Tech Brew Ride Home - (IHP Bonus) Tesla Cofounder Marc Tarpenning (Corrected)

Episode Date: May 15, 2023

Marc Tarpenning, along with Martin Eberhard, was the cofounder of Tesla Motors back in 2003. But before that, Tarpenning and Eberhard were also the cofounders of NuvoMedia, which produced one of the world's first ebook devices, the rocket eBook. So, for the first part of the episode, Mark recounts the story of NuvoMedia and then about 25 minutes in we begin the founding of Tesla, in my opinion, perhaps the most amazing startup story of the last 20 years. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Internet History Podcast. I'm your host, Brian McCullough. Mark Tarpening, along with Martin Eberhard, was the co-founder of Tesla Motors all the way back in 2003. But before that, Tarpening and Eberhard were also the co-founders of Nouveau Media, which produced one of the world's first-ever e-book devices, the Rocket E-book. So for the first part of this great episode, Mark recounts the story of Nouveau Media, and then about 25 minutes in, we begin the founding of Tesla, which is, in my opinion, perhaps the most amazing startup story of the last 20 years. Very rarely have we spoken to an entrepreneur who has so completely disrupted two completely different analog industries, as Mark has been privileged to do in his career. so please enjoy this conversation with Mark Tarpening. Mark Tarpening, thanks for coming on the Internet History podcast.

My pleasure. There's so much I want to cover with you today, so I only want to dip briefly into the early part of your career, but I believe early on in your career you worked at a lot of disc drive startups, is that right? Yeah, well, actually, you know, when I graduated Berkeley in 86, and then they're 85, I guess. And then I ended up going to Saudi Arabia for years. I was orbiting the planet every six to 12 weeks.

I had around the world tickets, actually. I really did orbit the planet doing work on computers in Riyadh in Saudi Arabia. And when I came back to Silicon Valley, I ended up in the way that Silicon Valley works. I was at a party, and one of the people there, and they said, oh, you know, we were looking for somebody. you got to come in, and then I ended up working there for a couple of years. They were doing small drives, 2.5-inch diameter drives, the ones you might see in a laptop. And at that time, that was... I asked you that because I wonder if there were lessons working at startups like that

that would apply later to what we're about to talk about. Oh, yeah, yeah. So, you know, first off, there's the whole sort of startup idea where, you know, you get stock and you work for these little companies and nobody has any resources and you're all very scrappy. And that sort of ethic and that culture was very important and certainly informed everything else that I did. Very multidisciplinary because you have magnetic people. You have media people that are actually, in this case magnetic media, the analog engineers dealing with the re-channels, mechanical engineers,

and then the sort of firmware people that make the data flow in and out in a control. It was a great example of how software is eating everything. I look at a complexity in disc drives. If you look at a modern disk drive versus one from the 1970s, the modern disk drive with... Well, I think software and hardware, that tie-in that you just talked about is going to be very important here in a second. Tell me about meeting Martin Eberhard. So one of these trips back from the Middle East, I was visiting my high school, and actually my high school friend and college roommate, who was working at a company called, I think at that point, I think he was at NCD, and that was a startup dealing with, you know, Stone Age technology, but at the time, you know, very innovative. And Martin was one of the co-found. So I met him, you know, through my friend Greg, who, parenthetically, I just had. So I guess you hit it off with Martin? Oh, yeah. Yeah. Yeah. We have very similar ideas on things.

And he's, you know, I'm a software guy and he's a hardware guy, so you kind of need both to make things happen. Yeah, it's sort of that perfect yen and yang. So what is the genesis of Nouveau Media? Is it that you guys decide you want to do some sort of a company together, or how does the idea start to form? Yeah, so we decided we wanted to do a company together. That would be very fun. You know, I was doing this, you know, distrive stuff, and he actually got sucked into a little bit of that as well. Because I think it was at one of us.

So he came and worked at a couple different companies for just a short period of time, doing some consulting on the electrical side. And then we said, you know, let's go do something ourselves, but we didn't know what to do, of course. We had a bunch of ideas, and we quickly decided that we needed to do something that we actually knew something of both. We knew what Distrives were doing, and we knew what Silicon was doing, and we knew six months before.

So you could make a digital video recorder. you could record TV on, you know, you didn't have to use video, you know, spinning things that people used to have. The problem is neither of us owned a TV. So we actually, since we didn't watch TV, you know, we kept talking about it. I said, well, you know, we don't ever use this product. You know, it's got to be something we actually use. So we went through a couple of different iterations of different things.

And, and of course, at that same time, there was a group of people making TiVo. at the same moment going, oh, wow, this is just possible. And they founded TiVo, decided that the thing that we really like to do is read lots of books. And we can, you know, the technology is becoming available. Time, again, we had lots of resistance people who said no one's ever going to read on a screen. It's one thing to read an email, but they're never going to read a book on a screen. Well, also, it should be pointed out that this is around the same time that Palm pilots are coming out and people are using. So it's this notion that pocket devoid.

devices are finally becoming a thing. This is around like what, 97, 98? Correct, 97, yeah. So, yeah, the Palm Piler was our, you know, we obviously used that in our, we are going to have these digital devices. And, you know, obviously it's going to take a larger screen to really read a book, you know, effectively. But it's going to be possible. We're going to be able to distribute the books, you know, over this internet thing, and we're going to be able to give the digital content from the publishers, which turned out to be incredibly difficult. publishing industries for hundreds and hundreds of years. They have a whole special set of

laws that apply only to them. And many of the same people, like you go into these companies that are 200 years old, and the same people are running them. And they don't get content into digital form, getting whole new ideas. It's a standard now, but at the time, you know, none of that existed. So the product you launch is called the Rocket E-Book. I believe it retailed around $500 maybe and weighed about one and a quarter pounds. Give me some of the specs that you remember. How many books could I store on the initial rocket e-book? Oh my gosh.

I don't actually remember. Certainly like 10 or 20 on each of spice. And obviously you could then, you know, it plugged in, you know, to a computer. So you could keep a library of, you know, sort of unlimited size on your computer. Remember, this is at a time when dial-up. was the dominant means of dealing with the internet. So, you know, the common paradigm was that, you know, you would buy something online, although even online was kind of a novel concept.

You would download the content onto your computer, and then you would transfer it over to your electronic book. The book itself didn't have possible. Well, right, because Wi-Fi isn't ubiquitous yet. Cell phones probably don't even have, you know, 40% market penetration at that point. Well, right. They don't have data. Right.

You know, you can text her cell phone, but you're not, you can't really transmit data that way. And so also it's an LCD screen. It's not the E-Inck screen that we're used to with Kindles. But even that was something like that was just suddenly available, like having a screen that was able to be sharp enough to function as a reader with something that you were on the cutting edge. Yeah. In fact, we had to, at that time, and I think it was probably still the case, all the best displays come from Japan. And so we had to go to Japan and, you know, work our way into all the various, you know, the Samsung's, I mean, the, you know, the sharps and Sony's, to see their latest stuff that wasn't out of the market yet, because nothing on the market was good enough. You couldn't really read on it.

The contrast ratio wasn't high enough. And these are all black and white screens. The color screens were, you know, terrible. Nobody could read on those made by Sharp that used a, it's called DMTN, it's a kind of LCD panel that was unusual that had very, very high contrast ratio for the time. It was like about 10X, but anything else had. And they had developed it for a client to make a particular kind of golf computer that never really took off, but they spent millions and millions and millions of dollars developing the technology

and really wanted to find another market for it. And, you know, it was actually, once people saw it, you know, we had all these meetings, and they would say, oh, you know, no one's going to read on a screen, blah, blah, blah, blah. And then we would hand them, you know, one of the few sort of handmade prototypes that we had, and they would look at it and go, oh, before that nobody had seen anything quite like that. I read that, you know, and this would have been obvious in 1997, 1998,

that you went really hard at Amazon to try to get Amazon. Amazon to buy in as an investor, but didn't have any luck? Well, sort of, yeah. No, we did. We actually had a couple of great meetings with Jeff, and he's totally great, and we came to terms. We had sort of a deal for an investment. And at that time, Amazon was really worried about Barnes & Noble. it was you know Amazon was quite small Barnes and Noble was

was the big bookseller the biggest bookseller at earth at the time and they were going to go into digital they were going to go into online and and basically destroy which you know it's hard to imagine now but that was that was what would look like it was going to happen so they were very concerned about Barnes and Noble and so you know we came to came to a deal for an investment you know just investments

and started you know when you get these things you know the person says yes, here's the terms, and then the lawyers get out. You know, there are the lawyer that he had. We just couldn't come, couldn't get a deal. It's completely different than what Jeff had said. We went and talked to Barnes & Noble. If Jeff's really afraid of Barnes & Noble, then he would

know, so said, you know, no one's going to read on screens, blah, blah, blah, blah. And then they saw our demo, and I'm blanking on the head of... The Regios? Yeah, the rigios. Steve, Steve, Steve, looked at it, and he's like, oh, oh my gosh, this is big.

And they were in. And they said, you know, you can ask anyone, you know, in the publishing industry, if we say it's enough, I mean, their lawyers be rid of way, you know, I don't know, for a week. I think we had a perfect term sheet and perfect, you know, legal documents that all matched exactly where we had spoken and the deal was closed. And it was just because Jeff's lawyer was incredible agenda that I think, that I think Jeff Bezos did. And what was interesting is we ran into, we were going to be Amazon's first,

and we ran into two other people over the years that were all exactly the same experience. They made the deal with Jeff, and then it was terrible, and they could never close the deal, and they ended up getting money from somebody else. Lawyer got fired because Jeff is extremely quantitative. So flaky, you know, entrepreneurs, interesting. It just happened again. Must be, you know, I must have just gotten unlucky. And then the third time when it happened, he said, here is the lawyer.

And then he closed, you know, then he invested in like 12 companies in a row very successfully. Do you, you don't have to, but do you remember those two other companies that missed with Amazon as well? No, I don't know. So it would be, with retrospect and knowing now that e-books didn't really seriously go mainstream until the Kindle to say that maybe Rocket E-Book was too early. but I mean, I, you know, found numbers like you sold 20,000 units in the first year, we're doing double that the second year, and, you know, by like 1999, you have, like, the base model costs down to like $169. So it was a pretty successful early entry into this market, right?

Well, I think so. I mean, you know, I think you can argue that our, you know, the timing was probably, we were a little bit ahead of the market. because the Kittle comes out years later, and by that time, people were used to buying online, by that time the publishers were used to having content online, all the pieces that sort of come into place. You can argue that our market timing was off.

Also, you know, when we got the opportunity to sell the company, our TV guide, and we knew we were going to have to go raise money again in the next few months or, you know, we had reached, and then we get the son solicitorily and we'd make all the investors happy. And this was in 2000, and, you know,

things were getting a little squarely i mean you know the bubble it was becoming that deal and we thought genuinely that they had they had a plan for digital publishing they you know they knew the tv guide was you know sort of fading away because you know of online uh... guides uh... and they they had an interesting for rupert murdock you know he's not particularly interested in electronic books at that point he has other things uh... you know it sort of you know failed in in that front

but uh... but on the other hand you know we had a successful. That particular product didn't succeed, but I think we did push, you know, we were part of the enabling technologies or the enabling legal framework and everything else that allowed then later, you know, the Kindle to be successful. And, you know, I read many of my books, of course, now either on a Kindle or my iPad. And I, every time it's a small part of that. Before we leave Nuvo Media, you had mentioned that working with the publishing industry and negotiating some of the first, you know, digital royalty agreements and things like that. This is also sort of around the Napster era. So weren't they aware of that? Wouldn't they be eager to

play? Oh, my gosh, were they aware of Napster? That was, that was, they were terrified. And so they, what they were very concerned with was getting any of their essentially in digital form. So you cannot imagine, I mean, you know, coming from Silicon Valley, it was to wrap your mind around the fact that even in the late 90s or in 97, most books, they never were really in digital form in a normal sense. So a common thing would be somebody would submit a manuscript. Literally, you know, handwritten or typed, you know, like with a typewriter, then they would, I'm not even sure what it was, and then they would typeset it. But that, and then that would, large negatives would get produced.

negatives would go and touch up these large negatives even, because they would even be editing the book, and then they would take these two, these presses, and very often included in the book of the room, and then they would come together in the binding house and be bound together in any complete, and that was sort of in that work. If a second run of the book was needed, if it had been quite a while between the first run of the second, because they didn't have it in any reasonable format, they would go and buy a con, and then they would, I'm not making this out, but buy a couple of them, and then then they had a little fancy any discrepancies,

and then an editor would look and figure out which was the mistake and which wasn't. And then they would repeat the process. So were you guys able to gently nudge them in the direction of just going digital first might save all that hassle? Well, they just weren't set up for it. And so we had this really naive Silicon Valley view that's, well, you know, once we had, you know, so we'd like the digital files of, you know, some book that had come out.

and then we could format it in some nice way. It's a little bit different because you can't, you know, page layout is a very sort of different concept. And they were, you know, we just, you know, they looked at us like we had two heads. They had no idea what we were talking about. You know, they knew they had to get there. But a bigger, but the technical details were only part of it. Layers and layers and layers of North American rights. You have the English language rights for North America,

or you have the English language rights for all other countries outside of North America. and England, for example, or Great Britain. That's a very common... It's in South Africa and buys it in New York. Well, you know, that's two totally separate geographic rights that are negotiated completely separately. And the author owns those rights. You know, sort of all rights not explicitly sold are owned by the author.

In the individual territories. So if the author only sells the rights, for example, to English language in North America, and then somebody buys it in Germany, well, he doesn't, you know, the publisher doesn't have the right to send that file to him, to that person, distribution in Germany, for example. So this was, you know, on the Internet, you know,

this is an incredibly large problem and of these geographic monopolies, basically, that they had. And then on top of that, you don't only sell it, like I remember the term now, but so, for example, the hardback, whose individual rights are all independently sliced and diced by geographic region. So now you say digital, the publishers typically, they might have had a contract. They didn't have the digital rights, right?

That was only for the hardback. You know, if you wanted to print out, you know, if they wanted to have you publish one of these books and renegotiated. Whole new contract, because they don't have the rights to do that. The author still retains that. And a couple of the publishing houses maintained that once they had the hardback rights, that was the same as the digital rights. and they have literally hundreds of years of case law to show that that isn't the case. That in each new format that's come out, the author retains those rights and must, is given away.

And we had one publishing house that was so proud of itself. We knew this was coming. We were sure this was coming. So our whole catalog, we own the digital rights of all of our hardback books. because we buy those with it. We actually negotiate that, and we have that. Even though there was no digital distribution, we knew it was coming. So, you know, our whole catalog is it.

We're like, ah, like a week from launch when their lawyers call. We can't do any of them because although we own the digital rights, it turns out of read-upon and get a separate, even they, you know, they had to go and so, but we eventually got all through that. So, you know, I figured that if nothing else, you know, we paid for a lot of the lawyering that allows all of the content to be distributed the way it is now. Thank you for blazing that path. All right, so let's start on the next story then. So you and Martin do have the successful exit to Gemstar TV Guide,

and I guess you enjoyed the ride so much that you decide you want to go again and do another company. So what are you guys thinking about when you're thinking of going again? Well, we looked at a bunch of different things. So one thing we wanted to do, though, was raise the bar a little bit. The last one had been something that, you know, we thought would be fun. And we wanted to meet authors and sort of understand the whole world. We met some great people, and it was totally fun.

It did exactly what we had wanted. The second time around, you know, we wanted something a little bit more meaty, a little bit of meaningful. And we looked at a bunch of different things in terms of, you know, everything from, you know, bizarre lawn sprinklers, you know, that would save water to random stuff. He'd wanted to buy an electric car, and it was right about the time when the zero-missions mandate got re-re California. So all the electric cars had ceased to exist, and they weren't very good anyway. The EV one was the only one that was kind of viable, and it was all leased, and that Chris GM took them. So he was pissed off about that. He says, why don't we just do this electric

car thing? It just can't be that hard. Making a car, we knew the batteries were getting better and better and better, and, you know, They had gone from nickel metal, I think you had gone really from NICAD to nickel metal hydride and then put them ion. And that, you know, just in our, you know, TEMIOM batteries were so finicky to work with. And it makes up for it because, you know, with, you know, some spreadsheet calculations that in fact, you could put enough energy on a car to make it really compelling. I mean, way better than any of these, you know, EV-1s or anything else had ever imagined. And really just, you know, computers synthesizing waveforms to make motors go and a network problem

because there's lots of little computers required to do all of that. But, you know, that's the control stuff. Silicon Valley is really good at that. Well, can I also, because remember the big thing at the time was hydrogen fuel cells and stuff, but you guys do the math and you're like, no, EV is the most efficient way to go if you're trying to improve what a car could be, right? Correct. If your goal is to reduce energy consumption, but just, you know, in any given resource,

you want to use it as efficiently. possible. You know, you don't want to pick something that just consumes lots of that for no apparent reason. And hydrogen, you know, is uniquely bad. It is, you know, there's a thing in the eye, and as far as I can tell, because the energy equation is hydrogen, the abundant element in the universe. React, it's bound up into everything. It's bound up into water and wood and everything else. Make it, you have to break it free from the chemical bonds that it's both common thing. you know, you put electricity and water. And so you're making, you're pouring energy in in order to make the hydrogen.

And then you have to, and then you actually need it, which is much harder to work with than gasoline or even natural gas. And natural gas is not that easy. And then you have to convert it ultimately in a car. And then on top of that, you have to convert it back into electricity to make the car go because, you know, primary fuel source on the, maybe out somewhere. And so when you add that all up,

it turns out that the amount of energy in per kilometer driven, terrible. I mean, it's way worse than almost anything else that you can come up with, which when we were raising money the first time, you know, and we had biofuels and, you know, ethanol, and, you know, we sort of went down the whole list and figured out, you know, lithium lithium-m batteries, we'd go to these VCs, and we would say, you know,

So about half, we had a whole slide deck on why hydrogen fuel cells were a bad idea. And about half the VCs we'd get to that slide and they'd say, oh, skip this. You know, we know it. And actually, one of them used the word scan. Oh, we know it's a scam. Just go, you know, we've done and have us go back over the slides again about the hydrogen fuels. Because they had, of course, invested in those that are useful. A solid oxide fuels, those are ones that are like in the basement of the New York, the stock exchanges,

that you run a natural gas and they're used for backup power because they can't use diesel generators in downtown Manhattan. But, you know, so there's some, you know, storing, because you almost get nothing, you know, for the kilowatt hours you put in. Well, so could I, could I prompt you for two insights? Because to me, I feel like reading about this, this was key, which is, first of all, actually, so there was recent experience with electronic vehicles, GM's EV1, specifically. and that experiment specifically told you that you could be successful because the word that I love or the quote that I love is that you learn that treehuggers and geeks have a lot of money.

So tell me about that insight. Well, that isn't quite the insight. What was interesting about the EV-1 was, you know, GM not the most well-loved brand among, you know, the money people. Because, you know, if you're successful, you tend to go buy a Mercedes or a BMW or something, you don't go buy the, the latest GM vehicle. And when they had the EV-1 out there, they only leased them in California, and yet the people who leased them were all,

almost all of them were very wealthy. And it is, so because electric cars are so incredibly energy efficient, they're actually really cheap to drive. For a lot of people was that the only reason that you would drive, you know, you wanted to save money on gas. There's also an assumption, and that was widespread. Pay for itself by saving on gas. By saving on gas.

and it's a hundred thousand dollars sports car you know it's not nobody you know that's a sports car do you have and they go i've got a portion of nine eleven i say when you let pay for itself oh well that you know it doesn't pay for itself no it's usually expensive we're like yeah exactly um but that's not why you bought it uh it wasn't to save money and that's in general uh so the the interesting thing was that the people of california were trying to save money gallon at the time you know it we're at the gas station releasing electric cars and they were doing it for some other reason. So when we looked at that,

they said, well, shoot, you know, a new technology is going to be expensive. We're going to have to come in, you know, and it turns out electric cars, and there's nothing like an electric car in terms of acceleration. It's, you know, we had people that would drive, you know, even, you know, drive one of the Model Ss now, or we drive the roadster at the time,

and they would come back and say, you know, you broke my Ferrari. You know, you broke me, you're talking about it. Well, now I get in my very expensive gasoline car car and just so slow, because electric cars have that instant acceleration. That's maximum at zero RPM and stays maximum for a very long time. And that's similar to the other point that I found fascinating was, because remember Priuses become a thing around this time,

and Toyota discovers a similar thing that Prius sales actually cannibalize their Lexus sales. People were trading in their Lexuses for Priuses. Correct. And that was not their plan. I mean, you know, they were only sold in calculus, you know, political and into that particular demographic. And, you know, in downtown Palo, they had traded in one of their cars, one of, you know, they had traded in that BMW. They had traded in the Lexus and they had replaced it with the Prius. And it wasn't about saving, you know, money on gas to be consuming gas. They were making that they were, all the cars do the same thing, right? If you, if whether you buy, you buy, you, it's, whether you buy, you. a hundred thousand dollar car or a ten thousand dollar car you you go the same places you're going at the same speed and at least around here you know you're rarely even going as fast you you're not going to get there twice people by and yet whenever when anybody has any extra income they tend to upgrade their

car and part of that is they want to make a statement they want to it's a reflection of who they are the Volvo or you know you know making a statement and the wealthier the wealthy people around here were buying Priuses they didn't want to be part of the oil economy, or at least they wanted to be less a part of marketing insight. Right. That's that genius insight that because, so you realize that you can come in at the top of the market, you can come high-end, high-quality, sexy, flashy, but that also fits what you have to do for your business plan because there's no way you can compete with GM or Ford or anybody like that. Mass production, you need to start out small, right? So it's a lot of the business.

It's this amazing, it fits perfectly what you're going to have to do. Well, right. And, you know, we looked very carefully at what other advantages, other than just not using oil, did Biden? And that, you know, it turns out that, of course, as you say, it's perfect, the Model D, which is the big sedan, you know, with all-wheel drive. It has a zero to 60 times 11 that they just released North America. And your Porsche is at 3.8 seconds.

The model, you know, D, the Tesla model D is 2.8 seconds. It's a second faster. Oh, but that's not fair. you're comparing a sedan and a sports gray. You know, like normally you think vehicle, you know, but of course it's electric, so it's that way. Yes, so the modeling showed us we could make a whole variety of different cars. And modeling, I mean, you know, Excel spreadsheets.

So wait, yeah, I want to highlight that. So you're not talking about complex modeling. You're talking about literally just doing the math and Excel. Well, exactly. And it's all, you know, sort of high school math and physics, really. You know, because you're just, you know, trying to figure, oh, how much energy does it take to accelerate something? You know, how much friction do you have on the wheels and have the actual design?

Because in SUV, SUVs were very popular at the time. We thought maybe we could do an SUV. It turned out for a variety of compelling SUV. And then you know the energy density, the batteries, and you know the gravimetric density, how much energy you can put in per grant. It's all sitting there in a spreadsheet. It's incredible power that we can make a sports car that would really perform super well. And the price would be about this.

And, you know, wow, this would be, I think, a really compelling, product. And then, you know, five years, pretty much we met that specification. Okay, so doing the math is one thing. Doing the modeling is one thing. But you guys are software and hardware engineers, but you're not automobile engineers. So tell me how you get to the point of actually, okay, we're going to have to build a car. We can solve the battery things in math. We can solve the software things, but how are we going to make a car? Well, this was actually my biggest concern with the project.

I kept telling Martinian, so it's great. You know, I am convinced we can make, you know, we convince ourselves collectively that we could do the hardware and the software and the drive train. We can do that, and the batteries are good enough and all that. But I just didn't see how we were going to be able. More that we researched the industry, we discovered that over the previous, you know, 30 years, the country comes from being sort of vertically integrated where we would take in iron ore, you know, and produce, you know, model T's at the other end.

The current model where basically the car companies simply do final assembly. And they make the engines. And actually, everything else is done. In shield wiper motors are made by a different kind. They're all just suppliers. They're BMWX-3s are being made by a company called Magnus Steyer in Austria. They've never, you know, BMW had very little to do with it. Jobs were being done by Magnus Steyer as well.

A couple of the other American car companies that had European version. Magnet was building. So we knew that it was possible to go to a company like Magnet and say, you know, and they screw the thing together. Now Magna tended to only, they wasn't going to be that volume. So experience making low volume sports in it and had experienced doing this outsource manufacturing because they had done this for GM. They had made the Opel Speedster for GM. And they had done it, I can't remember the other one, the Vox Hall something or other, that they had made for another car company in Europe. So there was a lot of the car company in Europe. So they had a legal structure, and they had this idea on their line, on their production line.

They needed some of the cars they were making were Lotus cars. And then they would either convert the line or, you know, for weeks or whatever their particular. To keep the line run. But they would do something to keep the line running, but it would be producing. Because if you go to, say, a Ford and say, hey, we'd like you to produce a car under our name, there's no way they're going to say yes. They won't do that. No, no. But, you know, Lotus was small enough, and they, you know, were scrappy enough.

they had been doing it for the companies. And, of course, then there were these other, then there was this other class of company. That's all they did. You know, there's no Magnus Steyer. They just make, you know, and so the way we ended up with a deal with Lotus because they had a better sort of impedance match with us. So, okay, that'll solve that end of it.

But what about actually making the batteries work based off your math? You're working with literal laptop batteries, 18650, the gold standard of the lithium ion battery cells. So you just have to make packs out of them and then shove them in the cars. It turns out that occurs, obviously, there's a lot more to that. So the 650s at the time were the only industry standard sort of cell. And I think that's so everyone now, for the lithium polymer technologies, because they want the batteries shaped to be at the bottom of the laptop

or at the time every laptop had these 18650s in it and every camcorder. And this is really one of my to make the familiar with the 18650s from the e-book days. The thing is, he says, well, let's just use these. I said, well, it's insane. You know, it's going to be thousands of them. When we thought about it, that was a great thing because they were a commodity. They're made by dozens of different companies around the world. Not all of them are the same quality, but they're all pretty much the same, you know,

They're the same form factor, and that's what you want. If you're a buyer, you want to have lots of choices. You don't want to be locked into one particular weird format that only one company makes. You want to have lots of competition, all beavering away to make those 18650s cheaper and better for you. So the whole sort of chicken and egg problem around specialized automotive batteries, these laptop batteries, now it turns out that laptop batteries need to be handled very carefully when you combine a whole bunch of them together. The battery companies really didn't want us to do that.

They didn't want you to tinker with them at all. Well, they did not want us to put more than seven of them together. If you mistreat them, you can get them to, and then if you're really not careful, that fire can spread to adjacent cell. Quite famously had a whole set of laptops that would spontaneously, you know, burst into flames this way because their charging circuit was messed up. I think it was, I don't know if it was a charging circuit or if it was a chemistry problem in their battery, but they had a giant, very expensive recall.

So the battery companies were lots of these, because you could imagine if you put a lot of them together, you know, that could be a really big fire if you weren't careful. So they really didn't want us to do that. But we eventually convinced them that actually we knew more about how to keep their batteries safe than they did. We finally got, you know, a supply agreement worked out. It turns out that if you go to a sales guy and you say, You know, we think that, you know, what is your fantasy customer for your batteries?

And they say, oh, you know, they would have, you know, three of these cells and two more of them in an extra battery. And we'd go, okay, great. So like seven cells, you know, something around there. Per user, yeah. Per user, per customer. As your fantasy customer, they go, oh, yeah. And you're selling lots of them. They're selling, you know, hundreds of millions of these things.

And I said, well, you know, we think that your market's a thousand times larger. Because how many would be in every car? Nearly 7,000. And, you know, if you can convince even a relatively low-level salesman that the markets, they're even times larger, you will get a call from the CEO of that company, no matter how big that's this thing about a thousand times larger market. And so we eventually convinced several the best because nobody else had really tried it. Nobody else, they had this sort of knee-jerk reaction that you don't put very many of them together.

And if you don't know what you're doing, you can, in fact, hurt yourself. But if you think about it and do the right things, you can actually make them quite safe. So you guys are starting down the road in this amazing sort of engineer hacker ethos of, well, let's just make it work. Let's do the math. The math is right. Let's make it work. One thing we haven't talked about is raising money and convincing people, hey, we're doing a car company. And not only are we doing a car company.

were doing an electronic vehicle car company. So tell me, what was it like, I believe you guys actually go to San Hill Road because that's what you know you come from the Valley. What was it like to try to pitch a car company to VCs on San Hill Road? Oh, we were considered crazy. I mean, you know, but that's... So one of the things, if you raise enough money enough times,

you're used to people saying no. I mean, that's just... So that didn't bother us too much. we did do though is we need some VCs that were friendly to us, I mean, they kind of like this, but we knew that they wouldn't invest in us because in internet routing, it was one of them. Or biotech or something like that. Or biotech, exactly. So we knew that we were complete, and we called them up and we said, hey, you know, we have this crazy idea. We know that you can't invest. So this isn't, you know,

this isn't a pitch vote. You know, what we would like is just the feedback. And we weren't really sure whether what they would say, but it turns out that if all day, all you hear are pitches for, you know, internet routing startups, if somebody says, I've got this crazy, all the partners will show up if you provide lunch and hear this because they want to hear something other than a router pitch. Great feedback as to things we had to change. And they asked, but, you know, they would, I don't really know that, or they would challenge us on some of rethink and retool. And we used our sort of silver bullets to get in with these that we thought might fund us.

Because, you know, you wanted to make sure that we had all the funding in, and then starting in January, we actually, you know, VCs are always polite. And we quickly discovered that we could pretty much convince a few people in the VC firm that this was a cool idea and worth funding. But in a large firm, there's lots of partners, and you typically need to make the investment. You know, the investments are, you know, pioneered by, you know, sort of championed by one partner, but ultimately, you need everyone to at least say okay as opposed to, you know, you're insane.

We're not doing this. And that said, you know, this is insane. We've targeted. We only had a couple of partners because he figured, you know, we could probably get a blinded-up money from SDL Ventures and Compass Technology Partners. Because they were, you know, relatively small funds with only, you know, one or two. And, of course, you know, various friends and family. And then we were in April, the Super Angel. I like the idea, and he did the pitch, and he, and, you know, SpaceX at that time hadn't launched anything yet.

It was, you know, from their first launch attempt. He says, you know, I like this. I'm really concerned about it. I get the vision, and then, you know, it was on the board after that, obviously. Was it just that simple you pitch and he's in, or did he do a lot of due diligence? Oh, he passed through. So I'm simplifying that whole process Friday or Thursday or something, and then I was in Washington, D.C. all weekend.

So I was, you know, sort of peppered over the weekend and then into the beginning of the next week. And then I think Thursday or Friday, and he, you know, and we've answered all the questions apparently well enough. And it says, okay, I'm in. And it takes about a month, you know, typically from that point to get the paperwork all done and the money. It just seems such an example of, you know, it was so right up his alley an idea that he would have been primed and ready to be interested. Exactly, yeah. And, you know, it was exactly up his alley.

And that's one of the reasons why he was a very supportive, you know, originally investor, obviously. And now, you know, you can argue he's been a very successful CEO for Tesla because it really was aligned with his interests to begin with. And he at some point he said, you know, if I wasn't doing it, that I would be doing, you know, this is the right market and doing the right thing, you know, for the right reasons. and it's hopefully going to be successful financially.

We'll get into a little bit of the step-by-step, but one more thing on the fundraising thing, because I liked this as an idea. Every step along when you would come out with a mule or a prototype or whatever, that's what you would use to raise more money. You would literally take the vehicle around and drive people around in it and then ask them for Series B, C. Well, so that thing is, let's say that you need

you know, $60 million for some project. It's incredibly rare, even now. If you're just a couple of, your company isn't going to be worth very much, $60 million at once, even if you could get somebody to agree, they're going to own the whole company at the end, because they can't be very high. You raise money in tranches, which is, you know, rather easier, although it takes, you know, you're always raising money in a way.

At first you say, this is the big technical kind of energy density in a battery like that. And can you really make it safe? Deliverable at the end of that was that we would have a mule, a vehicle that doesn't reproduce, a polling test platform that doesn't reproduce. And we made a mule

because we already were on trend to deal with Lotus. And we built our battery pack and then we used an AC propulsion motor and inverter because it was really the battery pack that we were focused on. And we were, meanwhile, you know, we were working on.

our own. I knew we could do the motor inverter. Those have been around. I mean, Nikola Tesla invented AC induction motors 100 years ago. So we knew that was going to be possible, right? The most common motor, electric motors in existence. You know, by and large, the VC community is

not hugely imaginative. So when you come and you can give whatever it is that you're trying to raise money for, if you have a demo, what you're doing, we had this little yellow and you got into it, silent and beautiful and really fun. And we got that, and then as soon, like, midnight, the next morning we had a board meeting. The board is there.

Elon is there. We show it off. And, you know, we're kind of, we're not running out of money, but it's time to ride in that thing. It was a much more visible and stealth mode. For a few minutes, we have a meeting we have to do. Yeah, sure. So they're going to be on the plane back to Chicago, and they come out of the meeting about 20 minutes later, and they said, you know, we're in.

That was our partnership meeting. that was our Monday partnership meeting we just had. And it was because they had ridden in it. Right. You know, I really, it proved to them that this was possible and that it was unlike anything that they had been in. I mean, you know, this was, and this was just, this was a mule. I mean, the specs on the final car were much more impressive.

But, you know, but we knew, you know, this was going to be something that was really going to be great. Well, so much of your story is about, that convincing people and later on in the press and things like that that electric vehicles aren't golf carts in fact they're better sports cars than you've ever ridden you know so it's such a great position to be in when the product itself is the thing that wins people over well that's the goal I mean that's always the goal you want it you want the you want your product to be the thing that

tells the story and you do the product and you go oh I get it I want I want to be part of this. Okay, I'm going to skip a couple steps here for time purposes, but another thing that I love about your story is tell me the fun of crash testing because usually engineers in Silicon Valley don't get to throw their product against the wall and see what happens. Well, it's actually incredibly impressive because there's a, we did not use a lot of traditional car engineers because, you know, most of the car industry is. not geared to Silicon Valley's sort of speed and mentality, and also a lot of its

wrap-trane, you know, internal combustion engines and emissions and stuff like that, which we didn't have any need for. The one sort of sub-discipline that was incredibly impressive to me is the crash people. And you hire, I mean, there are companies that that's what they do, right? And it was, you know, similar enough that their models, you know, kind of, you know, hard to adapt. and it was all, you know, okayed with, you know, to the Lotus, you know, IP department. So they came and they, you know, take all these measurements, they sit and model it, and they don't take measurements, and they do everything, and they make a couple tweaks. And what's incredibly impressive is, wow, you know, you might have trouble on the side impact on the doors.

So we're going to want a special test for that, because we want to make sure that that's going to be safe because we think that's a little bit, it's going to, that's a little on the edge. but everything else should we are getting these very expensive engineering prototypes. So at some point you say, okay, pencils down, we know what we're going to make, and you go and you make some, and it's sort of production we're going to make. But it's not production process, and you make ten of them, and they're all largely identical, except for them. And what you're really doing in those crashes is validating their computer models,

because in their computer models, they've crashed it many, many, many times. And they crashed it with all kinds of different manufacturing variances in the past, every, you know, every car will. So you spend an enormous amount of money taking it to, again, this is all part of this ability to do this because in the olden days, those crash test people would have only, they would have been captive, modeling people would have been captive to GM or whatever. Right. And we wouldn't have been able to go to only for Ford. But instead, you know, we went to one of the several.

This particular one, I think, was with Siemens in Germany or Austria. I can't remember where it was anymore. It's somewhere near. and they have these very high-speed cameras and this incredible setup, and they take, you know, we have each one of these hundreds of thousands of dollars to make, and they basically accelerate. And when they're not accelerating them into the concrete walls, they're taking these, like, rams, like out of medieval, you know,

and they're smashing into the computer-controlled and accelerating those into the car. And, of course, they've instrumented the car like crazy. They're looking at the G-forces that happened on the driver and the passenger, and what happens to the car itself. And what you see is speed HD. You get these beautiful videos back that just make your heart synch test dummies look pretty good. And when you look at the data from the crash test,

dummies, you go, oh, they would have the modern. What's incredible in the modeling, you know, we do crash these engineering. Within a few percent, they're like, oh, yeah, okay. But they still have to run the physical test anyway. Yeah, because you really need to validate the model. Now, the big guys, the GMs, and 4, and stuff, they have argued for years with their lawyers that they don't have to actually

do the physical crashes because, in fact, they haven't had a mismatch between, at least this is what we were told, they haven't had a mismatch between their modeling and their crashes in years and years and years. And so they argue, do the computers, it's okay. And the lawyers have always maintained it's so much in the crash test, in the physical things and look at here's the videos and here's the results, that that is just a much more compelling legal argument than, you know, oh, we played with it in the computer and it worked great. So, but the, but it didn't have a mismatch in years.

All right. So bring me, bring me to the product launch. Bring me to where we get the first roadsters out to the public. February 2007, you're doing validation protocols. but you start to run into trouble, like, for example, with the transmissions. What you do is you drive them into the ground, basically, and you drive them into the ground as quickly as you can. So you do all kinds of tests. You put them on ice, you know, you literally drive around on frozen lakes and cold weather, but those are, of course, specially done.

It's, you know, again, something that wouldn't have been possible in an era where the car company's owned everything. And they have these durability tracks. that are like cobblestone racetracks. And they have drivers that do nothing to beat the cars to hell on these tracks. So you're trying to get 10,000. And a short of flies off the car and breaks all the time. And everything that breaks, you do a big analysis

as to, you know, why did this fail? I mean, this shouldn't have failed. So you do this incredible sort of analysis going back. And the one thing, top speed in our exhala, two-speed manual transmission, which we didn't think would be hard. The car industry is making two-speed transmissions or is making manual transmissions for 100 years.

So we contracted with a small transmission house. Now, we had a lot more torque than they were used to, but we figured, you know, how hard is that? It's just some gears. It was not something that we really focused on because we had a supplier that we thought could deliver. And their transmissions just didn't work. They couldn't shift, which was unfortunate for us.

So that was a problem, but we caught that design changes in in for the realization wasn't going to work. We had a lot more money and people knew what we were doing, a much higher profile. And we spent lots and lots of money with them, and their transmission project was a little late, a little late. So meanwhile, we're doing all this of the testing, and we just have some cobble together, you know, sort of for the transmissions. And we finally get the first articles on what we hope to be the production transmissions. And they look kind of good initially in the lab, and they all begin to break. and they all break in different ways, and that's not good.

If they all break in one way, you can kind of deal with it. You can isolate it, yeah. Right, but they're really not breaking well. At that point, we were kind of, and by this, you know, we've gotten through all of the, what are called, FMBSSS of federal motor vehicle safety standards, all of them have been completed. We don't have transmissions at work.

And this nearly killed the company. It was also in two things beginning to get a little, skittish and here we have this. We really missed in a big way. Everything else might have been a little bit, you know, more expensive or a little bit later, but we had, there was, along the way, that did that. You know, we decided to make the car better or we decided to change the spec. Everything along the way was sort of much more conscious. This one was just a screw-up. We just didn't consider it to be something that we had to, you know, we were dealing with one of the largest transmission makers in the world. They should be able to make a transmission that we didn't understand how dangerous

that was. Very dark and bleak time for us. Law, thankfully, is ticking along. And the IGBTs, which are the switching transistors in the inverter of the synthesis, not a whole, you know, they're incredibly efficient, but this was more efficient. And what that means is that you can come overheating in these IGBTs and making a few other changes.

We could increase the power that we could deliver to the motor more than we thought possible with the existing transistors. And what that allowed us to do, just a reduction. Right. And that, the car industry, and actually our new supplier was awesome. They came through for us and did an amazing job, and Speed produced a beautiful transmission. And that's what we ended up shipping. But we shipped it late. We actually shipped some number of cars.

I can't remember how many. But our customers have been waiting for years. So we asked it, you can take delivery now, but what we will have to do is, and it's not going to give you the final spec for the transmission and the inverter. or whatever else it needs to be replaced in the drive train to make it meet the specifications and promised. And I think all of the customers said, that's fine. We'd rather have it now and be driving it around.

So we started delivering cars, and then I think we called it Rev. 1.5 or something of the drive train. And then we ultimately, when the new transmissions came out, the new inverters were in place, we then just retrofitted. So Moore's Law really saved you guys? It always does, you know. Just when you can't really fit that last bit of code into the space, it turns out that the memory chips are four times more dense for the same price and you upgrade. Well, and so you guys do start to deliver cars, I think, in June of 2008.

And I know it's around this time that you and Martin both leave the company, but can you tell me how close, because you mentioned this is when the financial crisis is hitting, how close. how close to oblivion was Tesla around the financial crisis period? Well, when the transmission was, you know, when we couldn't deliver cars, I think it was a near-death experience for the company. And it was really, you know,

sort of ponied up at a time when it was really difficult to do that. And they, you know, funded enough to get us to the next. next milestone, which was delivering. And then once the cars began to be delivered, and people were, you know, we were getting reviews and people were really getting, then the next funding round was easier, essentially, because, you know, we had really retired a lot of risk. We were shipping cars at the time. That was a near-death experience

for the company, for sure. So I'm going to wrap up. There's other podcasts and interviews that look towards the future. And I kind of want to always focus on lessons from the past, because that's what this history show is about. But I've got two questions that will kind of be a little future and a little of both. I think that a competitive advantage that you guys might have had when you launched was that you were coming in at the end of that first moment of electronic vehicles,

you know, GM gives up on the EV-1. And so you kind of have the field to yourselves. Correct. And then was there any thought that like, okay, so we'll, because you mentioned that you were in quiet mode for a long time, that, okay, once we perfect this technology, then everyone will come to us and we'll teach the entire automobile industry how to do EV. Was that part of your thinking at the beginning? beginning? So we didn't know, obviously, you know, you don't know how the error was going to respond, but we figured that if we were successful, we do a couple of things. One is that we would change people's perceptions of electric cars, that, you know, they weren't these lame

golf carts things. It would be, even though that it was an aspirational product and that it was very expensive, you know, the people would say, oh, you know, if I ever get rich, I want one of those electric, you know, those lame things. It would be this aspirational product, products, which we thought would enable the whole market moving forward. But in terms of the other car companies, would wake up and go, wow, this is really possible. This can be done. These can be really compelling vehicles. And there would be some of them to get into the electric car business.

And we would have to deal with that. And we could deal with that in a couple of ways. The suppliers to some of those car companies, it was possible that there would be some kind of, We figured we would have more experience and more sort of electrically driven miles than anybody else in history by the time, you know, this became a hot thing. It would be a good place to be if all the car companies were trying to be in that space. So there would be lots of potential deals. There was, you know, who knows, an acquisition. I mean, there was a lot of different ways of going.

We'd have lots of options. And then we would move into a more mass market car, which would be a sedan. The sedan market is much, much larger than the sports car market. So ultimately, you know, the Model S was where we, that's the high, you know, it's to be in and very difficult to be in. So we figured, you know, as we moved towards that, we would have lots of options. There would be partnership options that would be, you know, we would have lots of room to maneuver. And if it really, if the car industry just really decided to be very competitive with us,

we also felt that Silicon Valley could out-compete them because they just move at a much slower pace. I don't think any of us really imagined that they moved as they really are. I mean, they're just now finally beginning to get with the program. And still, you know, their technology just really, and, you know, they have, and tremendous experience, certainly in making cars, certainly didn't expect them to wake up and begin to take electric cars seriously and begin to produce. Yeah, obviously.

And, you know, sort of building off of that, and I'm not asking this to be, be a troll, and I'm not asking you to specifically throw anybody under the bus. Because as listeners of the show know, I know a lot of people in the automotive industry, but I come from tech, and there's this existential argument back and forth between these two worlds. So my final question would just be, because you've lived it, you've experienced it, the difference between the car people and the tech people. and if Detroit has to move in Silicon Valley's direction and if Silicon Valley is infiltrating Detroit's game,

what have you learned about the difference between car people and tech people and the way they look at the world and their philosophy of product and innovation and things like that? And there's a bunch of dimensions to it. One is car people versus tech people. It's much more really giant old companies, whether it's in the book industry like we dealt with before, or probably almost any industry, if you've been around for a long time and you've done things the same way

for a long time, you get very used to it. And you're making money. You know, it's not like you're failing. And there's a huge resistance to taking risks and trying stuff new because that could have impacted, you know, your divisions numbers or your... It just makes it very hard for innovative ideas to influence... In Silicon Valley, we get here, I mean, and you know, they go through periods of sort of struggle.

I think, you know, HP currently is struggling. I grew up in this environment, and they're deep into this innovative culture. And I think that, you know, the car industry, which used to be very innovative and creative when they were smaller, but when they got very large and very content at making the same old thing every year, I think that that is what makes them, you know, clever Silicon Valley startup. A far thing versus a Silicon Valley thing. I think it's just a Silicon Valley thing versus really old, big, you know, industrial companies. Well, yeah.

And when I told people that I was going to talk to you today, they said, well, that's not Internet history. And I said, well, no, it's so fascinating to me. As famously, you know, software is eating the world, how Internet technology, digital technology is going into everything. And as you say, it's not just about any industry that's done things a certain way for even centuries and how it's being disrupted. And you've lived it twice now with two different industries. Yeah. Well, thank you so much, Mark, for coming on the show and remembering all that.