Land of the Giants: How Tesla Became the Elon Musk Co.

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1:06Hi, everyone. Karen here. After a long month, Scott will be back on Pivot this coming Friday. I know you're all excited. But in the meantime, we'd like to share another podcast that Scott and I recently contributed to. Land of the Giants from The Verge and the Vox Media Podcast Network has a new season out about one of our favorite topics, Tesla. It's called the Tesla Shockwave, hosted by automotive journalists Tamara Warren and Patrick George. They tell the story about Tesla's origins, its internal battles, and its broken promises. In this episode, we're about to share your hero directly from Tesla's founders, Martin Everhard and Mark Tarpening, about how the company was originally formed and how Elon Elon Musk used his clout, money, and even a few strong-arm tactics to get rid of them both and install himself as CEO.

1:50And you'll also hear from one of your favorite tech journalists and podcast hosts, and also one of mine. That would be me. It's Tesla's origin story, but it's also the story of the cult of Elon Musk. Give it a listen and then go follow Land of the Giants in your podcast app for the rest of the story. The year 2000 was a crazy good year for Elon Musk. He was the CEO of an exciting new startup, a company that promised to disrupt a fundamental part of daily life, how you pay for things. With PayPal, you can pay for anything, anytime, anywhere. A brand new company that was the result of a merger between Musk's online bank and a payments company co-founded by a guy named Peter Thiel.

2:33Musk and Thiel look like a dream team on paper. Two Silicon Valley rising stars with one vision, blow up the banking world. Musk even felt confident enough as CEO to take a quick break. I've gotten married earlier that year and not had any vacation or honeymoon or anything. Turns out he was a little too confident, because Musk's honeymoon period at PayPal was already over. I think it's not a good idea to leave the office when there are a lot of major things underway which are causing people a great deal of stress. Elon went on his honeymoon and they did a coup and forced him out. Liz Lopato has covered Musk for years at The Verge.

3:14Musk may have been the CEO of PayPal, but Thiel had installed guys from his former company in most of the other C-suite slots. The moment Musk was out of sight, they persuaded PayPal's board to oust him and replace him with none other than Peter Thiel. There was just a lot of worry, and that caused the management team to decide that I wasn't the right guy to run the company. Another way to look at this coup is that Musk was never really in control of PayPal, even with that CEO title. Thiel was the one who held all the cards. Lesson learned. Elon Musk is very much about Elon Musk. And there's like a real need for control that shows up in his companies where he needs to be in charge all of the time.

3:59Having learned from PayPal that if he didn't create that situation, he could potentially be fired. But after PayPal, Musk had no company to control. Licking his wounds, he started looking around for something different. On a personal level at this point, I would say I'm a little tired of the internet. The next company that I do, one of the things that I think would be important is that it has some long-term beneficial effect. A few years later, a couple of guys who were also excited about changing the world came to him with an idea. And it was just what he was looking for. A fast, sporty, electric car.

4:41Musk went all in.

4:48This is Land of the Giants. I'm Patrick George, your co-host this season. I'm an automotive journalist. I've covered the industry for about a decade, including as the editor-in-chief of Jalopnik and editorial director of The Drive. And the whole time I've been covering cars, I can tell you that nothing has quite defined the modern car industry like the rise of Tesla. But not many people remember it wasn't Musk's idea to start with. Today, the story of how Elon Musk made Tesla his own and the perils of shaping a company in one's own image.

5:22Before Musk even arrived, there were two guys with a dream. In 2000, Martin Eberhardt had just sold his first startup, developing an early e-reader technology. He needed a new ride, and he wanted to treat himself a bit. I was considering getting myself a new car and something fun and sporty. He loved to drive fast cars, but a Porsche 911, a Ferrari? Problem was, those cars were terrible on gas. To me, by 2001, climate change looked real. It looked like it was a real deal. So he looked around for something a little less like a carbon bomb. But the options at the time were kind of sad. Martin called these cars punishment cars, designed by people who really didn't believe you should be driving.

6:03This is Mark Tarpening, Eberhard's friend and business partner since the 80s. You know, you should be riding your bike or taking public transit or walking. But if you had to drive, you needed to be put into one of these things to be punished. That got Marx and my head thinking about that this was a real opportunity. What if there was an electric car that was fast, sleek, and sexy? For people like Eberhard, rich dudes who like flashy toys. When you look at the market there, it turns out there's a segment that is super into that, and that's a sports car segment. And the faster you can get to, you know, zero to 60 miles per hour, the more people are willing to pay.

6:42And if you can really get it close, people are willing to pay almost an insane amount of money for it. The guys wanted that kind of car, and the money didn't sound bad either. So they decided to do something audacious, start their own car company. The first thing they needed to do was figure out how to power the car. At the time, lithium-ion batteries were mostly used for small things like e-readers and laptops. But the guys knew these batteries could do a lot more, like power a car for a much greater distance on a single charge than anyone had ever seen before. But just to make sure, they mocked up a sample battery and tested it out in a car.

7:16And it worked. But these were tech guys. They didn't know where to begin with building the rest of the car. So they partnered with a small British automaker named Lotus. A Lotus body would house all the cool EV tech these guys could come up with. The last thing they needed was a name. I had been out on a date with a woman who became my wife, and I'd been in the back of my head thinking about this company and thinking about names. And the idea of Tesla came to me, and I proposed that to her, and she loved it. Okay, so they actually needed one more thing, money. There were so many reasons not to invest in Tesla that we didn't exactly have investors coming out of the woodwork wanting to invest in us.

7:56For months, the pair were in and out of dozens of venture capital firms. It was a pretty radical idea, you know, a new car company. Wall Street and VCs loathed the car industry. Cars were expensive, capital-intensive products that required complicated supply chains and enormous amounts of manual labor. Newcomers never succeeded. And remember, nobody was taking EVs seriously back then. But there was one person with a lot of extra cash who was not easily daunted. We got an intro to Elon. Musk was into risk. I mean, his other company was trying to colonize Mars. My initial impression of him was he was quite smart and quite enthusiastic.

8:36He immediately got it. He was like, oh, I see you did all the math. I love that. You know, I'm in. And I mean, you wouldn't guess it by the things he said today, but at the time, it seemed really clear that he understood that climate change was a real problem. When Musk made his first investment in Eberhard and Tarpening's company, he was almost four years out from the sting of being ousted from PayPal. and on his way to establishing a reputation as a kind of tech maverick. He had a very restless mind, and I think he found he had a very big interest with the world dying. This is tech journalist Kara Swisher, who's been following Elon Musk since the 90s.

9:13That's why he was interested in space travel, to get off this planet. He always thought there should be a multi-planetary species. He was worried about the end times. So that's why he focused on things like Tesla, which he thought was existential to the human race. To Swisher, Musk was nothing like his peers. Everyone around him was building online stores or primitive social networks, and Musk was trying to save the world. He could have made a lot more money a lot easier doing other things, and he didn't. I think he was always motivated by making the impossible happen. I think he was still motivated by his feeling that the Earth was going to be destroyed, and he was critical to stopping that in some way.

9:52Sounds great, but maybe a bit of a red flag, too. I think he had sort of a God complex. Only I can do it. Sounds like Trump, right? But as far as Eberhard and Tarpening were concerned, they had just gotten their first check, six and a half million dollars. As the lead investor, Musk became the chairman of the board and appointed his brother and an old friend as directors. The founders took on executive positions. Eberhard is CEO and Tarpening is CFO and VP of engineering. With the new money coming in, they could finally hire people to build their very first car, the Tesla Roadster. Dave Lyons was one of those early hires.

10:28He was an elite engineer, and Tesla wanted him to lead development. I got brought into a back room, and they said, hey, look, we're starting this car company. It's going to be huge. You're either with us or against us. Martin Everhart is a very fast-talking guy, and he was pretty charismatic, I have to say. And then there was this other quiet guy, Elon, in the corner who really didn't say anything. Lyons didn't know if electric cars had much of a future, but the room was full of energy and potential. and he knew a little bit about that quiet guy and his ambitions. So he was intrigued. Well, this guy's got a rocket company and he's saying this is going to take off.

11:03So, I mean, that pitch sold pretty well to me. Lyons became employee number 12. But Tesla would need a whole lot more people like him before he could make anything, let alone a brand new kind of electric car. Musk had faced this challenge before at SpaceX and he had developed a sort of recruitment philosophy that seemed to work. I remember one day he told us about his kind of, you know, his view of the world. We're like, all these companies are all bound up by all this regulatory mess and they don't get to do the good ideas. And the young engineers that are working at these aerospace companies, they're kind of low men on the totem pole with all these older moon launch era managers who kind of tell them what they can't do all the time.

11:46And he was saying, like, what I want to do is I'm going to hire all those energetic smart guys and give them freedom to soar. There were lessons here for Tesla. SpaceX plucked young, bright engineers out of government jobs and gave them the freedom to innovate. Tesla could do something similar, attract the most dynamic talent from the old rigid auto companies with promises of creative empowerment and equity. For the next few years, the whole company was focused on one goal, launching the Roadster, the car that would announce Tesla to the world. That day finally came in July 2006. This is one of the great cars, Tesla Roadster, an electric car that gets 250 miles per charge.

12:26And of course, the birthday party for a flashy sports car had a celebrity guest list, including California's governor at the time, Arnold Schwarzenegger. I test drove this one. It's hot. White hot. The Roadster was tear your face off quick. Eberhard, as CEO, took the lead on planning the Roadster's public debut. He hired a publicist to help out. She's the one who put together the basic idea of what that launch event would look like. From the idea of having it at an airport and having a track outside where people could drive, to having the event held in a giant tent where the track actually came in and people could see these cars coming and going and line up and go for a ride.

13:04all of this. This was basically her idea. This wasn't just the debut of the Roadster prototype. It was also the debut of Tesla. I went to show this idea to Elon down in L.A., and he basically had me fire her on the spot. Eberhard was taken aback. It was the first time Musk had ever done something like this. Reach into Eberhard's company and demand someone be fired. But Musk was adamant. Eberhard realized if he wanted to, Musk could take it to the board, And that was a fight he would have lost. Over the previous two years, Musk had remained the lead funder, allowing him to stack the board with guys loyal to himself.

13:40Not everyone was a Musk guy, but the math didn't look good. So Eberhard did what he was told. Which was heartbreaking for me. And then he hired his own team of people to produce exactly the party that she had laid out. Exactly. So I didn't understand what that was about. It was very strange. Now, Eberhard didn't always fold on key decisions, especially when it came to building the cars. But he could see that this moment, Tesla's debut, was very important to Musk. It was Tesla's first big splash, the reveal of its first car. And Musk seemed like he had to be out in front, there to take credit and absorb the limelight as the face of the company.

14:19The opportunity is now, and the need is now, to have a car company of this nature. Sure. Eberhard says Musk became sort of obsessed with this idea. He remembers when the New York Times first wrote about Tesla. It left out any reference to Musk, and he was furious. By the way, we've reached out to Elon Musk and Tesla about this and other stuff. We never heard back. It's worth noting that Tesla doesn't even have someone who handles media requests anymore. Anyways, Musk had inserted himself into the process of making the car as well. Small stuff, mostly. There were a lot of little sort of random interventions that he would come in and say, I want this change or whatever.

14:55Like door handles. He was determined that the doors on the Roadster should not open with a handle, but with a button. The motorized door handles on the Roadster, you know, they're cool, but they were also quite tricky to get right because the door latches on a car have to work correctly even after it's crashed. And if the power goes out, then how does the electric thing work? And we wound up spending some number of millions of dollars to get that to work right and to get it to pass the site impact crash test. And it wasn't just door handles. Musk decreed the seats weren't comfortable, and the door frame needed adjustments, and the headlights didn't look cool enough.

15:32Meanwhile, the company had much bigger problems than door handles, and it wasn't due to Musk's meddling. I was over budget and behind schedule on the project. Sourcing parts for a tiny car startup and an electric one, no less, was extremely difficult. Suppliers were reluctant to sell just a few parts to a small company that might not even exist within a year. But also, things like heating or air conditioning that played nice with EV tech, there was almost no demand for these parts, so they weren't widely available. You couldn't just put in an order and expect a shipment. If you could ask me what was the thing that was the most surprising to me, the thing I was not expecting, that was how hard was the supply chain problem.

16:10I just didn't expect it to be that difficult. They were a whole year behind schedule, and the car was shaping up to cost way more to produce than they had ever planned to sell it for. It was getting to be clear that I was maybe not the right guy to be the CEO for the company for a long time, to myself. So Eberhard began the search for his replacement, which was fine. He looked forward to working on something else at Tesla. I would have taken a role as CTO or vice president of whatever, blah. Anyways, but someplace where I'm spending most of my time working on the technology or on evangelizing the company.

16:43That was what I imagined. That's what we had discussed with the board of directors. But Musk had something else in mind. A few months into the search for a new CEO, Eberhard got a call from Musk. He'd found someone who might work as Eberhard's replacement. He came across as though this is a friendly suggestion. After all, it was Eberhard who was leading his own replacement effort. This was just a suggestion, right? And then I learned basically the next day through email that the board had basically voted me off the island. Eberhard was out as CEO. Musk's pick was in. Eberhard's own search for a new CEO looked like kind of a sham.

17:19And the assurance that he'd always have a role at Tesla was now totally in question. I felt like a brick on the side of my head. It felt like I got hit on the side of my head with a brick. It was totally unexpected. And there was nothing he could do about it. The company that had sprung from Eberhard's desire to drive a better sports car was now completely out of his control. Keep in mind, who was on the board of directors? It was Elon, right? It was his brother. Okay, he's kind of aligned. It was Antonio Gracias, who was an old buddy of his and made a lot of money off of previous investments with Elon.

17:50Musk controlled half the board. Eberhard says he asked for the board to vote again, this time with him present. The result? A demotion to the made-up role of president of technology. No one reporting to him, no responsibilities. But even that wouldn't last very long. I was asked to resign. Well, for me, it was really sad. Yeah. His co-founder, Mark Tarpening, left shortly after that. If Eberhard sounds a little muted, it's because he has to be. He sued Musk and Tesla, claiming libel, defamation, breach of contract, infliction of emotional distress, and failure to pay his wages, among other things.

18:27The lawsuit was settled out of court. I have a mutual non-disparagement agreement signed with Musk. And although he's been flagrantly violating that agreement over and over and over again, he's also the richest man in the world. And if he decides to crush me with lawsuits, I can't survive it. Tesla's founders were out. Musk had personally picked a new CEO. But really, by then, he was running the show. There was a new sheriff in town, no doubt about that. And he was quite drastic. But even that wasn't quite enough.

19:04Coming up, how Elon Musk made Tesla synonymous with Elon Musk.

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20:51Watch we take off. Tesla started delivering the Roadster in 2008. Late night legend and famous car guy Jay Leno got to test drive one, and he was an instant fan. You know, the thing that's fascinated me about this car is you've eliminated all the negatives of an electric car. A lot of times... Tesla proved it can make an EV that didn't feel like a punishment car. The Roadster cost as much as a Porsche 911, but it could keep up with one, too. And it didn't use gasoline. The founders were gone, but their dream had become a reality. And Tesla's engineering team was primed to work on the next challenge.

21:26And all the engineers, not just some of the engineers, All the engineers wanted to work on the cool new high-volume project. They knew exactly what it would be, a luxury sedan, the Model S. This was the plan going back to Eberhard and Tarpening's original business proposal. The team was ready to go, but their timing could not have been worse. The economy went into absolute free fall. That's Rachel Conrad, who was the only person on Tesla's PR team as the company faced the Great Recession. This was the peak Lehman Brothers liquidity freeze. Both General Motors and Chrysler declared bankruptcy. This was called Carmageddon, right?

22:08It was literally the worst downfall in the auto industry for a couple of generations. This is no exaggeration. Analysts at the time fully expected at least one of the big three American automakers to go out of business. At this point, Musk's handpicked replacement for Eberhard had already bounced. Another followed, but didn't last long either. Ultimately, Musk looked around and decided the crown belonged on his own head. He named himself CEO. In December of 2008, Tesla literally had one day of cash runway before they would have to enter the zone of insolvency and they would just flame out. It was a kingdom in trouble.

22:48Still, Tesla closed out the year with a holiday party. We could not rent a place. We didn't even have a caterer. We literally set up tables in the Tesla garage in Menlo Park. So there they were, sitting in some folding chairs in front of a hydraulic lift, drinking cheap wine and wondering if the company would last another day. And Elon stands on a table, literally, and says, guys, we just shifted in America from having a Texas oil man who was president to an environmentalist named Barack Obama, who has vowed not to just help the auto industry at large, but to specifically accelerate the shift to electrification.

23:38If you can't see the opportunity in that, you are not looking. This story about Musk feels like a freeze frame in a movie. The moment before the man is made. Well before Musk becomes the richest person on the planet. Before he even becomes famous. Before he gets a Twitter account with tweets that move markets. In this moment, he's just trying to move people enough to stay in their jobs. For Conrad, who'd been on the job just a few months, it was a moment of clarity. Musk made it seem like anything was possible. He seemed brilliant. He had a vision. He was in control. And the way he said it was so fucking powerful that everyone in there, he had us all.

24:23Like, none of us were about to abandon ship at that moment. Musk kept Tesla afloat by injecting his own money in the company. My salary is minimum wage. So, I'm a volunteer. Basically. He was even writing personal checks to cover payroll and charging work expenses to his credit card. The doors of Sand Hill Road, the epicenter of the global venture capital industry, were bolted shut. Okay. Nobody would give Elon a penny. Elon Musk, the most brilliant technologist who ever lived, right, the one who all VCs kiss his ass now, none of them would give him a penny. Around that same time, he found another audience, one that was willing to listen.