Telo Talks Ep. 4 - Tesla Co-Founder Marc Tarpenning

Yeah, it's great to be here, Forest. Those are just a very, very broad mandate. I mean, there's all kinds of things. You have all these parts. You know, the car consists of thousands and thousands of parts, and you try to keep track of them. The engineers specify these parts, they put them all in the database, and one of the things that's in that database of parts is the weight of the part. We discovered, when we went to build the car, which we thought we were within our weight budget—and for us weight really mattered because of our acceleration goals—we thought we were within the weight budget, but it turned out that if the engineer hadn't been able to figure out what the weight was going to be, they just left it blank, which was treated as a zero in the rollup. Suddenly all this extra weight started showing up as they actually were physically getting the parts and putting them on the car, and like, how could the car weigh so much more than we thought?

Martin came up with it, and I can't remember the origin story exactly on that, but we were kind of looking around for names for sure. We needed to find one that you could get the URL for, which you know, Tesla Motors—you couldn't get Tesla at Tesla Motors though. At that time, Nikola Tesla was very unknown. I mean, obviously there's a unit of measure named after him, but he was pretty obscure outside of the sort of geek community. We really liked the idea of something kind of honoring him, and then also he invented the AC induction motor. I mean, all those motor patents from the 1800s are AC induction motors, and he had letters that he had written to honor this thing, and it's a great name. And well, actually if you talk to trademark and copyright people, they're like, it's a terrible name, why would you do that? But it was good enough for us.

Martin and I had done another company together called NuvoMedia, which made an electronic book. We sold that company to Gemstar, which was a publicly traded company out there for a long time, so we got acquired by them, and that was quite exciting. One of the things that we had looked for with NuvoMedia when we were starting that company was, what had changed? We had been in the electronics industry forever, and things certain things started getting better and better and better, and you're like, well, this component is getting better, what can we do with that? In this case, it was small handheld displays, which seems ridiculous now, but at the time in the 90s, display technology was really bad and you couldn't render a screen well enough to actually read on it other than just big letters for like time or whatever. We had seen this display technology getting better and better and better, and we said, oh, we can make a book, we could make an electronic book, kind of like an early Kindle if you will. The thing that we had seen was that batteries were getting better and better and better every year. We had nickel metal hydride originally, NiCads, but then nickel metal hydride when we were doing the ebooks, but then our last version of the ebook had gone to these new lithium ion cells which were quite exciting. Every year they got better and cheaper and better and cheaper. So by 2003 when we started Tesla, there was this idea that, well, what is that upsetting? In electric cars, it's all about the battery. Suddenly battery technology is really a lot better and getting better and cheaper all the time. So the thing that costs the most to the car, the thing that really is the enabling technology, were on somebody else's sort of advancement and commodity curve. If we use lithium ion cells, if we could figure out how to make them all work and play well together—which was not obvious—but that was the sort of aha moment.

Yeah, we formed it. We had been talking about it for several months, and then we formed it officially, legally, on July 1st, 2003, which was a little bit of a mistake because about a year and a half later we discovered that Nikola Tesla's birthday was July 10th, and if we had known, we would have delayed it a week and a half and ended it on his birthday. But we didn't know at the time, and it never occurred to me to go look. We spent a full six months trying to figure out if it would really work. We did all these models, both financial models and a business plan, but also early spreadsheet models of what a car could be like with the battery technology that existed and what the costs were likely to be. By the end of that year, we had convinced ourselves that it was possible. We ran it past some VCs, and they were into it because, as it turned out, if you're only investing in optical routing and you see optical router business plans every day, if you say, hey, I've got this electric sports car idea, the whole partnership shows up. They were so excited to hear something that wasn't an optical router. Even though they knew they couldn't invest, they gave us lots of great feedback, really poking at various aspects of our business plan, which changed our business plan along this process. So in the first of 2004, we were able to go out and actually raise money with real people, including Elon. Elon was a lead investor of Series A, which was our first institutional round. We didn't do a seed round before that; we had put in a couple hundred thousand of our own money.

He's going to write a check whether it comes from some LLC he's created or whether it's just his own from his checking account. When you have those kind of resources, I don't think it matters too much.

Oh yeah, I mean there always is. The term sheet was totally standard. The issue is typical with valuation. There was some negotiation on valuation, that was pretty much it. All these term sheets follow the venture capital standard thing.

Our connection to JB comes through Elon. Elon had been trying to do this experiment getting into space, and he discovered that launch costs were insanely high. So at that conference he said, we have to solve the space industry as a whole has got to solve this launch cost problem because the fundamentals don't suggest that it should cost millions of dollars to put a kilogram into orbit. A year later he started SpaceX, and then the year after that we met him again the second time. We had been helping out AC Propulsion, which was a sort of hobbyist electric car company down in Southern California, and they had some connection to him. I think that was how they said, oh, Elon is kind of interested in this, you should go talk to him.

He was employee number five, I think, or six. Yeah, early on. Once we got funding, we were hiring, and we shook all the trees for people who were interested. He lived a block away from me at that time, so I would go over to his house and see him building the electric 944 that he made. He was in my class, so I knew him well.

During that six months where we were trying to figure out if it was possible, one of the issues was we were pretty sure we could make the battery—it's a complicated thing, but it's ultimately what Silicon Valley does, it's got lots of wires and computers and network connections, stuff we know how to do. The inverter is kind of the same way. The motor we thought we could get off the shelf, which turned out not to be the case, and we had to actually make our own motors for a while. But the car itself, the body, the chassis, the suspension, the steering, the brakes—that's all mechanical engineering, bending metals and screwing things together. So we looked around the world trying to find contract manufacturers that made cars. There are a whole bunch—not a whole bunch, but enough. Magna Steyr in Austria was a big one, and they at the time were making Saabs, GM vehicles, BMW small SUVs, and they were contract manufacturing for all these different brands. We had talked to them, we had talked to Noble in South Africa, which also made cars for a bunch of different car companies, and Lotus also had a business line that did that. They were a small volume sports car company, but they also couldn't make ends meet without doing contract manufacturing. We ambushed the Lotus people down at the LA Auto Show. Martin and I flew down and literally just wouldn't leave until we spoke to people who were kind of higher up in the echelons there from their manufacturing consulting division. We said, hey, we're going to try to make this electric car, we'd like some help screwing the thing together. They clearly thought we were yo-yos, but they said, well, come to Hethel, which is in this obscure part of England, we'll talk about it. And we were like, great. I don't think they expected that. So we ended up a couple months later in Hethel, England, and negotiated a deal. They were a good fit for us because they were used to making relatively small volume sports cars that were sort of small and light. But it turned out that their production facility was not very flexible. We really wanted a slightly wider car, a slightly different looking car. It turned out that the mechanization they used to grab hold of the chassis and everything in the production process could only accommodate cars that were the same width as a Lotus, which was inconvenient because it's really narrow. You can make it as long, like a hot dog, but they couldn't make it any wider. Meanwhile, we wanted to make a mule. In the car industry, a mule is something that's not production intent—it doesn't reproduce, which is why it's called a mule—but it's got pieces of one thing and pieces of another, and you put them together and test them. It's a rolling test bed. Our plan was to have a rolling test bed. We were going to use Lotus, and it was going to be constrained to this width that we didn't want. But then we found a Lotus that had been used as a show car at the LA Auto Show. It was too expensive for them to ship it back to England than to just leave it there as a showpiece, so they gave it to us at a very cheap price as long as we would never use the engine off track. We were like, no problem, we're getting rid of that as quickly as we can. So we took the engine out and used that as our first mule. That was the yellow one.

The clay thing is different because they're working on different treatments and different styling ideas. They get one side the way you want it and you approve it, they then digitize that side and then flip it to make the car. That moment it's out of the physical domain and it's in the digital domain. Then you beam the files to any one of these aero houses, and they'll CNC a giant full-scale car out of a giant hunk of plastic, put wheels on it, and put it in the aero chamber and do all the aerodynamic testing for you. It's turnkey, it's awesome. They have places all over the world that do this. So we used one, and then unlike all other car companies on Earth, the aero model looks so cool being this sort of black sports car thing that we wanted it here. No one had ever asked to have one of these things shipped home because all the testing is done, and at the end they put them in the shredder and reuse the plastic anyway. So we had it shipped, and it was in our lobby for years. It was great.

Greg Renn didn't do that, but I think it was Greg Solberg might have taken it. Yeah, Solberg, yeah, they took it to Burning Man, and then it was never black again. It was little gray because that fine dust got into the plastic itself and made it kind of gray, but it used to be black.