Encore: Tesla vs Detroit | Accelerate Faster | 1

0:00Tesla helped make Elon Musk the richest man on the planet, giving him the power to take Twitter by force. But how did he amass such a fortune building electric cars, once considered the ultimate boondoggle of the automobile industry? To try and answer that question, we're rerunning this series now, along with a new Business Wars spinoff miniseries, Flipping the Bird, Elon vs. Twitter, about Musk's Twitter takeover.

0:35It's November 2008 at an upscale steakhouse in Beverly Hills, California. Elon Musk is in trouble. He's meeting with his trusted confidant and investor, Jason Calacanis. How you doing, Elon? I've been better, Jason. Musk's trifecta of companies is in catastrophic financial crisis. SpaceX, SolarCity, and his five-year-old electric car startup Tesla are close to going under. To keep his empire alive, Musk burned through investor funds and virtually every penny of the millions he made from selling PayPal. It's bad. Very bad. But it turns out things could get worse. The housing market tanked a few months ago, and the country is in a major recession.

1:27As Calacanis reaches for a breadstick, he cuts to the chase. I read somewhere that Tesla has about a month of funding left. Is that true? Musk slowly shakes his head. No, Jason, that's not true. Not true at all. Calacanis smiles, looking relieved. Musk locks eyes with him. It's more like three weeks. Calacanis grimaces. I'll be honest. I'm living off of loans from friends. I'm writing personal checks to cover payroll. I'm barely sleeping. If I'm going to make this work, I've got to speed up the production of the Roadster. The sleek, wicked, fast EV Roadster debuted in 2006 with a limited run of 100, which sold out in less than three weeks.

2:16Respectable, but far from profitable. Musk is ignoring his stake. He's getting fired up. But I'm also getting serious s*** about the price tag, Jason. Okay, the car's$109 ,000, but developing new technology is expensive. When we can produce the car in volume, I know the price is going to come down. I get it. What about the Model S? How's that going? Musk's face suddenly brightens. Glad you asked. Check this out. Musk pulls out his BlackBerry and shows Calacanis a series of mock-ups of a new EV. He's impressed. It's a sleek fastback sedan. We can manufacture this for$60 ,000. Maybe even just$50 ,000.

3:01This is our flagship model and it'll scare the s*** out of Detroit. Classic Elon, Calacanis thinks. This guy always has a new seemingly impossible vision. And his approach is succeed or die trying. Tell you what, Elon, you pick up the tab tonight and I'll buy two of the Model S's. Like so many, he's buying into Musk's dream. And Musk dreams big. He wants to save the Earth. He wants to colonize Mars. But at this particular moment, he's targeting Detroit. It's a powerful, century-old auto industry built on gas-fueled internal combustion engines. While Musk sees Detroit as the walking dead, Detroit views Musk as a rich hobbyist who could easily be crushed if he actually posed a threat.

3:57This will be a battle of speed versus heft. and they have both grossly underestimated each other.

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5:53From Wondery, I'm David Brown and this is Business Wars.

6:19In the 1990s, the government leaned on automakers to make low-emission vehicles. Ford, Chrysler, Honda, General Motors, Nissan, and Toyota all introduced electric vehicles. But what they delivered and what consumers wanted were two different things. Consumers wanted an electric car with the feel, look, and roar of gas-guzzling trucks and SUVs. But the sharply scaled-back, odd-looking offerings left consumers cold. So Detroit came to an inevitable conclusion. Why build cars that people won't buy when what they're already making is so profitable? In 2002, Elon Musk's Tesla Motors arrived on the scene to challenge that premise with environmentally friendly, affordable, high-performance cars that people actually want.

7:11Motor City smirked as Musk piloted Tesla through crushing financial crises, spectacular quality control disasters, and his own shocking public displays of bad behavior. But eventually, he got some things right. And in the process, Musk didn't just disrupt the industry. He redefined it. So much so that virtually every carmaker is trying to wedge to the front of the EV pack. By 2026, the global sales of EVs are projected to be over a trillion dollars. And with a purse that fat, everyone is pressing the pedal to the metal for pole position. But before all this comes to pass, before Elon Musk is even on the scene, there are just two engineering nerds noodling with the idea of improving electric vehicles.

8:06This is Episode 1. Accelerate faster.

8:16It's a lovely spring afternoon in early 2003 in Woodside, a small community in the heart of Silicon Valley, California. Martin Eberhard and Mark Tarpening are computer engineers and business partners. They like to meet for lunch in a bucolic local park to dream about their future. So what's next on the agenda? Don't laugh, but I think we should do something big that'll make a difference to the planet. Sure, what about something manageable like, I don't know, global warming? Eberhard smiles. These guys are friends with a history of success. Back in 1997, they created a groundbreaking electronic book reader that made them rich.

8:57The Rocketbook. They're well-versed in cutting-edge consumer electronics. I'm thinking an electric sports car. Super efficient, but seductive. Yeah, and that's something Detroit will never do. GM did actually make an electric vehicle, the two-seater EV1, but it was unprofitable, embarrassing, and short-lived. Eventually, GM hauled them all back and turned them into scrap. You know, I once drove an EV1. It looked like some mutant machine from Mars. The battery pack must weigh a ton and was wedged between the two seats. Only went 75 miles without needing a charge. Makes it a pretty tough sell for people used to getting 200 or 300 miles on a tank of gas.

9:43But it was powerful, right? I'll give it that. Zero to 60 in eight seconds. You could probably get it down, too. I bet there's a market for an EV sports car that's really fast and has a long travel range. Yeah, look at the Prius. It's certainly not a sports car. and they're not cheap, but it's really catching on. The thing's great with fuel economy, and you know who buys them, right? People with money. But what if we take that one step further? You know, instead of a hybrid like the Prius, we build a lightweight, pure EV. We could probably do that using lithium-ion batteries and, you know, make it sexy.

10:21They exchange an aha look as the gears in their heads start spinning. Just weeks later, on July 1, 2003, they incorporate their new electric car company. They come up with a name they think sounds cool, borrowed from a brilliant long-dead Serbian-American inventor. Tesla. Eberhard and Tarpening push full tilt to create their electric car. But as they would discover, Detroit automakers had some good reasons to avoid EVs. The cost of electric batteries alone could raise the sticker price by tens of thousands of dollars, pushing them out of reach for lots of customers. And Detroit has one seemingly insurmountable advantage.

11:09As far back as the 1920s, the oil industry ensured the Model Ts rolling off the assembly line had mile after mile of filling stations on American roads. EV charging stations are as rare as unicorns in the United States. It seemed like an impossible equation to solve, making an EV with lightweight batteries that would have the driving range of a gas-powered vehicle at roughly the same price. After Eberhard and Tarpening established Tesla Motors, they immediately hit their first wall. They know next to nothing about the car industry. And they don't have a factory. Hell, they've never even built a car.

11:54Not knowing what they don't know, however, these two Silicon Valley nerds go off-road and come up with a whole new paradigm. One that turns the Detroit approach on its head. After all, who needs a factory when you can outsource everything? They'll hire the small, nearly defunct California-based electric car company AC Propulsion to build the motor. They'll contract the UK carmaker Lotus to assemble the sports car and drop in the engine. As for dealership franchises, that's so Detroit. An unnecessary expense. No, Tesla will sell their vehicles directly through the internet. Now, all Tesla Motors needs is money.

12:43Mulling through possible investors. The name Elon Musk comes up. Musk has money. In 2002, he made$165 million from the sale of PayPal to eBay. And a few years ago at Stanford, Eberhard and Tarpening watched Musk lecture enthusiastically about sending mice to Mars. They figure Musk is just eccentric enough to be a definite maybe.

13:16It's March 2004 at SpaceX headquarters in El Segundo, California. Martin Eberhard is led to a glass meeting room. Come on in.

13:29Eberhard shakes hands with Musk and sits back on a small couch next to a shelf filled with airplane models. Musk is dressed casually and unshaven. So, Martin, a successful electric sports car needs to appeal to smart, influential people who care about the environment. That's where you start. Manufacture and sell in small numbers, create a buzz, and then you make a car for the mainstream buyers. Eberhard is taken aback for a moment. It's like Musk has been a worm in his brain. See, Detroit has it backwards. They're giving up on EVs. They're dedicated to internal combustion, f***ing 19th century technology.

14:11They don't get the future. I couldn't agree more, Elon. What do you need to make it happen? Eberhard takes a deep breath and runs through his pitch to create the vehicle they're calling the Roadster. It'll be the coolest high-performance sports car in the world. Design-wise, it'll be the polar opposite of the EV1. And it will save the world. Musk listens intently. He's waiting for the ask. So we're going to need$25 million until we break even in 2006, Elon. But right now, we need$7 million to make the prototype. They work on the project for nearly three hours. Musk is clearly excited by the idea.

14:58But Eberhard still hasn't gotten an answer. Is Musk investing or not? Finally, Musk leans toward Eberhard. I'm in, Martin. I'll put up six and a half million, and I'll be chairman of the board. Part of the deal. I don't see any problem with that. One more thing. We need to close this deal in ten days. My wife's having a C-section. Twins. I gotta focus on that. Eberhard leaves the room, speechless. Until today, every time he shared his dream with someone, he'd been met with deep skepticism. Now, he's found a believer, one who's willing to put skin in the game.

15:46Lori Yoler is a Tesla Motors board member and a good friend of Eberhard. She's well-connected to Silicon Valley's venture capital investors. But she hasn't had much success selling them on the electric car. Yoler is driving home in Silicon Valley. She glances at her phone. Caller ID says it's Eberhardt. What's up, Martin? Great news, Laurie. Elon Musk is on board for six and a half mil, and he's the new CEO. Yoler is momentarily stunned. Wow, that's terrific. But Elon Musk? Mr. SpaceX? Exactly. Hey, what's the problem? Look, I've heard Musk can be tough to deal with. He's smart and ambitious as hell, sure, but he's stubborn and...

16:37Let's just say he's got an ego on him. He's also got a fat wallet, and he seems to really understand what Tesla's all about. Okay, but FYI, from what I know, the board at PayPal gave him the boot because he fought with co-founders and wanted to micromanage everything. I hear you, but trust me, Lori, actually... Now, don't trust me. Call him yourself. See what you think. You can bet I will, Martin. A few days later, Yoler connects with Musk. To her surprise, she agrees with Eberhard's assessment. Musk convinces her all he wants to be is a wealthy board member of Tesla Motors. The deal closes. When the tiny Tesla group gathers to toast Musk's angel funding, They're on top of the world.

17:24They have an independent company on a noble mission. They answer to no one. But Eberhard and company are in for a shock.

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19:45It's the 4th of July 2005 in Woodside, California. Musk is out of town, but the small Tesla team is partying in Martin Eberhard's backyard. And they're not just celebrating Independence Day either. Hey, everybody, listen up. All right, you guys, we did it. Here's to the first working roadster. Fantastic work, people. Fantastic. Just weeks ago, the team completed the prototype. Musk took a test drive and was so pleased, he invested an additional$9 million. But Mark Tarpening can't stop thinking about a problem. He puts down his sparkler and clears his throat. Look, I don't want to put a damper on things, but...

20:35Well, we know that the lithium-ion batteries are the power answer, but we also need to face the fact that when you string them together, a random bad cell could ignite. Right, Mark. But look, the odds are like, what, one in a million. Tell you what. Let's tape some batteries together with a heating wire and see what happens. Right now. It's a perfect day to explode things, right? Minutes later, they've got 20 batteries in a small pit in the yard. Okay, let her rip.

21:15The party mood sobers up quickly as the experiment sinks in. Tarpening stares at the toxic fire and swallows hard. That was 20 batteries. The roadster will have 7 ,000. This could obliterate the company. I told Elon we'd have the car ready for buyers by early next year. How's that even possible? The implications are clear. If they can't solve the deadly battery issue, they might as well call Tesla quits and leave the field to Detroit. In the search for a solution, Tesla engineers blow up a lot of batteries. But in the process, they break technological ground by creating a cooling system and a way to avoid even a single battery cell from overheating.

22:06Musk takes the wheel from here. With the bravado of a professional wrestler, he's bragging on the upcoming Roadster, teasing its debut. But General Motors Vice Chairman of Product Development, Bob Lutz, sees him as a loudmouth huckster. Lutz is a shrewd veteran executive who has worked for Ford, Chrysler, and now GM. He knows hucksters, and he has little patience for all this hype around Musk.

22:39It's December 2005 in Detroit. Lutz sits in his spacious office at GM corporate headquarters, puffing on an expensive cigar, scowling through the clouds of smoke. There's a monstrous V16 engine mounted behind him on a pedestal like a trophy head. His top staffer sits across from him, squinting through the haze, waiting for the boss to speak. Lutz is a former Marine, and he commands respect. We made a mistake with the EV1, and that failure cost the company nearly a billion dollars. Yeah, talk about bad press. And Toyota is rubbing salt on our wounds with that damn Prius. They're getting worshipped for being environmentally conscious while we churn out gas-sucking trucks the size of tanks.

23:26Lutz can't bring himself to say it. But GM lost$8.6 billion this year while Toyota, buoyed by Prius, made$9 billion in profits. He tosses a newspaper across the desk. Look at this headline. Apparently the climate is out to kill us all. We both know this global warming thing is a bunch of BS, but the public is interested in this whole green push. GM needs to be viewed as part of that. You think we need to compete with Toyota on the hybrid front? Yeah, we need a Prius fighter. But I'm also hearing a lot about Tesla's electric engines using lithium-ion batteries. Laptop batteries, for crying out loud.

24:09Tesla? Come on. They haven't even debuted a car yet, Bob. We're GM. They're a blip on our radar. Maybe a blip now. But what if Tesla can make an effective, efficient battery? We'll need an answer to that. EVs aren't going to just disappear, and we can't make the same mistake twice.

24:31It's July of 2006 at a star-studded event in a hangar at the Santa Monica airport. Tesla is debuting two red and black roadsters. Among the 350 guests hand-picked by Musk are Governor Arnold Schwarzenegger, Disney CEO Michael Eisner, and environmentalist and actor Ed Begley Jr. The guests circle the roadsters admiringly. The vehicle looks as irresistible as any sports car on the road. Guests are invited to take test drives. When they hit the accelerator, they're blown away. The Roadster zips from zero to 60 in four seconds, in silence, without a whiff of fumes. It sails around the airport tarmac like some ride from the future.

25:24Musk steps forward and the crowd goes quiet. Until today, all electric cars have sucked. By the end of the night, 20 people plunked down$100 ,000 each to reserve cars. Three weeks later, the initial limited run of 100 Roadsters is sold out, based only on press and word of mouth. Among the buyers are George Clooney, Leonardo DiCaprio, Matt Damon, and Governor Schwarzenegger. In the coming weeks, the spotlight is increasingly on Eberhard. He's featured on TV interviews and highlighted in press coverage. He's eating it up. To commemorate the moment, his wife buys him vanity license plates that read Mr.

26:17Tesla. But all that attention includes scrutiny from a very tough audience, Elon Musk. In late summer of 2006, with interest in the roadster growing at full tilt, Musk becomes consumed with what he says are design flaws. He meets with Eberhard on the factory floor. Musk slowly circles the prototype like a predator. her. Look, Martin, the cars are hard to climb into. My wife has a very hard time getting in. But she's pregnant, Elon. The door... I know. We need to lower the doorframe. And the seats are seriously uncomfortable. And the door latches. They should be electronic, not push button. Come on, man.