by Ashlee Vance
O’Connell had joined Tesla in 2006 to help solve some of the factory and financing issues. He grew up near Boston in a middle-class Irish family and went on to earn a bachelor’s degree from Dartmouth College. After that, O’Connell attended the University of Virginia to get a master’s degree in foreign policy and then Northwestern, where he got an MBA from the Kellogg School of Management. He had fancied himself a scholar of the Soviet Union and its foreign and economic policy and had studied these areas at UVa. “But then, in 1988 and 1989, they’re starting to close down the Soviet Union, and, at the very least, I had a brand problem,” O’Connell said. “It started looking to me like I was heading to a career in academia or intelligence.” It was then that O’Connell’s career took a detour into the business world, where he became a management consultant working for McCann Erickson Worldwide, Young & Rubicam, and Accenture, advising companies like Coca-Cola and AT&T.
O’Connell’s career path changed more drastically in 2001 when the planes hit the twin towers in New York. In the wake of the terrorist attacks, O’Connell, like many people, decided to serve the United States in any capacity that he could. In his late thirties, he had missed the window to be a soldier and instead focused his attention on trying to get into national security work. O’Connell went from office to office in Washington, D.C., looking for a job and had little luck until Lincoln Bloomfield, the assistant secretary of state for political-military affairs, heard him out. Bloomfield needed someone who could help prioritize missions in the Middle East and make sure the right people were working on the right things, and he figured that O’Connell’s management consulting experience made him a nice fit for the job. O’Connell became Bloomfield’s chief of staff and dealt with a wide range of charged situations, from trade negotiations to setting up an embassy in Baghdad. After gaining security clearance, O’Connell also had access to a daily report that collected information from intelligence and military personnel on the status of operations in Iraq and Afghanistan. “Every morning at six A.M., the first thing to hit my desk was this overnight report that included information on who got killed and what killed them,” O’Connell said. “I kept thinking, This is insane. Why are we in this place? It was not just Iraq but the whole picture. Why were we so invested in that part of the world?” The unsurprising answer that O’Connell came up with was oil.
The more O’Connell dug into the United States’ dependence on foreign oil, the more frustrated and despondent he became. “My clients were basically the combat commanders—people in charge of Latin America and Central Command,” he said. “As I talked with them and studied and researched, I realized that even in peacetime, so many of our assets were employed to support the economic pipeline around oil.” O’Connell decided that the rational thing to do for his country and for his newborn son was to alter this equation. He looked at the wind industry and the solar industry and the traditional automakers but came away unconvinced that what they were doing could have a radical enough impact on the status quo. Then, while reading Businessweek, he stumbled on an article about a start-up called Tesla Motors and went to the company’s website, which described Tesla as a place “where we are doing things, not talking about things.” “I sent an e-mail telling them I had come from the national security area and was really passionate about reducing our dependence on oil and figured it was just a dead-letter type of thing,” O’Connell said. “I got an e-mail back the next day.”
Musk hired O’Connell and quickly dispatched him to Washington, D.C., to start poking around on what types of tax credits and rebates Tesla might be able to drum up around its electric vehicles. At the same time, O’Connell drafted an application for a Department of Energy stimulus package.* “All I knew is that we were going to need a shitload of money to build this company,” O’Connell said. “My view was that we needed to explore everything.” Tesla had been looking for between $100 million and $200 million, grossly underestimating what it would take to build the Model S. “We were naïve and learning our way in the business,” O’Connell said.
It January 2009, Tesla took over Porsche’s usual spot at the Detroit auto show, getting the space cheap because so many other car companies had bailed out on the event. Fisker had a luxurious booth across the hallway with wood flooring and pretty blond booth babes draped over its car. Tesla had the Roadster, its electric powertrain, and no frills.
The technology that Tesla’s engineers displayed proved good enough to attract the attention of the big boys. Not long after the show, Daimler voiced some interest in seeing what an electric Mercedes A Class car might look and feel like. Daimler executives said they would visit Tesla in about a month to discuss this proposition in detail, and the Tesla engineers decided to blow them away by producing two prototype vehicles before the visit. When the Daimler executives saw what Tesla had done, they ordered four thousand of Tesla’s battery packs for a fleet of test vehicles in Germany. The Tesla team pulled off the same kind of feats for Toyota and won its business, too.
In May 2009, things started to take off for Tesla. The Model S had been unveiled, and Daimler followed that by acquiring a 10 percent stake in Tesla for $50 million. The companies also formed a strategic partnership to have Tesla provide the battery packs for one thousand of Daimler’s Smart cars. “That money was important and went a long way back then,” said O’Connell. “It was also a validation. Here is the company that invented the internal combustion engine, and they are investing in us. It was a seminal moment, and I am sure it gave the guys over at the DOE the feeling that we were real. It’s not just our scientists saying this stuff is good. It’s Mercedes freaking Benz.”
Sure enough, in January 2010, the Department of Energy struck a $465 million loan agreement with Tesla.* The money was far more than Tesla had ever expected to get from the government. But it still represented just a fraction of the $1 billion plus that most carmakers needed to bring a new vehicle to market. So, while Musk and O’Connell were thrilled to get the money, they still wondered if Tesla would be able to live up to the bargain. Tesla would need one more windfall or, perhaps, to steal a car factory. And in May 2010, that’s more or less what it did.
General Motors and Toyota had teamed up in 1984 to build New United Motor Manufacturing Inc., or NUMMI, on the site of a former GM assembly plant in Fremont, California, a city on the outskirts of Silicon Valley. The companies hoped the joint facility would combine the best of American and Japanese automaking skills and result in higher-quality, cheaper cars. The factory went on to pump out millions of vehicles like the Chevy Nova and Toyota Corolla. Then the recession hit, and GM found itself trying to climb out of bankruptcy. It decided to abandon the plant in 2009, and Toyota followed right after, saying it would close down the whole facility, leaving five thousand people without jobs.
All of a sudden, Tesla had the chance to buy a 5.3-million-square-foot plant in its backyard. Just one month after the last Toyota Corolla went off the manufacturing line in April 2010, Tesla and Toyota announced a partnership and transfer of the factory. Tesla agreed to pay $42 million for a large portion of the factory (once worth $1 billion), while Toyota invested $50 million in Tesla for a 2.5 percent stake in the company. Tesla had basically secured a factory, including the massive metal-stamping machines and other equipment, for free.*
The string of fortunate turns for Tesla left Musk feeling good. Just after the factory deal closed in the summer of 2010, Tesla started the process of filing for an initial public offering. The company obviously needed as much capital as it could get to bring the Model S to market and push forward with its other technology projects. Tesla hoped to raise about $200 million.
For Musk, going public represented something of a Faustian bargain. Ever since the Zip2 and PayPal days, Musk has done everything in his power to maintain absolute control over his companies. Even if he remained the largest shareholder in Tesla, the company would be subjected to the capricious nature of the public markets. Musk, the ultimate long-term thinker, would face const
ant second-guessing from investors looking for short-term returns. Tesla would also be subject to public scrutiny, as it would be forced to open its books for public consumption. This was bad because Musk prefers to operate in secrecy and because Tesla’s financial situation looked awful. The company had one product (the Roadster), had huge development costs, and had bordered on bankruptcy months earlier. The car blog Jalopnik greeted the Tesla IPO as a Hail Mary rather than a sound fiscal move. “For lack of a better phrase, Tesla is a money pit,” the blog wrote. “Since the company’s founding in 2003, it’s managed to incur over $290 million in losses on just $147.6 million in revenue.” Told by a source that Tesla hoped to sell 20,000 units of the Model S per year at $58,000 a pop, Jalopnik scoffed. “Even considering the supposed pent-up demand among environmentalists for a car like the Model S, those are ambitious goals for a small company planning to launch a niche luxury product into a soft market. Frankly, we’re skeptical. We’ve seen how brutal and unforgiving the market can be, and other automakers aren’t simply going to roll over and surrender that volume to Tesla.” Other pundits concurred with this assessment.
Tesla went public on June 29, 2010, nonetheless. It raised $226 million, with the company’s shares shooting up 41 percent that day. Investors looked past Tesla’s $55.7 million loss in 2009 and the more than $300 million the company had spent in seven years. The IPO stood as the first for an American carmaker since Ford went public in 1956. Competitors continued to treat Tesla like an annoying, ankle-biting dachshund. Nissan’s CEO, Carlos Ghosn, used the event to remind people that Tesla was but a pipsqueak and that his company had plans to pump out up to 500,000 electric cars by 2012.
Flush with funds, Musk began expanding some of the engineering teams and formalizing the development work around the Model S. Tesla’s main offices moved from San Mateo to a larger building in Palo Alto, and von Holzhausen expanded the design team in Los Angeles. Javidan hopped between projects, helping develop technology for the electrified Mercedes-Benz, an electric Toyota Rav4, and prototypes of the Model S. The Tesla team worked fast inside of a tiny lab with about 45 people knocking out 35 Rav4 test vehicles at the rate of about two cars per week. The alpha version of the Model S, including newly stamped body parts from the Fremont factory, a revamped battery pack, and revamped power electronics, came to life in the basement of the Palo Alto office. “The first prototype was finished at about two A.M.,” Javidan said. “We were so excited that we drove it around without glass, any interior, or a hood.”
A day or two later, Musk came to check out the vehicle. He jumped into the car and drove it to the opposite end of the basement, where he could spend some time alone with it. He got out and walked around the vehicle, and then the engineers came over to hear his take on the machine. This process would be repeated many times in the months to come. “He would generally be positive but constructive,” Javidan said. “We would try and get him rides whenever we could, and he might ask for the steering to be tighter or something like that before running off to another meeting.”
About a dozen of the alpha cars were produced. A couple went to suppliers like Bosch to begin work on the braking systems, while others were used for various tests and design tweaks. Tesla’s executives kept the vehicles rotating on a strict schedule, giving one team two weeks for cold-weather testing and then shipping that alpha car to another team right away for powertrain tuning. “The guys from Toyota and Daimler were blown away,” Javidan said. “They might have two hundred alpha cars and several hundred to a thousand beta cars. We were doing everything from crash tests to the interior design with about fifteen cars. That was amazing to them.”
Tesla employees developed similar techniques to their counterparts at SpaceX for dealing with Musk’s high demands. The savvy engineers knew better than to go into a meeting and deliver bad news without some sort of alternative plan at the ready. “One of the scariest meetings was when we needed to ask Elon for an extra two weeks and more money to build out another version of the Model S,” Javidan said. “We put together a plan, stating how long things would take and what they would cost. We told him that if he wanted the car in thirty days it would require hiring some new people, and we presented him with a stack of resumes. You don’t tell Elon you can’t do something. That will get you kicked out of the room. You need everything lined up. After we presented the plan, he said, ‘Okay, thanks.’ Everyone was like, ‘Holy shit, he didn’t fire you.’”
There were times when Musk would overwhelm the Tesla engineers with his requests. He took a Model S prototype home for a weekend and came back on the Monday asking for around eighty changes. Since Musk never writes anything down, he held all the alterations in his head and would run down the checklist week by week to see what the engineers had fixed. The same engineering rules as those at SpaceX applied. You did what Musk asked or were prepared to burrow down into the properties of materials to explain why something could not be done. “He always said, ‘Take it down to the physics,’” Javidan said.
As the development of the Model S neared completion in 2012, Musk refined his requests and dissection style. He went over the Model S with von Holzhausen every Friday at Tesla’s design studio in Los Angeles. Von Holzhausen and his small team had moved out of the corner in the SpaceX factory and gotten their own hangar-shaped facility near the rear of the SpaceX complex.* The building had a few offices and then one large, wide-open area where various mock-ups of vehicles and parts awaited inspection. During a visit I made in 2012, there was one complete Model S, a skeletal version of the Model X—an as yet to be released SUV—and a selection of tires and hubcaps lined up against the wall. Musk sank into the Model S driver seat and von Holzhausen climbed into the passenger seat. Musk’s eyes darted around for a few moments and then settled onto the sun visor. It was beige and a visible seam ran around the edge and pushed the fabric out. “It’s fish-lipped,” Musk said. The screws attaching the visor to the car were visible as well, and Musk insisted that every time he saw them it felt like tiny daggers were stabbing him in the eyes. The whole situation was unacceptable. “We have to decide what is the best sun visor in the world and then do better,” Musk said. A couple of assistants taking notes outside of the car jotted this down.
This process played out again with the Model X. This was to be Tesla’s merger of an SUV and a minivan built off the Model S foundation. Von Holzhausen had four different versions of the vehicle’s center console resting on the floor, so that they could be slotted in one by one and viewed by Musk. The pair spent most of their time, however, agonizing over the middle row of seats. Each one had an independent base so that each passenger could adjust his seat rather than moving the whole row collectively. Musk loved the freedom this gave the passenger but grew concerned after seeing all three seats in different positions. “The problem is that they will never be aligned and might look a mess,” Musk said. “We have to make sure they are not too hodgy podgy.”
The idea of Musk as a design expert has long struck me as bizarre. He’s a physicist at heart and an engineer by demeanor. So much of who Musk is says that he should fall into that Silicon Valley stereotype of the schlubby nerd who would only know good design if he read about it in a textbook. The truth is that there might be some of that going on with Musk, and he’s turned it into an advantage. He’s very visual and can store things that others have deemed to look good away in his brain for recall at any time. This process has helped Musk develop a good eye, which he’s combined with his own sensibilities, while also refining his ability to put what he wants into words. The result is a confident, assertive perspective that does resonate with the tastes of consumers. Like Steve Jobs before him, Musk is able to think up things that consumers did not even know they wanted—the door handles, the giant touch-screen—and to envision a shared point of view for all of Tesla’s products and services. “Elon holds Tesla up as a product company,” von Holzhausen said. “He’s passionate that you have to get the product right. I have to deliver for him
and make sure it’s beautiful and attractive.”
With the Model X, Musk again turned to his role as a dad to shape some of the flashiest design elements of the vehicle. He and von Holzhausen were walking around the floor of an auto show in Los Angeles, and they both complained about the awkwardness of getting to the middle and back row seats in an SUV. Parents who have felt their backs wrench while trying to angle a child and car seat into a vehicle know this reality all too well, as does any decent-sized human who has tried to wedge into a third row seat. “Even on a minivan, which is supposed to have more room, almost one-third of the entry space is covered by the sliding door,” von Holzhausen said. “If you could open up the car in a way that is unique and special, that could be a real game changer. We took that kernel of an idea back and worked up forty or fifty design concepts to solve the problem, and I think we ended up with one of the most radical ones.” The Model X has what Musk coined as “falcon-wing doors.” They’re hinged versions of the gull-wing doors found on some high-end cars like the DeLorean. The doors go up and then flop over in a constrained enough way that the Model X won’t rub up against a car parked close to it or hit the ceiling in a garage. The end result is that a parent can plop a child in the second-row passenger seat without needing to bend over or twist at all.
When Tesla’s engineers first heard about the falcon-wing doors, they cringed. Here was Musk with another crazy ask. “Everyone tried to come up with an excuse as to why we couldn’t do it,” Javidan said. “You can’t put it in the garage. It won’t work with things like skis. Then, Elon took a demo model to his house and showed us that the doors opened. Everyone is mumbling, ‘Yeah, in a fifteen-million-dollar house, the doors will open just fine.’” Like the controversial door handles on the Model S, the Model X’s doors have become one of its most striking features and the thing consumers talk about the most. “I was one of the first people to test it out with a kid’s car seat,” Javidan said. “We have a minivan, and you have to be a contortionist to get the seat into the middle row. Compared to that, the Model X was so easy. If it’s a gimmick, it’s a gimmick that works.”