by Ashlee Vance
Yet another distinguishing characteristic of the Model S was the experience of buying and owning the car. You didn’t go to a dealership and haggle with a pushy salesman. Tesla sold the Model S directly through its own stores and website. Typically, the stores were placed in high-end malls or affluent suburbs, not far from the Apple stores on which they were modeled. Customers would walk in and find a complete Model S in the middle of the shop and often an exposed version of the car’s base near the back of the store to show off the battery pack and motor. There were massive touch-screens where people could calculate how much they might save on fuel costs by moving to an all-electric car, and where they could configure the look and add-ons for their future Model S. Once the configuration process was done, the customer could give the screen a big, forceful swipe and his Model S would theatrically appear on an even bigger screen in the center of the store. If you wanted to sit in the display model, a salesman would pull back a red velvet rope near the driver’s-side door and let you enter the car. The salespeople were not compensated on commission and didn’t have to try to talk you into buying a suite of extras. Whether you ultimately bought the car in the store or online, it was delivered in a concierge fashion. Tesla would bring it to your home, office, or anywhere else you wanted it. The company also offered customers the option of picking their cars up from the factory in Silicon Valley and treating their friends and family to a complimentary tour of the facility. In the months that followed the delivery, there were no oil changes or tune-ups to be dealt with because the Model S didn’t need them. It had done away with so much of the mechanical dreck standard in an internal combustion vehicle. However, if something did go wrong with the car, Tesla would come pick it up and give the customer a loaner while it repaired the Model S.
The Model S also offered a way to fix issues in a manner that people had never before encountered with a mass-produced car. Some of the early owners complained about glitches like the door handles not popping out quite right or their windshield wipers operating at funky speeds. These were inexcusable flaws for such a costly vehicle, but Tesla typically moved with clever efficiency to address them. While the owner slept, Tesla’s engineers tapped into the car via the Internet connection and downloaded software updates. When the customer took the car out for a spin in the morning and found it working right, he was left feeling as if magical elves had done the work. Tesla soon began showing off its software skills for jobs other than making up for mistakes. It put out a smartphone app that let people turn on their air-conditioning or heating from afar and to see where the car was parked on a map. Tesla also began installing software updates that imbued the Model S with new features. Overnight, the Model S sometimes got new traction controls for hilly and highway driving or could suddenly recharge much faster than before or possess a new range of voice controls. Tesla had transformed the car into a gadget—a device that actually got better after you bought it. As Craig Venter, one of the earliest Model S owners and the famed scientist who first decoded man’s DNA, put it, “It changes everything about transportation. It’s a computer on wheels.”
The first people to notice what Tesla had accomplished were the technophiles in Silicon Valley. The region is filled with early adopters willing to buy the latest gizmos and suffer through their bugs. Normally this habit applies to computing devices ranging from $100 to $2,000 in price. This time around, the early adopters proved willing not only to spend $100,000 on a product that might not work but also to trust their well-being to a start-up. Tesla needed this early boost of confidence and got it on a scale few expected. In the first couple of months after the Model S went on sale, you might see one or two per day on the streets of San Francisco and the surrounding cities. Then you started to see five to ten per day. Soon enough, the Model S seemed to feel like the most common car in Palo Alto and Mountain View, the two cities at the heart of Silicon Valley. The Model S emerged as the ultimate status symbol for wealthy technophiles, allowing them to show off, get a new gadget, and claim to be helping the environment at the same time. From Silicon Valley, the Model S phenomenon spread to Los Angeles, then all along the West Coast and then to Washington, D.C., and New York (although to a lesser degree).
At first the more traditional automakers viewed the Model S as a gimmick and its surging sales as part of a fad. These sentiments, however, soon gave way to something more akin to panic. In November 2012, just a few months after it started shipping, the Model S was named Motor Trend’s Car of the Year in the first unanimous vote that anyone at the magazine could remember. The Model S beat out eleven other vehicles from companies such as Porsche, BMW, Lexus, and Subaru and was heralded as “proof positive that America can still make great things.” Motor Trend celebrated the Model S as the first non–internal combustion engine car ever to win its top award and wrote that the vehicle handled like a sports car, drove as smoothly as a Rolls-Royce, held as much as a Chevy Equinox, and was more efficient than a Toyota Prius. Several months later, Consumer Reports gave the Model S its highest car rating in history—99 out of 100—while proclaiming that it was likely the best car ever built. It was at about this time that sales of the Model S started to soar alongside Tesla’s share price and that General Motors, among other automakers, pulled together a team to study the Model S, Tesla, and the methods of Elon Musk.
It’s worth pausing for a moment to meditate on what Tesla had accomplished. Musk had set out to make an electric car that did not suffer from any compromises. He did that. Then, using a form of entrepreneurial judo, he upended the decades of criticisms against electric cars. The Model S was not just the best electric car; it was best car, period, and the car people desired. America had not seen a successful car company since Chrysler emerged in 1925. Silicon Valley had done little of note in the automotive industry. Musk had never run a car factory before and was considered arrogant and amateurish by Detroit. Yet, one year after the Model S went on sale, Tesla had posted a profit, hit $562 million in quarterly revenue, raised its sales forecast, and become as valuable as Mazda Motor. Elon Musk had built the automotive equivalent of the iPhone. And car executives in Detroit, Japan, and Germany had only their crappy ads to watch as they pondered how such a thing had occurred.
You can forgive the automotive industry veterans for being caught unawares. For years Tesla had looked like an utter disaster incapable of doing much of anything right. It took until early 2009 for Tesla to really hit its stride with the Roadster and work out the manufacturing issues behind the sports car. Just as the company tried to build some momentum around the Roadster, Musk sent out an e-mail to customers declaring a price hike. Where the car originally started around $92,000, it would now start at $109,000. In the e-mail, Musk said that four hundred customers who had already placed their orders for a Roadster but not yet received them would bear the brunt of the price change and need to cough up the extra cash. He tried to assuage Tesla’s customer base by arguing that the company had no choice but to raise prices. The manufacturing costs for the Roadster had come in much higher than the company initially expected, and Tesla needed to prove that it could make the cars at a profit to bolster its chances of securing a large government loan that would be needed to build the Model S, which it vowed to deliver in 2011. “I firmly believe that the plan . . . strikes a reasonable compromise between being fair to early customers and ensuring the viability of Tesla, which is obviously in the best interests of all customers,” Musk wrote in the e-mail. “Mass market electric cars have been my goal from the beginning of Tesla. I don’t want and I don’t think the vast majority of Tesla customers want us to do anything to jeopardize that objective.” While some Tesla customers grumbled, Musk had largely read his customer base right. They would support just about anything he suggested.
Following the price increase, Tesla had a safety recall. It said that Lotus, the manufacturer of the Roadster’s chassis, had failed to tighten a bolt properly on its assembly line. On the plus side, Tesla had only delivered about 345 Roadsters, which m
eant that it could fix the problem in a manageable fashion. On the downside, a safety recall was the last thing a car start-up needs, even if it was, as Tesla claimed, more of a proactive measure than anything else. The next year, Tesla had another voluntary recall. It had received a report of a power cable grinding against the body of the Roadster to the point that it caused a short circuit and some smoke. That time, Tesla brought 439 Roadsters in for a fix. Tesla did its best to put a positive spin on these issues, saying that it would make “house calls” to fix the Roadsters or pick up the cars and take them back to the factory. Ever since, Musk has tried to turn any snafu with a Tesla into an excuse to show off the company’s attention to service and dedication to pleasing the customer. More often than not, the strategy has worked.
On top of the occasional issues with the Roadster, Tesla continued to suffer from public perception problems. In June 2009, Martin Eberhard sued Musk and went to town in the complaint detailing his ouster from the company. Eberhard accused Musk of libel, slander, and breach of contract. The charges painted Musk as a bully moneyman who had pushed the soulful inventor out of his own company. The lawsuit also accused Musk of trumping up his role in Tesla’s founding. Musk responded in kind, issuing a blog post that detailed his take on Eberhard’s foibles and taking umbrage at the suggestions that he was not a true founder of the company. A short while later, the two men settled and agreed to stop going at each other. “As co-founder of the company, Elon’s contributions to Tesla have been extraordinary,” Eberhard said in a statement at the time. It must have been excruciating for Eberhard to agree to put that in writing and the very existence of that statement points to Musk’s skills and tactics as a hard-line negotiator. The two men continue to despise each other today, although they must do so in private, as legally required. Eberhard, though, holds no long-standing grudge against Tesla. His shares in the company ended up becoming very valuable. He still drives his Roadster, and his wife got a Model S.
For so much of its early existence, Tesla appeared in the news for the wrong reasons. There were people in the media and the automotive industry who viewed it as a gimmick. They seemed to delight in the soap opera–worthy spats between Musk and Eberhard and other disgruntled former employees. Far from being seen universally as a successful entrepreneur, Musk was viewed in some Silicon Valley circles as an abrasive blowhard who would get what he deserved when Tesla inevitably collapsed. The Roadster would make its way to the electric-car graveyard. Detroit would prove that it had a better handle on this whole car innovation thing than Silicon Valley. The natural order of the world would remain intact.
A funny thing happened, however. Tesla did just enough to survive. From 2008 to 2012, Tesla sold about 2,500 Roadsters.* The car had accomplished what Musk had intended from the outset. It proved that electric cars could be fun to drive and that they could be objects of desire. With the Roadster, Tesla kept electric cars in the public’s consciousness and did so under impossible circumstances, namely the collapse of the American automotive industry and the global financial markets. Whether Musk was a founder of Tesla in the purest sense of the word is irrelevant at this point. There would be no Tesla to talk about today were it not for Musk’s money, marketing savvy, chicanery, engineering smarts, and indomitable spirit. Tesla was, in effect, willed into existence by Musk and reflects his personality as much as Intel, Microsoft, and Apple reflect the personalities of their founders. Marc Tarpenning, the other Tesla cofounder, said as much when he reflected on what Musk has meant to the company. “Elon pushed Tesla so much farther than we ever imagined,” he said.
As difficult as birthing the Roadster had been, the adventure had whetted Musk’s appetite for what he could accomplish in the automotive industry with a clean slate. Tesla’s next car—code-named WhiteStar—would not be an adapted version of another company’s vehicle. It would be made from scratch and structured to take full advantage of what the electric-car technology offered. The battery pack in the Roadster, for example, had to be placed near the rear of the car because of constraints imposed by the Lotus Elise chassis. This was okay but not ideal due to the imposing weight of the batteries. With WhiteStar, which would become the Model S, Musk and Tesla’s engineers knew from the start that they would place the 1,300-pound battery pack on the base of the car. This would give the vehicle a low center of gravity and excellent handling. It would also give the Model S what’s known as a low polar moment of inertia, which relates to how a car resists turning. Ideally, you want heavy parts like the engine as close as possible to the car’s center of gravity, which is why the engines of race cars tend to be near the middle of the vehicle. Traditional cars are a mess on this metric, with the bulky engine up front, passengers in the middle, and gasoline sloshing around the rear. In the case of the Model S, the bulk of the car’s mass is very close to the center of gravity and this has positive follow-on effects to handling, performance, and safety.
The innards, though, were just one part of what would make the Model S shine. Musk wanted to make a statement with the car’s look as well. It would be a sedan, yes, but it would be a sexy sedan. It would also be comfortable and luxurious and have none of the compromises that Tesla had been forced to embrace with the Roadster. To bring such a beautiful, functional car to life, Musk hired Henrik Fisker, a Danish automobile designer renowned for his work at Aston Martin.
Tesla first revealed its plans for the Model S to Fisker in 2007. It asked him to design a sleek, four-door sedan that would cost between $50,000 and $70,000. Tesla could still barely make Roadsters and had no idea if its all-electric powertrain would hold up over time. Musk, though, refused to wait and find out. He wanted the Model S to ship in late 2009 or early 2010 and needed Fisker to work fast. By reputation, Fisker had a flair for the dramatic and had produced some of the most stunning car designs over the past decade, not just for Aston Martin but also for special versions of BMW and Mercedes-Benz vehicles.
Fisker had a studio in Orange County, California, and Musk and other Tesla executives would meet there to go over his evolving takes on the Model S. Each visit was less inspiring than the last. Fisker baffled the Tesla teams with his stodgy designs. “Some of the early styles were like a giant egg,” said Ron Lloyd, the former vice president of the WhiteStar project at Tesla. “They were terrible.” When Musk pushed back, Fisker blamed the physical constraints Tesla had put in place for the Model S as too restrictive. “He said they would not let him make the car sexy,” Lloyd said. Fisker tried a couple of different approaches and unveiled some foam models of the car for Musk and his crew to dissect. “We kept on telling him they were not right,” Lloyd said.
Not long after these meetings, Fisker started his own company—Fisker Automotive—and unveiled the Fisker Karma hybrid in 2008. This luxury sedan looked like a vehicle Batman might take out for a Sunday drive. With its elongated lines and sharp edges, the car was stunning and truly original. “It rapidly became clear that he was trying to compete with us,” Lloyd said. As Musk dug into the situation, he discovered that Fisker had been shopping his idea for a car company to investors around Silicon Valley for some time. Kleiner Perkins Caufield & Byers, one of the more famous venture capital firms in Silicon Valley, once had a chance to invest in Tesla and then ended up putting money into Fisker instead. All of this was too much for Musk, and he launched a lawsuit against Fisker in 2008, accusing him of stealing Tesla’s ideas and using the $875,000 Tesla had paid for design work to help get his rival car company off the ground. (Fisker ultimately prevailed in the dispute with an arbitrator ordering Tesla to reimburse Fisker’s legal fees and deeming Tesla’s allegations baseless.)
Tesla had thought about doing a hybrid like Fisker where a gas engine would be present to recharge the car’s batteries after they had consumed an initial charge. The car would be able to travel fifty to eighty miles after being plugged into an outlet and then take advantage of ubiquitous gas stations as needed to top up the batteries, eliminating range anxiety. Tesla’s engineers pro
totyped the hybrid vehicle and ran all sorts of cost and performance metrics. In the end, they found the hybrid to be too much of a compromise. “It would be expensive, and the performance would not be as good as the all-electric car,” said J. B. Straubel. “And we would have needed to build a team to compete with the core competency of every car company in the world. We would have been betting against all the things we believe in, like the power electronics and batteries improving. We decided to put all the effort into going where we think the endpoint is and to never look back.” After coming to this conclusion, Straubel and others inside Tesla started to let go of their anger toward Fisker. They figured he would end up delivering a kluge of a car and get what was coming to him.
A large car company might spend $1 billion and need thousands of people to design a new vehicle and bring it to market. Tesla had nothing close to these resources as it gave birth to the Model S. According to Lloyd, Tesla initially aimed to make about ten thousand Model S sedans per year and had budgeted around $130 million to achieve this goal, including engineering the car and acquiring the manufacturing machines needed to stamp out the body parts. “One of the things Elon pushed hard with everyone was to do as much as possible in-house,” Lloyd said. Tesla would make up for its lack of R&D money by hiring smart people who could outwork and outthink the third parties relied on by the rest of the automakers. “The mantra was that one great engineer will replace three medium ones,” Lloyd said.
