The Electric Car: Before Tesla
The story of Tesla begins with the GM EV1, the first electric vehicle to ever be mass-produced and made available to consumers.
In response to Zero Emissions laws proposed by California in the late 90s, General Motors was forced to invent their own electric vehicle that could reach these strict standards. According to the mandate, any car manufacturer in California had to offer at least one zero-emissions vehicle to continue operating in the state.
And in order to comply with the law (and continue selling cars), GM began to lease EV1s to customers in California. As word spread about the new technology and demand grew, the EV1 was made available across the United States. Despite short range and a poor network of electric charging stations, people fell in love with the futuristic little car.
After just a few years of offering the EV1, however, GM found that the car had an extremely low profit margin when compared with conventional gasoline-powered vehicles. Replacement parts were expensive too and GM didn’t want to support the EV1 forever. Together with other US automotive manufacturers, GM argued that the Zero Emissions laws were unrealistic and lobbied to have the law rescinded.
Immediately after repealing the law, GM brought production of the EV1 to a screeching halt.
They even went so far as to recall the vehicles that had been previously leased and took them to the desert to be demolished. The spirits of everyone that had leased an EV1 were crushed along with the car.
On July 24, 2003, before the EV1’s final moments, electric car enthusiasts held a mock funeral in its honor at Hollywood Forever Cemetery. During the service, celebrities, EV1 owners, and environmental activists gave a eulogy for the car — just as they would have for a close friend or loved one.
Shortly after the service, with the swiftness of the Grim Reaper, GM came to collect the EV1s and took them to their eternal fate.
In that same year, following the death of the EV1, two silicon valley engineers founded Tesla Motors. Martin Eberhard and Marc Tarpenning named the company after the Serbian-American inventor Nikolas Tesla, who created the AC electric motor that they used in their cars.
Prior to founding Tesla, Eberhard and Tarpenning sold their eBook business for $187 million and worked to raise additional funding to invest in their new venture.
Leading the Series A financing round, Elon Musk invested $7.5 million of his own money into Tesla and came on board in a variety of different roles. Due to his experience as co-founder of PayPal, Musk brought the know-how that Tesla needed to succeed as a startup.
From the beginning, Tesla’s vision was simple yet ingenious: invest in the development of Lithium-Ion battery technology and design a high-performance sports car that would easily turn a profit.
By putting EV technology into a high-performance vehicle, Tesla could eliminate any pre-conceived notions of what an electric vehicle was and wasn’t. In contrast with GM’s EV1, Tesla’s first electric vehicle would be able to match the speed, acceleration, and range of one that ran on fossil fuels. Then, revenue made from this first vehicle would be invested in the development of a more affordable, second car.
If everything were to go as planned, Tesla would be able to achieve economies of scale and move onto other areas, such as transportation and logistics, emerging automotive technologies, and even the way we power our homes.
In February 2008, Tesla launched their first production vehicle which they dubbed, “The Roadster.” This new sports car utilized the chassis of the Lotus Elise and swapped out the gas motor for a Tesla battery and powertrain. However, as Tesla continued to customize the Roadster further, the car had increasingly little in common with the Lotus Elise — just 7%.
R&D costs spiraled out of control and profitability sunk like a rock. Many CEOs also came and went, with Tesla seeing Eberhard, Marks, and Drori take turns running the company over a short period of 5 years.
With all 3 CEOs failing to save Tesla, Elon Musk stepped up to the plate and made drastic changes that turned the company around completely.
The Musk Era
Under Musk’s supervision, Tesla eliminated 25% of their workforce, recalled 75% of Roadsters, and raised $40 million in debt finance. Elon also helped form a strategic partnership with Daimler and borrowed $465 million from the U.S. government to further the development of emissions-free vehicles.
Not too long after launch, Tesla had put nearly 2,500 Roadsters on American highways and jumpstarted the Second Electric Vehicle Revolution. The most impressive feat of the Roadster was that it could rival the performance of a gas-powered sports car using electricity.
Powered by a Lithium-Cobalt-Oxide battery and a single electric motor, the Tesla Roadster achieved a top speed of 125 mph, acceleration of 0–60 in 3.7 seconds, and a massive 288 horsepower with 280 lb-feet of torque. Everyone’s minds were blown.
The most impressive feat of the Tesla Roadster was that it could reach a range of 244 miles on a single charge, completely eliminating any sort of “range anxiety” that EV drivers had experienced in the past. And for most Tesla owners, 244 miles was more than plenty for daily use.
In 2010, Tesla released their IPO on the NASDAQ, making themselves the first American car company to hit the stock market since Ford in 1956. This incredible historical feat confirmed to the world that electric vehicles were no longer just prototypes or experimental technology — they were a reality.
Keeping with their original plans to reach economies of scale, Tesla unveiled to shareholders the designs for two new vehicles: the Tesla Model S and Model X. With these models, Tesla would be able to reach an entirely different consumer and compete in the same market as the Big 3 (Ford, GM, and Chrysler).
Unlike gas, EV batteries were short in supply and couldn’t be produced as quickly as fossil fuels. To keep up with the production of Lithium-Ion batteries for Tesla’s vehicles, Musk laid out the blueprints for so-called “gigafactories,” which could churn out new batteries at an unprecedented rate.
As Tesla completed construction of these gigafactories, they hit many other important milestones as well. In 2015, Tesla released the PowerWall, a battery for solar-powered homes that could store electricity for use during the night and cloudy weather. They also developed auto-pilot technology for their premium vehicles and produced yet another car: the Model 3.
Just 9 years after selling their first vehicle and 7 years after releasing their IPO, Tesla hit a Market Cap of $52.3 billion and surpassed that of Ford.
Today, Tesla competes with the biggest automotive manufacturers in the US and seeks to expand their product line with larger vehicles, such as semi trucks, pickups, and vans. And as a fully-fledged company, Tesla continues to pursue their mission “to accelerate the world’s transition to sustainable energy.”
Want to join the ranks of Tesla and other successful startups in our portfolio? Check out apogeevc.com to learn more.