Driving Tesla Near The Edge, Or Over?
Elon Musk

Elon Musk

Last week, Tesla Motors acknowledged that it is losing money, struggling financially, laying off employees, and closing its Detroit-area office. At this point, fewer than 50 vehicles have been delivered to customers—and those were delayed by nearly a year after a series of key technical problems. It’s unknown how long it will take for the company to deliver the $109,000 Roadster to 600 customers with confirmed orders.

Could the Tesla dream—the creation of an electric car company in the mold of a Silicon Valley start-up—be falling apart? Elon Musk, the company’s primary financial backer and now its CEO—Tesla’s fourth chief executive in three years—says he is unwilling to let that happen. No matter the cost.

Musk has already invested more than $55 million of his fortune into the company, according to a recent 60 Minutes interview in which he confessed that Tesla has spent twice its initial projected costs. And apparently, Musk is ready to invest more, if necessary. In a recent blog post on the Tesla website, he wrote: “We are not far from being cash flow positive, but, even if that threshold ends up being further than expected, I will do whatever is needed to ensure that Tesla has more than sufficient capital to get there.” Musk was the co-founder of PayPal, and has an estimated fortune of more than $300 million.

Tesla Roadster Plug
ITesla Roadster
Tesla Roadster

The Tesla Roadster

The personal cost goes beyond money. Word on the street is that Musk is working at a feverish pitch to deliver on the company’s ambitious goals. Last year’s profile of Musk in Inc. magazine portrayed him as a man on the edge—downing a daily dose of eight cans of Diet Coke and several large cups of coffee.

“ When he sighs, which he does frequently, his chest heaves, and his eyes widen, like someone confronted with news of his own death. He generally speaks in complete, precise sentences, rarely telling a joke or even cracking a smile… Sitting in front of the oversize computer screen on his desk, he rolls back and forth in his chair, slouches and unslouches, rubs his temples, raps his fingers, and plays with his wedding ring.

Inc. Magazine, Dec. 2007

Musk’s life was recently further complicated by the announcement that he and his wife are filing for divorce. They have five sons under the age of 6. (By the way, Musk is also the CEO of SpaceX, an aerospace company that by 2011 plans to haul astronauts to and from the International Space Station. Musk’s business plan for SpaceX includes helping to colonize Mars.)

Apparently, Musk wants his employees to share his relentless drive to achieve the most difficult—some might say impossible—dreams. In his first corporate blog as CEO, he writes:

One of the steps I will be taking is raising the performance bar at Tesla to a very high level, which will result in a modest reduction in near term headcount. To be clear, this doesn’t mean that the people that depart Tesla for this reason wouldn’t be considered good performers at most companies—almost all would. However, I believe Tesla must adhere more closely to a special forces philosophy at this stage of its life if we aspire to become one of the great car companies of the 21st century.

Electric Car Special Force Commandos

The Special Force Tesla commandos will have an exacting commander at the helm. Insiders say he is involved in nearly every decision the company makes, down to the smallest details of design. This microscopic level of management is what led to the ouster of the company’s founder and former CEO Martin Eberhard. Musk and Eberhard clashed over small details, financial management, and the overall design philosophy for the Roadster—with Eberhard pushing to minimize engineering and high-cost setbacks, and Musk trying to build a sports car that could outperform its gas-guzzling competitors regardless of cost. Eberhard was willing to roll out the first production vehicles with a slower single-speed transmission and upgrade later to a faster 2-speed system that could deliver zero-to-60 acceleration times below four seconds. Musk insisted, at the time, on speed—but due to engineering setbacks, the company had to fall back to the single-speed transmission for its first customers. (Subsequently, Tesla upgraded to a faster single-speed gearbox with improved motor control electronics.)

Elon Musk in Jan. 2007 interview with Wired Science.

Perhaps the biggest setback announced last week is the delay of the company’s Model S—Tesla’s more modestly-priced $60,000 all-electric sedan. The plan all along was to start with the luxury sports car as a stepping-stone toward the mainstream. The delay pushes production of the Model S to 2011, at the earliest.

Setbacks and criticism are nothing new for Tesla and Musk. From Tesla’s earliest days, critics questioned the Roadster’s core energy strategy—powering a new ground-up vehicle via 6,831 laptop batteries all wired together. Naysayers said the battery system was simply not practical, and could possibly short-circuit or catch fire. Undaunted, the company pushed forward with its big dreams. In that regard, little has changed. There’s no indication that Elon Musk has lowered his long-term expectations for the company in the slightest. Despite last week’s news, he continues to accelerate faster than an all-electric sports car or a fiery space rocket.

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  • Samie

    To come up with the concept of a business be a major investor, run day to day operations, and CEO is tough. Everyone has strengths and weakness and clearly the company faces many challenges that small business have. I know that everyone loves this company but they clearly are running out of time. They only have a few years before the flood gates open and the major auto companies join the EV market. Also it is very dangerous to hype up your company and fail to deliver on those promises. Under 50 cars produced, that is just pure hype for all the expectations for this company! If GM only produced 50 Volts in the first 1-2 years of production people here would attack GM non stop. This company can not survive unless it meets its production quotes and innovates to compete in the lower markets.

  • J

    I really hope the Tesla doesn’t go anywhere. My favorite car is a Lotus Elise and I have been dying for a hybrid (or similar) sports car. This is the best of both possible worlds, if only I could afford one.

    Sidebar- Why is it taking so damn long to make a hybrid sports car? I’m in my mid-20s, have disposable income to burn and refuse to own a stupid 4-door car. My 2 door coupe with backseat is perfect and fuel efficient. I don’t get why car companies are forcing us to drink the stubby, 4-door kool aid. It can’t be too hard to put a hybrid engine in a 350Z, can it? All I’m saying is that there is a HIGHLY untapped market of apartment dwellers who don’t really care about plug-ins (since we can’t plug in anywhere) that want a great looking sports car with Prius-like mpg.

  • Need2Change

    I hope Tesla succeeds. They got an early start, but you can’t make a profit building a couple cars a week.

  • BBHY

    This article is misleading. It’s not like they have produced 50 cars and stopped. They are delivering another 10 cars every week, a faster production rate than the Lamborghini Murciélago. Does that mean that Lamborghini is going out of business?

    Sure, that’s not like what GM or Toyota produces, but what do you want? It’s a startup!

    The deliberate way they are ramping production and the steps they are making to reduce burn rate, don’t indicate that this is another DeLorean.

    In fact, it means exactly the contrary. The DeLorean DMC-12 could accelerate 0-60 in 10 seconds, making it a very slow sports car, and ultimately a poor seller. If it had the under four second acceleration of the Tesla, the company might still be in business. DeLorean produced 9000 cars which they couldn’t sell and went bankrupt. If they had limited production to what they knew they could sell, like Tesla, and controlled expenses, like Tesla, they might still be in business.

  • TEG

    A couple of technical corrections on this article:

    #1: The batteries they use are 18650 format, slightly larger than AA batteries.
    #2: The transmission story is a little different than what you said. The “free upgrade” for early customers is from an interim one-speed (1.0) to a new, improved (1.5) one speed with performance similar to what they had planned to do with 2 speeds in the first place. So, as far as I know, there is no plan to upgrade anyone to a 2 speed. In fact, the cars being made now have the new single speed gearbox with the quoted 0-60 in 3.9s capability. Basically they improved the motor control electronics so they can get comparable performance without needing to shift at all.

  • Samie

    “They are delivering another 10 cars every week” Don’t mean to pick on that statement but explain the math behind that, that is so far only about 50 have been delivered. Maybe the author of the article has got it wrong in saying “It’s unknown how long it will take for the company to deliver the $109,000 Roadster to 600 customers with confirmed orders.” My question how are they losing money if like you say they are filling orders at a rate of 10 a week because this seems like this would be a fixed cost. It also seems to me that either concept designs are running over budget, or production of 10 a week is not enough, maybe too many production errors, or may tops like Elon Musk need to invest more or maybe pass on his paycheck more often. My point is I don’t know whats doing on with this beloved company but it looks like they are running out of time. Maybe more capital needs to be pumped into this company to get their 60k and 30 something k cars out to compete with with major autos.

  • joe

    Just about everything Samie has said in both of his/her posts is inaccurate.

  • ex-EV1 driver

    Let’s not get too down on Tesla. TEG is right that there are serious technical errors in the article and its overall tone is quite harsh as well.
    Face it, making an american car company is hard. It hasn’t been done successfully in nearly 100 years. Tesla is at least delivering full (understatement of the century) performance, FHMVSS certified, electric vehicles and they are awesome performers to real customers. This is more than anyone else in the world can claim today.
    About the 50 cars delivered: The journey of 100 miles begins with a single step. I’d say they are at least 50 steps into their journey. Lets not give up on the person’s worth as an adult while he is still a child.
    By the way, this 50 car number is likely to be about 60 by the end of this week and 70 by the next week. If Tesla can keep this rate up, there will be nothing left to say.
    Its sad to see that the Model S has had to be delayed but when the big 3 are about to die, it isn’t surprising that Tesla at least has to tighten their belt.
    I invite anyone in the SF Bay Area to stop by Tesla’s store in Menlo Park on El Camino Real to see the cars being delivered. Reality is a lot stronger than paper.

  • hybridman2

    I agree with ex-Ev1 on this one. Tesla Motors has done an incredible job doing what the big three could have done, but didn’t. They didn’t ask for Govt. Bail out money, they raised their own.

    Have any of you even tried to pull just a motor out of a car, rebuild it by hand and then re-install it? If you have, you know the complexities involved. Now imagine designing, building, and selling a radical new car from the ground up. Enormous undertaking to say the least.

    Tesla is just running into the same problem as everyone- cash is tightening and credit markets are quickly drying up. Most people who would have had an extra $300K in equity on their California home a year or two ago, have seen it become vaporware. They’ve had to cut back on luxuries, and $100K car, electric or not, is a luxury.

    I want to see them make it. If they can weather through this and continue plowing forward, I think they will.


  • Wolf Wahn

    Good point!!!

    I understand that you want to introduce a new technology at a car that runs not in the millions of units — the first recall might get you on or over the edge of bankruptcy. However, why not addressing the market of the buyers of reasonably priced sport cars?!

  • Orion-5ster

    Well, I think it’s because even though you may THINK there are a lot of mid-20-ish people with lots of money to burn on a sports car, you’re actually not the biggest market out there at the moment. Consequently the car companies aren’t designing cars for you. Sorry to disappoint… But you’ll see exactly what I mean in about 5 years time.


  • thomatt12

    I still believe the Tesla Roadster is a good car…

  • Robert Jackson

    Explain this to me, they spent $400 million building 50 cars that they sold for $100 at a loss of $7.9 million per car.

    All the did was take existing technology. Package it, Lotus, Dell, etc..

    I am amazed at how people eat this stuff up.

  • Herbys

    The fact that all the original naysayer’s objections (around performance, the feasibility of the battery pack or the price point) have been proved 100% wrong should say enough about the objections to the current plans. Musk and their team may have their faults, but they definitely know what they are doing. They are top-notch, brilliant engineers, they have the technology, business and financial knowledge necessary to continue creating revolutionary things, and they also have the financial muscle to make it real.

  • Herby Sagues

    Well, companies like Ferrari and others made loads of money building a few cars a week (though now they have moved to higher production volumes).
    What you can’t do with low volume is to change the world and in that I’m with you, their success is important for all of us.

  • TEG

    I see that the article was eventually edited and my comments taken into consideration.