The Sedan Tesla Bet Everything On

Tesla ended 2008 by closing a $40 million convertible debt round on Christmas Eve. By Musk's later account, the company was about three days from bankruptcy when the documents were signed. The Roadster was finally in production, but it was a low-volume sports car built with Lotus in England. The company's plan to become a real automaker rested on a car the public had not yet seen: a five-door electric sedan called the Model S.

The money bought time, and the next 18 months were spent turning that sedan into something investors, a government lender and eventually a factory could believe in.

The Model S started with a design change of its own. Tesla had first worked with Henrik Fisker on the sedan's styling, but the relationship ended in a dispute. Franz von Holzhausen, who had led design work at Mazda North American Operations and was behind the company's Nagare concept cars, resigned from Mazda on August 4, 2008 and joined Tesla. He shaped the production Model S exterior and went on to lead the design of the Model X, Model 3, Model Y, Semi and Cybertruck.

On March 26, 2009, Musk and von Holzhausen unveiled a Model S prototype at SpaceX in Hawthorne, California. Tesla promised a 300-mile range, a 45-minute quick charge, a 0 to 60 mph time of 5.5 seconds and room for seven passengers. The quoted price was $57,400, or $49,900 after tax credits.

Behind the show car, engineering was starting over. Peter Rawlinson, a British engineer who had been a principal engineer at Jaguar and chief engineer of advanced engineering at Lotus, joined Tesla in February 2009 as vice president and chief vehicle engineer for the Model S. By his own account, he told Musk within a week that the existing prototype was a false dawn and that his six-person team would need to start the engineering again from a clean sheet. Musk has since disputed Rawlinson's title in public, but Rawlinson led the car's engineering toward production before leaving to join Lucid in 2013, where he later became chief executive.

Two outsiders put real money behind the bet in 2009. On May 19, Daimler announced it had bought a stake of close to 10 percent in Tesla for $50 million. The deal was also a supply arrangement: Tesla would provide lithium-ion battery packs and charging electronics for the first 1,000 of Daimler's electric smart cars, and Daimler's Herbert Kohler took a seat on Tesla's board. Daimler sold its shares in 2014.

Five weeks later, on June 23, 2009, the Department of Energy gave Tesla a conditional commitment for loans of up to $465 million under the Advanced Technology Vehicles Manufacturing program. Tesla was one of the first three recipients, alongside Ford at $5.9 billion and Nissan at $1.6 billion. The loan closed on January 20, 2010. It had two parts: up to $101.2 million for a plant to build battery packs, motors and other powertrain parts, and up to $363.9 million, covering as much as 91.5 percent of eligible costs, to develop and build out a factory for the Model S.

Tesla still had no factory. That changed in May 2010, when it agreed to buy the former NUMMI plant in Fremont, California. NUMMI was a joint venture between Toyota and the company holding the old General Motors' remaining assets. Tesla paid $42 million for the land and buildings, about $17 million more for equipment and spare parts, and roughly $7 million for operating permits. Toyota also agreed to invest $50 million in Tesla, buying shares in a private sale that closed right after the company went public.

That listing came on June 29, 2010. Tesla sold 13.3 million shares at $17 each, raising $226.1 million, and became the first American carmaker to go public since Ford in 1956. The stock closed its first day at $23.89, up about 40 percent. The public money also met a condition of the government loan, which required matching private capital.

The first customer cars were handed over on June 22, 2012, at an invitation-only event inside the Fremont factory, a few weeks ahead of the schedule Tesla had set. The first cars were Signature editions with the largest 85 kWh battery. Steve Jurvetson, the venture capitalist who held the earliest reservation, received one of the first. The entry price for a 40 kWh car remained $57,400, the same figure quoted in 2009.

The ramp that followed was slower than planned. By September 23, 2012, Fremont had built 255 Model S sedans in total, 77 of them in the most recent week. Tesla told investors that some suppliers were late, that it was adding automation and second shifts and changing quality-control staff, and that it still aimed to reach 400 cars a week before the end of the year.

Critics were already won over. On November 12, 2012, Motor Trend named the Model S its 2013 Car of the Year. It was the first winner in the award's 64-year history not powered by an internal combustion engine, and all 11 judges voted for it, which the magazine said was a first in its memory.

In the space of about six weeks in 2013, Tesla's position changed completely. On May 8, it reported its first quarterly profit: $15 million excluding certain items, on revenue of $562 million, with about 4,900 Model S cars delivered in the first quarter. The stock rose 24 percent in the following session and Tesla's market value passed $8 billion, more than Fiat's.

The next day, Consumer Reports published its road test. The Model S scored 99 out of 100, tying the highest score the magazine had ever given, and the testers called it the best car they had tested. Their main reservation was the time needed to recharge on long trips.

On May 22, Tesla paid the Department of Energy $451.8 million, repaying the full loan with interest about nine years early. The money came from nearly $1 billion Tesla had just raised by selling stock and convertible notes. Musk's comment on the payment, quoted in coverage that day, was "I hope we did you proud." Tesla described itself as the only American carmaker to have fully repaid its government loans, a claim Chrysler disputed.

A month later, on June 20, Tesla staged a show at its Hawthorne design studio. A Model S drove over an opening in the stage, automated equipment lowered its battery pack out from below, raised a charged one into place and reconnected it in about 90 seconds. A second Model S was swapped while an Audi filled up at a gas pump on stage, and it drove off before the Audi's fill, which took more than four minutes, was done. Battery swapping never became a regular part of Model S ownership; by 2015, a report found Tesla's swap station unused over a busy holiday weekend. The demonstration still made a point: the pack under the floor was designed to come out in seconds.

The same floor-mounted pack became the car's first real crisis. On October 1, 2013, a Model S near Kent, Washington, struck a curved piece of metal that had fallen from a semi-trailer. Tesla said the debris hit with a force of about 25 tons and punched a three-inch hole through the quarter-inch armor plate under the battery. The car's alert system told the driver to pull over, and he got out safely before the fire developed. A second car caught fire in Mexico that month after a violent crash, and a third burned in Tennessee in November after its driver struck a metal object in the road.

In November 2013, the National Highway Traffic Safety Administration opened a preliminary evaluation covering an estimated 13,108 cars. Tesla responded first with an over-the-air software update that raised the car's ride height at highway speed, then with hardware. Model S cars built from March 6, 2014 received a three-part underbody shield: a rounded aluminum bar to deflect or lift debris, a titanium plate, and a shallow-angle aluminum extrusion to absorb what got past. Existing owners could have it fitted free.

NHTSA closed its investigation in March 2014, finding no defect trend. The Model S had survived a financing crisis, a factory purchase, a production ramp and a safety scare in five years, and Tesla had repaid its government loan with years to spare. The sedan first shown on a SpaceX floor in 2009 had become a profitable, award-winning production car.