by Ashlee Vance
During my 2012 visit to the design studio, Tesla had a number of competitors’ vehicles in the parking lot nearby, and Musk made sure to demonstrate the limitations of their seating compared to the Model X. He tried with honest effort to sit in the third row of an Acura SUV, but, even though the car claimed to have room for seven, Musk’s knees were pressed up to his chin, and he never really fit into the seat. “That’s like a midget cave,” he said. “Anyone can make a car big on the outside. The trick is to make it big on the inside.” Musk went from one rival’s car to the next, illuminating the vehicles’ flaws for me and von Holzhausen. “It’s good to get a sense for just how bad the other cars are,” he said.
When these statements fly out of Musk’s mouth, it’s momentarily shocking. Here’s a guy who needed nine years to produce about three thousand cars ridiculing automakers that build millions of vehicles every year. In that context, his ribbing comes off as absurd.
Musk, though, approaches everything from a Platonic perspective. As he sees it, all of the design and technology choices should be directed toward the goal of making a car as close to perfect as possible. To the extent that rival automakers haven’t, that’s what Musk is judging. It’s almost a binary experience for him. Either you’re trying to make something spectacular with no compromises or you’re not. And if you’re not, Musk considers you a failure. This position can look unreasonable or foolish to outsiders, but the philosophy works for Musk and constantly pushes him and those around him to their limits.
On June 22, 2012, Tesla invited all of its employees, some select customers, and the press to its factory in Fremont to watch as the first Model S sedans were taken home. Depending on which of the many promised delivery dates you pick, the Model S was anywhere from eighteen months to two-plus years late. Some of the delays were a result of Musk’s requests for exotic technologies that needed to be invented. Other delays were simply a function of this still quite young automaker learning how to produce an immaculate luxury vehicle and needing to go through the trial and error tied to becoming a more mature, more refined company.
The outsiders were blown away by their first glimpse of the Tesla factory. Musk had T-E-S-L-A painted in enormous black letters on the side of the building so that people driving by on the freeway, or flying above for that matter, were made well aware of the company’s presence. The inside of the factory, once dressed in the dark, dingy tones of General Motors and Toyota, had taken on the Musk aesthetic. The floors received a white epoxy, the walls and beams were painted white, the thirty-foot tall stamping machines were white, and then much of the other machinery, like the teams of the robots, had been painted red, making the place look like an industrial version of Santa Claus’s workshop. Just as he did at SpaceX, Musk placed the desks of his engineers right on the factory floor, where they worked in an area cordoned off by rudimentary cubicle dividers. Musk had a desk in this area as well.*
The Model S launch event took place in a section of the factory where they finish off the cars. There’s a part of the floor with various grooves and bumps that the cars pass over, as technicians listen for any rattles. There’s also a chamber where water can be sprayed at high pressure onto the car to check for leaks. For the very last inspection, the Model S cruises onto a raised platform made out of bamboo, which, when coupled with lots of LED lighting, is meant to provide an abundant amount of contrast so that people can spot flaws on the body. For the few first months that the Model S came off the line, Musk went to this bamboo stage to inspect every vehicle. “He was down on all fours looking up under the wheel well,” said Steve Jurvetson, the investor and Tesla board member.
Hundreds of people had gathered around this stage to watch as the first dozen or so cars were presented to their owners. Many of the employees were factory workers who had once been part of the autoworkers’ union, lost their jobs when the NUMMI plant closed, and were now back at work again, making the car of the future. They waved American flags and wore red, white, and blue visors. A handful of the workers cried as the Model S sedans were lined up on the stage. Even Musk’s most cynical critics would have softened for a moment while watching the proceedings. Say what you will about Tesla receiving government money or hyping up the promise of the electric car, it was trying to do something big and different, and people were getting hired by the thousands as a result. With machines humming in the background, Musk gave a brief speech and then handed the owners their keys. They drove off the bamboo platform and out the factory doors, while the Tesla employees provided a standing ovation.
Just four weeks earlier, SpaceX had flown cargo to the International Space Station and had its capsule returned to Earth—firsts all around for a private company. That feat coupled with the launch of the Model S led to a rapid transformation in the way the world outside of Silicon Valley perceived Musk. The guy who was always promising, promising, promising was doing—and doing spectacular things. “I may have been optimistic with respect to the timing on some of these things, but I didn’t over-promise on the outcome,” Musk told me during an interview after the Model S launch. “I have done everything I said I was going to do.”
Musk did not have Riley around to celebrate with and share in this run of good fortune. They had divorced, and Musk had begun to think about dating again, if he could find the time. Even with this turmoil in his personal life, however, Musk had reached a point of calm that he had not felt in many years. “My main emotion is that there is a bit of weight off my shoulders,” he said at the time. Musk took his boys to Maui to meet up with Kimbal and other relatives, marking his first real vacation in a number of years.
It was right after this holiday that Musk let me have the first substantial glimpse into his life. Skin still peeling off his sunburnt arms, Musk met with me at the Tesla and SpaceX headquarters, at the Tesla design studio, and at a Beverley Hills screening of a documentary he had helped sponsor. The film, Baseball in the Time of Cholera, was good but grim and explored a cholera outbreak in Haiti. It turned out that Musk had visited Haiti the previous Christmas, filling his jet with toys and MacBook Airs for an orphanage. Bryn Mooser, the codirector of the film, told me that during a barbecue Musk had taught the kids how to fire off model rockets and then later went to visit a village deeper in the jungle by traveling in a dugout canoe. After the screening, Musk and I hung out on the street for a bit away from the crowd. I noted aloud that everyone wants to make him out as the Tony Stark character but that he didn’t really exude that “playboy drinking scotch while zooming through Afghanistan in an army convoy” vibe. He fired back, pointing to the Haitian canoe ride. “I got wasted, too, on some drink they call the Zombie,” Musk said. He smiled and then invited me to grab some drinks across the street at Mr. Chow to celebrate the movie. All seemed to be going well for Musk, and he savored the moment.
This restful period did not last long and soon enough Tesla’s battle for survival resumed. The company could only produce about ten sedans per week at the outset and had thousands of back orders that it needed to fulfill. Short sellers, those investors who bet a company’s share price will fall, had taken huge positions in Tesla, making it the most shorted stock out of one hundred of the largest companies listed on the NASDAQ exchange. The naysayers expected numerous Model S flaws to crop up and undermine the enthusiasm for the car, to the point that people started canceling their orders in bulk. There were also huge doubts that Tesla could ramp up production in a meaningful way and do so profitably. In October 2012, the presidential hopeful Mitt Romney dubbed Tesla “a loser,” while slagging off a couple of other government-backed green technology companies (the solar panel maker Solyndra and Fisker) during a debate with Barack Obama.14
While the doubters placed huge wagers on Tesla’s impending failure, Musk’s bluster mode engaged. He began talking about Tesla’s goals to become the most profitable major automobile maker in the world, with better margins than BMW. Then, in September 2012, he unveiled something that shocked both Tesla critics and proponents a
like. Tesla had secretly been building the first leg of a network of charging stations. The company disclosed the location of six stations in California, Nevada, and Arizona and promised that hundreds more would be on the way. Tesla intended to build a global charging network that would let Model S owners making long drives pull off the highway and recharge very quickly. And they would be able to do so for free. In fact, Musk insisted that Tesla owners would soon be able to travel across the United States without spending a penny on fuel. Model S drivers would have no trouble finding these stations, not only because the cars’ onboard computers would guide them to the nearest one but because Musk and von Holzhausen had designed giant red and white monoliths to herald the appearance of the stations.
The Supercharging stations, as Tesla called them, represented a huge investment for the strapped company. An argument could easily be made that spending money on this sort of thing at such a precarious moment in the Model S and Tesla’s history was somewhere between daft and batshit crazy. Surely Musk did not have the gall to try to revamp the very idea of the automobile and build an energy network at the same time with a budget equivalent to what Ford and ExxonMobil spend on their annual holiday parties. But that was the exact plan. Musk, Straubel, and others inside Tesla had mapped out this all-or-nothing play long ago and built certain features into the Model S with the Superchargers in mind.*
While the arrival of the Model S and the charging network garnered Tesla a ton of headlines, it remained unclear if the positive press and good vibes would last. Serious trade-offs had been made as Tesla rushed to get the Model S to market. The car had some spectacular, novel features. But everyone inside of the company knew that as far as luxury sedans went, the Model S did not match up feature to feature with cars from BMW and Mercedes-Benz. The first few thousand Model S cars, for example, would ship without the parking sensors and radar-assisted cruise control common on other high-end cars. “It was either hire a team of fifty people right away to make one of these things happen or implement things as best and as fast as you could,” Javidan said.
The subpar fit and finish also proved hard to explain. The early adopters could tolerate a windshield wiper going haywire for a couple of days, but they wanted to see seats and visors that met the $100,000 price tag. While Tesla did its best to source the highest-quality materials, it struggled at times to convince the top suppliers to take the company seriously.15 “People were very suspect that we would deliver one thousand Model Ss,” said von Holzhausen. “It was frustrating because we had the drive internally to make the car perfect but could not get the same commitment externally. With something like the visor, we ended up having to go to a third-rate supplier and then work on fixing the situation after the car had already started shipping.” The cosmetic issues, though, were minor compared to a tumultuous set of internal circumstances, revealed in detail here for the first time, that threatened to bankrupt the company once again.
Musk had hired George Blankenship, a former Apple executive, to run its stores and service-center operations. At Apple, Blankenship worked just a couple of doors down from Steve Jobs and received credit for building much of the Apple Store strategy. When Tesla first hired Blankenship, the press and public were atwitter, anticipating that’d he do something spectacular and at odds with the traditions of the automotive industry.
Blankenship did some of that. He expanded Tesla’s number of stores throughout the world and imbued them with that Apple Store vibe. Along with showcasing the Model S, the Tesla stores sold hoodies and hats and had areas in the back where kids would find crayons and Tesla coloring books. Blankenship gave me a tour of the Tesla store on Santana Row, the glitzy shopping center in San Jose. He came off as a warm, grandfatherly sort who saw Tesla as his chance to make a difference. “The typical dealer wants to sell you a car on the spot to clear inventory off his lot,” Blankenship said. “The goal here is to develop a relationship with Tesla and electric vehicles.” Tesla, he said, wanted to turn the Model S into more than a car. Ideally it would be an object of desire just like the iPod and iPhone. Blankenship noted that Tesla had more than ten thousand reservations for the Model S at the time, the vast majority of which had arrived without the customers test-driving the car. A lot of this early interest resulted from the aura surrounding Musk, who Blankenship said came off as similar to Jobs but with a toned-down control-freak vibe. “This is the first place I have worked that is going to change the world,” Blankenship said, taking a jab at the sometimes trivial nature of Apple’s gadgets.
While Musk and Blankenship got along at first, their relationship fell apart during the latter stages of 2012. Tesla did have a large number of reservations in which people put down $5,000 for the right to buy a Model S and get in the purchase queue. But the company had struggled to turn these reservations into actual sales. The reasons behind this problem remain unclear. It may have been that the complaints about the interior and the early kinks mentioned on the Tesla forums and message boards were causing concerns. Tesla also lacked financing options to soften the blow of buying a $100,000 car, while uncertainty surrounded the resale market for the Model S. You might end up with the car of the future or you might spend six figures on a dud with a battery pack that loses its capacity, and with no secondary buyer. Tesla’s service centers at the time were also terrible. The early cars were unreliable and customers were being sent in droves to centers unprepared to handle the volume. Many prospective Tesla owners likely wanted to hang out on the sidelines for a bit longer to make sure that the company would remain viable. As Musk put it, “The word of mouth on the car sucked.”
By the middle of February 2013, Tesla had fallen into a crisis state. If it could not convert its reservations to purchases quickly, its factory would sit idle, costing the company vast amounts of money. And if anyone caught wind of the factory slowdown, Tesla’s shares would likely plummet, prospective owners would become even more cautious, and the short sellers would win. The severity of this problem had been hidden from Musk, but once he learned about it, he acted in his signature all-or-nothing fashion. Musk pulled people from recruiting, the design studio, engineering, finance, and wherever else he could find them and ordered them to get on the phone, call people with reservations, and close deals. “If we don’t deliver these cars, we are fucked,” Musk told the employees. “So, I don’t care what job you were doing. Your new job is delivering cars.” He placed Jerome Guillen, a former Daimler executive, in charge of fixing the service issues. Musk fired senior leaders whom he deemed subpar performers and promoted a flood of junior people who had been doing above-average work. He also made an announcement personally guaranteeing the resale price of the Model S. Customers would be able to resell their cars for the average going rate of similar luxury sedans with Musk putting his billions behind this pledge. And then Musk tried to orchestrate the ultimate fail-safe for Tesla just in case his maneuvers did not work.
During the first week of April, Musk reached out to his friend Larry Page at Google. According to people familiar with their discussion, Musk voiced his concerns about Tesla’s ability to survive the next few weeks. Not only were customers failing to convert their reservations to orders at the rate Musk hoped, but existing customers had also started to defer their orders as they heard about upcoming features and new color choices. The situation got so bad that Tesla had to shut down its factory. Publicly, Tesla said it needed to conduct maintenance on the factory, which was technically true, although the company would have soldiered on had the orders been closing as expected. Musk explained all of this to Page and then struck a handshake deal for Google to acquire Tesla.
While Musk did not want to sell, the deal seemed like the only viable course for Tesla’s future. Musk’s biggest fear about an acquisition was that the new owner would not see Tesla’s goals through to their conclusion. He wanted to make sure that the company would end up producing a mass-market electric vehicle. Musk proposed terms under which he would remain in control of Tesla for eight years or u
ntil it started pumping out a mass-market car. Musk also asked for access to $5 billion in capital for factory expansions. Some of Google’s lawyers were put off by these demands, but Musk and Page continued to talk about the deal. Given Tesla’s value at the time, it was thought that Google would need to pay about $6 billion for the company.
As Musk, Page, and Google’s lawyers debated the parameters of an acquisition, a miracle happened. The five hundred or so people whom Musk had turned into car salesmen quickly sold a huge volume of cars. Tesla, which only had a couple weeks of cash left in the bank, moved enough cars in the span of about fourteen days to end up with a blowout first fiscal quarter. Tesla stunned Wall Street on May 8, 2013, by posting its first-ever profit as a public company—$11 million—on $562 million in sales. It delivered 4,900 Model S sedans during the period. This announcement sent Tesla’s shares soaring from about $30 a share to $130 per share in July. Just a couple of weeks after revealing the first-quarter results, Tesla paid off its $465 million loan from the government early and with interest. Tesla suddenly appeared to have vast cash reserves at its disposal, and the short sellers were forced to take massive losses. The solid performance of the stock increased consumers’ confidence, creating a virtuous circle for Tesla. With cars selling and Tesla’s value rising, the deal with Google was no longer necessary, and Tesla had become too expensive to buy. The talks with Google ended.*
