The Small Team That Built the First Tesla

In 2003, Martin Eberhard wanted to buy an electric sports car that nobody was building. The car he had in mind was the tzero, a prototype roadster from AC Propulsion, a small California engineering firm. AC Propulsion had shown it in 1997 with a 150 kW (200 horsepower) motor and lead-acid batteries. It was a prototype, not a product.

Eberhard tried to buy one and ended up helping to pay for something more important. He provided financial and technical support as AC Propulsion converted the tzero from lead-acid to lithium-ion cells, a job that ran from March through September 2003. The lithium tzero could cover roughly 300 miles on a charge, a figure that made the case for lithium-ion batteries in a car better than any slide deck could.

What AC Propulsion's Alan Cocconi did not want to do was turn the tzero into a production car. So Eberhard went ahead without him. In July 2003 he and Marc Tarpenning incorporated Tesla Motors with the aim of building a car around that kind of electric drive. Their approach was practical: license and re-engineer AC Propulsion's technology and install it in a rolling chassis based on the Lotus Elise.

Tesla stayed tiny for months. Ian Wright, a New Zealand engineer, joined a few months after incorporation as the third employee. The company needed money, and the path to it ran back through AC Propulsion.

JB Straubel, a young Stanford engineering graduate who had worked on a solar-powered car team, knew about the lithium-ion tzero and told Elon Musk about it. On January 21, 2004, Tom Gage of AC Propulsion emailed Musk to say Straubel thought Musk might want to drive the car. The test drive happened, and it pushed Musk toward electric cars.

Tesla's Series A round closed in early 2004 at $7.5 million, $6.5 million of it from Musk, who had money from the sale of PayPal. Musk became chairman of the board and the largest shareholder, while Eberhard remained chief executive. Straubel came aboard and later became the company's chief technology officer.

Not everyone stayed for the long haul. Wright left in May 2005, sold his shares and started Wrightspeed, which began with high-performance electric cars in mind and later turned to electric powertrains for commercial trucks and buses.

Building a car from scratch was beyond a startup of Tesla's size, so it leaned on Lotus. Tesla licensed technology from the British sports car maker and contracted it to assemble the Roadster at its Hethel plant, with Tesla supplying most of the parts. The shorthand that the Roadster was simply an electric Elise was never accurate. Its wheelbase was two inches longer, the chassis carried extra stiffening for the battery, and the body panels were carbon fiber. It still weighed more than 700 pounds more than an Elise. By common estimates only about 6 percent of parts were shared, among them the windshield, airbags, some dashboard parts, some tires and suspension components.

The heart of the car was Tesla's own work. The Roadster's energy storage system used 6,831 lithium-ion cells in the 18650 size found in laptop batteries. They were grouped in 69-cell bricks, nine bricks to a sheet and 11 sheets in series, for a pack of about 56 kWh at a nominal 375 volts that weighed about 450 kg (992 pounds). Tesla's August 16, 2006 technical paper on the system credited Gene Berdichevsky, Kurt Kelty, JB Straubel and Erik Toomre, a reminder that the battery was a team effort.

On July 19, 2006, Tesla showed the car publicly for the first time in Barker Hangar at Santa Monica Airport. About 350 invited guests came, including California Governor Arnold Schwarzenegger, who looked the car over but was not allowed to drive it. The cars on display were the first two engineering prototypes, EP1 and EP2, one red and one black. The event opened the Signature One Hundred series, the first run of Roadsters offered to customers.

The prototypes hid two problems that nearly sank the company. The first was mechanical. The Roadster was designed with a two-speed transmission, with first gear tuned for a 0 to 60 mph run of about four seconds. The development units were expected to last as little as a few thousand miles, and Tesla's first two transmission suppliers could not deliver gearboxes in quantity that survived the torque and high revs of the electric motor. In December 2007, Tesla said early cars would ship with the transmission locked in second gear, which slowed the 0 to 60 mph time to 5.7 seconds.

The second problem was financial. The board had approved a $92,000 base price for cars after the Signature One Hundred run, based on management's estimate that each car would cost roughly $65,000 to build. An audit by one of the Series D investors in the summer of 2007 put the real cost closer to $140,000. That finding led to an almost complete change in senior management.

Eberhard stepped down as chief executive in August 2007 and took the title of president of technology. Michael Marks ran the company as chief executive until Ze'ev Drori took over in November. By November 2007, Eberhard was out of the company.

On February 1, 2008, Tesla delivered the first production Roadster, known as P1, to Musk at its Menlo Park headquarters. That car had both transmission gears working. Regular production followed about a month later, and Drori, brought in to get the struggling car to market, saw it through.

The fix for the gearbox came from a change of approach rather than a better two-speed unit. In September 2008, Tesla said it had finished Powertrain 1.5, which used higher motor current and a single-speed gearbox built by BorgWarner. Torque rose from 211 lb-ft to 280 lb-ft, restoring the promised acceleration on one ratio, and the EPA combined range rating rose to 244 miles. Tesla offered the update to existing owners at no charge. The single-speed layout became the pattern for every Tesla that followed.

The money problem was harder. The 2008 financial crisis hit just as Tesla needed capital. In October 2008, Musk replaced Drori as chief executive and cut about a quarter of the staff. Accounts of how much of his own money he had put in by then vary, from more than $40 million to $55 million. In December a new funding round became $40 million of convertible debt, and it closed on Christmas Eve 2008. By Musk's later account, Tesla was about three days from bankruptcy.

Customers felt the squeeze too. On January 20, 2009, Musk emailed buyers under the title The Importance of Options. The 2009 Roadster was priced at $109,000, up from the original $92,000 list price, and equipment that had been meant to come standard, such as the 70-amp home charger, became a $3,000 option. By March 2009 Tesla announced it had sold its 250th Roadster, and in May Daimler bought a stake of close to 10 percent for $50 million, partly to use Tesla's battery packs in its electric smart cars.

The fight over the company's early years moved to court in 2009. Eberhard filed a 146-page suit against Musk and Tesla in San Mateo County Superior Court, filed in late May and widely reported in June. He alleged libel, slander and breach of contract, said Musk had blamed him for the Roadster's delays and the company's financial trouble in interviews with outlets including National Public Radio, USA Today, Newsweek and The New York Times, and said he had not received severance and stock options he was owed.

Eberhard dropped the suit in August 2009, and Tesla confirmed a settlement in September. Its terms were confidential, but one outcome was public. Rather than argue over who deserved the word founder, the parties agreed that five people could use it: Eberhard, Tarpenning, Musk, Straubel and Wright. It is the reason the company's origin story has five names rather than one.

Tesla ended Roadster production in January 2012. Cars kept selling through that year, mostly in Europe and Asia, and the final tally was about 2,450 Roadsters delivered in more than 30 countries. It was the first highway-legal electric car able to exceed 200 miles on a charge.

The Roadster was expensive, late and at times unprofitable, but it did what it had to do. It showed that thousands of laptop-size cells could power a real car over real distances, it gave Tesla the single-speed drivetrain layout it still uses, and it kept the company alive long enough for Daimler to invest and for the Department of Energy to commit to a loan for the sedan that came next. Credit belongs to many people: AC Propulsion's engineers, Lotus's plant in Hethel, BorgWarner's gearbox team, the battery group behind the 2006 paper and the five people who share the founder title.