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Tesla's wild ride (pg. 2)

By Michael V. Copeland, senior writer
Last Updated: July 9, 2008: 5:07 PM EDT

But somewhere between the elegant plan and the rear-ender on the 101, things went terribly wrong. Says Eberhard, looking back: "I should have been more careful. I shouldn't have let [Musk] take a disproportionate control of the board." He adds, "I have no issues with Tesla Motors as a company. I do have problems with Elon and the way he treats people." Indeed, it was poetic that Eberhard wasn't behind the wheel when his Tesla crashed - he had been booted from the driver's seat and forced out of the company seven months earlier. Musk has kept silent until now about what happened. "I was too busy trying to fix the fucking mess he left. I haven't had time to tell my story," he says. "I will say, I have never met someone who is as capable of creating such a disinformation campaign as Martin Eberhard."

In the past four years, Musk has sunk $55 million of his personal fortune into the company, the ousted Eberhard has started a tell-all blog to air his grievances, and 1,000 customers - many of whom long ago laid out nearly $100,000 - are still waiting for cars that are unquestionably cool but now a year overdue. The only thing anyone can agree on is that men, not machines, are largely to blame for Tesla's struggles.

***

You need to be a little nuts to start a car company. And by most accounts Martin Eberhard always was. In his early career, he launched a series of startups, including an electronic-book company he co-founded called NuvoMedia, which he sold to Gemstar in a deal valued at $187 million in 2000. By 2003 he was looking for his next project. Driving the streets of Palo Alto that year, he began to notice that the same driveways that held a Prius (or "dork mobile," as he liked to call it) often also had a Porsche 911 or other luxury sports car.

"It was clear that people weren't buying a Prius to save money on gas - gas was selling close to inflation-adjusted all-time lows," says Eberhard, a tall, thin man with a mop of graying hair and a nervous, foot-tapping energy. "They were buying them to make a statement about the environment." So why not, he reasoned, allow this deep-pocketed clientele to make that statement driving a car that exceeded the performance of a Porsche?

Eberhard, who has an undergraduate degree in computer engineering and a master's in electrical engineering from the University of Illinois at Urbana-Champaign, spent almost a year doing an analysis of what energy source was most efficient for his imagined eco-supercar. He examined and dismissed hydrogen fuel cells, natural-gas-powered cars, hybrid technologies, and diesel. The energy source that offered the highest efficiency and performance, he concluded, was pure electric.

As it turned out, EV pioneer Al Cocconi (one of the original engineers of the prototype for GM's EV-1 and founder of an EV shop called AC Propulsion in San Dimas, Calif.) had concluded the same thing and produced a one-off he called the tzero. Though the tzero could go 0 to 60 mph in 4.1 seconds, it was loaded to the gills with 1,000 pounds of lead-acid batteries, so its range was limited to 60 or so miles of driving.

At the time, AC Propulsion was struggling to keep its lights on, so Eberhard proposed a deal: In exchange for a $150,000 investment, he wanted Cocconi to try powering the tzero with thousands of lithium ion laptop batteries, which were lighter and had six times more energy per pound than the lead-acid variety. (It was an easy sell: Cocconi was already experimenting with lithium ion.) The lighter batteries worked. The souped-up tzero accelerated from 0 to 60 in 3.6 seconds and had a range of more than 300 miles. Eberhard had found his supercar. He persuaded AC Propulsion to build him one and tried to convince Cocconi that he should put the tzero into production. But Cocconi had no interest in building a car company.

So Eberhard decided to build a car by licensing electric-drive-train technology from AC Propulsion and using an existing carmaker to do the manufacturing, just as semiconductor manufacturers had done with their "fab-less" model. In Eberhard's view, that would make building the car better, cheaper, and faster. After persuading Marc Tarpenning, a software jockey and Eberhard's business partner in his previous companies, to join him, they incorporated Tesla Motors in July 2003. Eberhard didn't know it at the time, but someone else was itching to see tzeros hit the road in large numbers, and that someone had far deeper pockets than he did.

After eBay bought PayPal for $1.5 billion in 2002, Elon Musk, an imposing South African with a yen for high-tech gadgets and designer clothes, had taken his sizable fortune and set up SpaceX in Hawthorne, Calif. Shuttles to space were the first goal, but Musk's really big idea was that by making space travel cheap, people could start moving off earth and onto other planets. His terrestrial plans were equally ambitious. Like Eberhard, Musk had long thought EVs were the logical way to kick our oil addiction. "During undergrad at the University of Pennsylvania, I used to harangue my dates about electric cars," says Musk. Before the Internet piqued his interest, he had even started a Ph.D. at Stanford focused on advanced capacitor technology.

So when JB Straubel, a hotshot engineer out of Stanford who is now Tesla's CTO, mentioned the tzero to Musk, he immediately arranged for a test drive. Musk tried to buy the car, but Cocconi wouldn't sell, nor would he take the $250,000 Musk offered to convert his Porsche 911 Turbo to electric. Then Tom Gage, AC Propulsion's CEO, had an idea. "That's when I suggested that Martin and Elon should talk," he says.

***

It took Eberhard and Ian Wright, VP of vehicle development, only two hours during a February 2004 meeting to get Musk onboard. The meeting ended with Musk saying simply, "Okay, I'll do it." On the street outside SpaceX, Eberhard and Wright high-fived. "I think we just got our funding," Eberhard said.

There were, however, a few catches. Musk saw the franchise-dealership arrangements that U.S. car companies had tangled themselves up in as an increasingly expensive, margin-killing model. He wanted to own and operate Tesla dealerships rather than franchise them. He wanted final say over all decisions - which he would get by naming himself chairman. And finally, Musk demanded that they close the deal in two weeks. His wife was expecting twins, and he needed everything buttoned up by then. Though Musk had a reputation for outsized thinking and an ego to match, Eberhard wasn't in a position to be picky. As he puts it, "You take money from the people who offer it to you."

Tesla now had funding, a business plan, and even a chassis. The first prototype of Tesla's car, dubbed the Roadster, would be based on a $45,000 fiberglass-skinned sports car that Lotus sold, called the Elise. Lotus made fast, light cars and also had the virtue of being the only sports car manufacturer that would give Tesla management the time of day. While Eberhard was thrilled to have a viable plan to build the Roadster, Musk had even bigger ideas. "Eberhard's initial stimulus for starting Tesla was to build the EV he wanted to buy," says Wright. "Musk had a much grander vision: He wanted to be the next General Motors."

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