Elon Musk’s ground-breaking electric car
By John Reed
Published: July 24 2009 17:33 | Last updated: July 24 2009 17:33
Imagine investing in a start-up in one of the most competitive industries in the world – automaking. Against all odds, your company makes a success of it – not just with any car, but a gorgeous, groundbreaking electric roadster that accelerates from zero to 60mph in 3.9 seconds and emits no carbon dioxide. Film stars and millionaires clamour to get on your waiting list. Daimler, owner of the *Mercedes-Benz luxury brand, buys shares in your company during the depths of the industry’s worst crisis in decades. Its chief executive praises you and your crew as “out-of-the-box thinkers”.
Imagine, too, that you left your native South Africa aged 17, made your fortune in Silicon Valley in your twenties and ploughed the money into the unlikely areas of electric cars and space exploration. Imagine your other company, SpaceX, is poised to blast an earth-observation satellite into orbit. Imagine it has also won a $1.6bn Nasa contract to replace the cargo function of the US space shuttle after 2010.
You’ve just imagined yourself into Elon Musk’s shoes. Are you happy?
I meet Tesla Motors’ chairman and chief executive (and largest shareholder) in London at the end of what has been a landmark week for his company: Tesla has secured a $465m loan from the US Department of Energy, earmarked for greener car technology. It was one of just three companies, alongside Ford Motor and Nissan, to have made it through an arduous application process, and will be using the money to build production facilities for electric powertrains and for its planned Model S, a $50,000 battery-powered saloon (or sedan, in US parlance) due to propel the company from the rarefied world of roadsters to the broader mass market. This came barely a month after Daimler agreed to pay $50m for just under 10 per cent of Tesla.
Musk is in Knightsbridge to open Tesla’s first overseas showroom, one of four planned across Europe. Later that evening, bankers, bons vivants and others who can spare the £94,000 the early “signature edition” of the car costs will crowd in, as paparazzi lurk outside. After all, Paris Hilton and Mischa Barton are on the guest list.
As we sit down, I congratulate Musk on his company’s achievements. Credit crunch or not, about 130 of the 200 roadsters Tesla plans to sell in Europe this year are already spoken for. And the car is truly a delight – an elegant squaring of the circle between automotive indulgence and ecological virtue – “performance with a clean conscience”, as Musk put it. Think of a Porsche that picks up not with an obnoxious roar, but a space age hum. On a spin around Hyde Park, I experience the car’s power – enough to push you back in your seat. It looks great, too: a smarter, slightly longer version of the Elise, the curvaceous, classic, low-slung two-seater built by Lotus, on which it is modelled. Even in this swanky part of *London, people stare.
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But when the congratulations are over, and I ask Musk what Tesla would have done without the US government’s loan, it’s clear that he is not as happy as he might be – not with the press he’s getting, at least. “There’s a lot of misinformation out there,” he says. “We’ll be profitable in July, and we’re already cash-flow positive. We would not need the loan to survive.”
Musk is by all accounts a brilliant man, but he can be a prickly interlocutor. I remember a phone interview with him last year for a routine business-news story as puzzlingly combative. This spring, when a reporter from The New York Times questioned the wisdom of a taxpayer-funded loan for a company that makes high-end cars, Musk called him a “huge douchebag”. (In fairness to Musk, the reporter’s piece – later corrected – wrongly claimed that Tesla was seeking federal funds for the roadster, not the Model S.) As we are talking, Musk sounds off against another writer who has taken an interest in Tesla’s start-up problems, calling Owen Thomas of the Silicon Valley-focused blog Valleywag “the single most tediously mean-spirited person I have ever encountered”.
There are, Musk says, a lot of “annoying comments out there”. “Some idiot said I referred to myself as a ‘nanomanager’, when I was joking. How can I be a nanomanager if I’m managing two companies?” His spikiness is understandable, but so is the attention he’s garnered. Tesla’s slender half-decade of history has been a torrid one, its dramas lived out largely in public due to Musk’s own decision to court the press in lieu of spending money on advertising. The company has gone through four chief executives and been party to several lawsuits, the latest an indecorous dispute over who can claim credit for inventing the company. Martin *Eberhard, Tesla’s co-founder and first chief executive, sued Musk and the company last month for libel and breach of contract; he claims that from April 2004, when Musk joined Tesla’s board, the South African began a campaign to wrest control of the company and later sought to tarnish Eberhard’s claimed status as the company’s founding visionary. Eberhard also claims that a Tesla employee smashed his long-awaited roadster into the back of a truck during “endurance testing” in 2008, a few months after Musk sacked him as boss.
A few days before I met Musk in Knightsbridge, he published a lengthy blog post rebutting Eberhard’s claims. It ran to more than 4,000 words, not including attachments of six-year-old e-mails. Musk tells me he is also preparing his own legal filing in response. Why, I ask, at a time when Tesla has so much good news to report, is he expending so much energy on a legal spat with a former employee? “What really bothered me was the notion that there would be a DoE announcement without any rebuttal to what he said – it would be tagged with all that mud he slung,” Musk explains. “If people look at Tesla and say, ‘Those are a bunch of bad guys that got a bunch of money,’ that doesn’t sit well. I don’t want there to be a perception that the bad guys won. I wouldn’t like to say that we’re flawless and morally unimpeachable and holier than thou. But we’re pretty good, and we generally try to do the right thing.”
In Musk’s telling, the task of running Tesla is even a burden of sorts. “I’m not trying to do this company because I think this is the easiest way to make a buck – I’d be bloody insane,” he says, with traces of South Africa in his flat vowels. “There are many other things I’d do if maximising my wealth was my objective. The reality is, it’s not fun running a car company and a rocket company at the same time. The amount of work I have is way past the fun point.”
As the past year has shown – not just for Tesla but for the auto industry as a whole – Musk isn’t joking. Even in good times, carmaking is an unrewarding business. The sector is a textbook case of too many players chasing too few profits, turning out cars of ever greater sophistication and quality, but which customers resist paying more for. Automakers devour capital, and take years to get their products on the road. Scale is essential and earnings are modest, even for the industry’s top players. Before the crisis pushed Toyota into a record loss this year, its 6 per cent average operating margin was seen as an industry gold standard.
And yet the rich have long been tempted by the dream of making beautiful cars – often letting this get the better of their business sense. John DeLorean, the high-flying former General Motors executive, made only about 9,000 of the cars that carried his name; by the time the vehicle made its star turn in the film Back to the Future, in 1985, DeLorean’s company was in administration. Other big business minds have bought trophy car brands, only to suffer big losses. Tata Motors, the carmaker owned by Ratan Tata’s industrial group, has poured more than £1bn into Jaguar/Land Rover since paying Ford $2.3bn for the marques last year. And as makers of big-ticket, status-linked products that the public connect with emotionally, carmakers are also vulnerable to unusual amounts of media scrutiny.
These challenges are magnified in the nascent field of battery-powered cars, where big manufacturers have launched models that failed to find a market for reasons of performance, price or practicality – or all three. General Motors’ EV1, introduced in 1996 then withdrawn just a few years later, is the best-known of these flops. Around the same time, Toyota introduced an electric version of its RAV4 sport utility vehicle, also built largely to meet California’s shifting rules on zero-emissions vehicles; it was discontinued.
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Both models were made in numbers too small to recoup their costs, although conspiracy theories involving oil companies and other vested interests sprouted after they pulled the plug.
But over the past two years, carmakers have begun taking a renewed interest in electric and plug-in hybrid petrol-electric cars, driven by last year’s oil price spike, tightening environmental regulations and strides in the development of lithium-ion batteries, which deliver more power for less weight than the bulky batteries used in earlier cars. This makes it that much more remarkable that Tesla has an electric car on the road well before rivals’ planned plug-in models arrive, and that it has managed to break even in what has been an annus horribilis for world carmaking.
