we would get asked is, 'Do we own this car or is it going to be leased?'

Exactly. That was very inspiring. About the same time the Prius had launched in California and it was only in California and they were losing money on every Prius and it immediately began to eat into Lexus sales and the Prius was on their Echo platform which is Toyota's very very cheapest platform and they didn't expect it to be eating their Lexus sales.

They were ugly. They were super bare bones. But Toyota, when they saw the demographic of who was buying them, as soon as they could retool, and it takes them a little while, but I mean, as soon as they could retool, the next model year, maybe the model year after that, had all these luxury upgrades that you could buy because they understood. And it wasn't because people were trying to save money. I mean, because gas was free. It was like a buck a gallon or whatever. People were doing that because they wanted to reduce their oil consumption for whatever reason, whether it was for geopolitical things, national security, environment, whatever. And we thought between the Prius people and our experience with the EV1, there is a market for something that would be high performance and nice and electric and people would buy it. That was our premise.

If it had just been like, oh, we're going to make gasoline-powered sports cars or whatever, we would never have done that. So, I was concerned at that time we were importing nearly all of our oil and having been in the Middle East for so long, that's just not a good place. There's lots of interesting things in the Middle East.

I wanted to reduce our oil consumption purely from economics and national security. Just I thought it was wrong for the US to be consuming so much oil. And then I've always been a radical environmentalist. So oil is a disaster on so many different dimensions at the same time that to be able to do something to change that would be amazing. So when Martin was saying, hey, you know what about electric cars? Which I thought was insane initially as a business, that's when we really began to dig in as to is there a market for it? Because if you want to actually make something that moves the needle, it's got to be better. It's got to be compelling in some dimension that people were willing to buy. Because if it's just good for the planet, well, that's great. Except people might buy one or two, but cars, they might buy one, but after a while, they're going to get tired of just being good for the planet and fail. You want to make a product that actually is compelling that people want. And by the way, is better for the planet in some dimension. So we really with electric cars, it was so clearly a win for energy. So much more energy efficient just in general. It obviously can be completely carbon neutral, which is huge. It solves the whole national security problem at the time before fracking changed the equation. And it's super fun to drive. I mean, they're just way more fun to drive. And they're more convenient and they don't break down. And all those dimensions are so much better. And I thought, well, this is super exciting. And the batteries again were just barely good enough, but they were getting better all the time.

It was just beginning. The data was coming in that it was looking like climate change was really happening and that the CO2 concentrations were problematic. But you're right, in 2003 this was not settled science yet. But there was enough indications that it was like, well, because the consequences of getting this wrong are so high, rational people should reduce the amount of CO2, their lifestyle CO2 should be reduced because this looks like it might really be a problem. And if it is, by the time we figure out whether it really really is, the train will have way left the station. You're not going to be able to change the trajectory very much.

So Martin and I coming from consumer electronics from our ebook days, we had seen batteries get better. Every generation of battery was better than the previous one. Was cheaper, lighter, more energy, whatever the metric was, it was always better. So, lithium-ion had just come out. They were still really finicky. I mean, they're still kind of finicky, but they were really finicky then. And actually, our very last ebook that we produced, the last model, had lithium-ion cells. And we're like, 'Wow, these are a lot better than the nickel metal hydrides that had preceded them.' So, if you do the math with the best cells that you could buy, which were these things that are called 18650s at the time, and those were like fat double-A's and every year they get cheaper and better. Martin just said, 'Well, what if we bought a whole bunch of those?' And I said, 'Well, this is insane. It's going to take thousands of them.' And the manufacturing dealing with thousands of those things is going to be a nightmare. But it turned out actually that was the best deal because we couldn't afford a billion dollar plant to build different cells. And by the way, there wasn't yet a CATL or BYD making these cells to order. Nobody. Sony invented lithium cells. Sony made some and Panasonic and Samsung and few other Sanyo, maybe a few other players, but very few. But 18650 was the one thing they all made. So the great part is that there was competition. So that had the best price performance ratio of any of them. And when you added that up, it's about 7,000 cells for a Roadster.

Exactly. At the time they were in every laptop because laptops were big at the time. They were in camcorders. That's a thing before there were cell phones and stuff. There were these camcorder things. And so everybody had a few cells. So when we just with the spreadsheet said, 'Well, what kind of car could we make? What range could it have? How heavy would it be? How many cells would it take?' Which dictated the cost. And that turned out to be we could just make a compelling car. We could make something like a Roadster that had incredible acceleration, which was a metric that people pay for. So, it was great. It would be quicker than an internal combustion engine car for the price by far. And every year the cells get better and cheaper. So, the major cost component of our product got better and cheaper without us having to do anything every year and had been getting better and cheaper for 30 years. So, there was an enormous history of getting better and cheaper. So, we figured if we can make the economics work with the existing cells, by the time we're in production, the economics will even be better. And as we grow, the tailwind will even be greater. And maybe if we grow big enough, we can influence the direction of those cells in a way that would really be beneficial for electric cars.

Well, a few thousand.