The goal at Tesla was to change people's thinking with respect to electric cars. They didn't really believe in electric cars, they didn't think it was technologically possible. People were operating under the illusion that an electric car would have to be, let's say, aesthetically challenged - you know, low performance, low range, and kinda look like a golf cart. None of these had to be true, but I'd talk to people and say none of these things have to be true, you know, and you can have a long range car, the physics is pretty obvious - what's the energy density of lithium-ion, and what's the energy usage per mile, it's pretty straight forward, and people would be like, oh, no no no, that can't work. I'd be like, where's the error in the calculations here? these are pretty obvious. Amazingly, people would either ignore it, or say it can't be done, like it's ridiculous. They felt that even if someone created an electric car with long-range and high-performance, that people wouldn't buy it because of some deep love of gasoline, and that it's vital to refuel in five minutes.
So the first order of business for Tesla was to try to create a car that fundamentally changed those perceptions. The basic business plan of Tesla I actually articulated in the very beginning when I wrote a piece called the Tesla Master Plan. As genius as it was, it was really dumb and simple, but I think it's the only path to success which was to start with a low-volume high-priced sports car.
Some may question whether this actually does any good for the world. Are we really in need of another high performance sports car? Will it actually make a difference to global carbon emissions? Well, the answers are no and not much. However, that misses the point, unless you understand the Secret Master Plan alluded to above.
Part of the reason I wrote the first Master Plan was to defend against the inevitable attacks Tesla would face, accusing us of just caring about making cars for rich people. Implying that we felt there was a shortage of sports car companies, or some other bizarre rationale. Unfortunately, the blog didn't stop countless attack articles on exactly these grounds, so it pretty much completely failed that objective.
However, the main reason was to explain how our actions fit into a larger picture, so that they would seem less random. Some readers may not be aware of the fact that our long term plan is to build a wide range of models, including affordably priced family cars. The overarching purpose of Tesla is to help expedite the move from a mine-and-burn hydrocarbon economy, towards a solar electric economy, which I believe to be the primary, but not exclusive, sustainable solution.
In short, The Secret Tesla Motors Master Plan (just between you and me) was:
Build sports car
Use that money to build an affordable car
Use that money to build an even more affordable car
While doing above, also provide zero emission electric power generation options.
So the simple three step strategy of Tesla was, come out with a high-priced car at low volume, mid-priced car at mid-volume, and then a low-priced car at high volume. Three major technology iterations, and then stepping up production volume by an order of magnitude in each case, which is damn fast for a small company to grow at that rate.
The reason we had to start off with step 1 was that it was all I could afford to do with what I made from PayPal, and I thought our chances of success were so low that I didn't want to risk anyone's funds in the beginning but my own.
As a small start up we didn't have the economies of scale of the big car companies. Plus we were working with the first generation of technology. There are two things that are really important in making technology available to the mass market, and making it affordable. Those two things are economy of scale, and being able to optimize the design. Usually by a third version of something it gets to reach the mass market potential. Using that as a sort of rule of thumb for the strategy I had.
Almost any new technology initially has high unit cost before it can be optimized, and this is no less true for electric cars. The strategy of Tesla was to enter at the high end of the market, where customers are prepared to pay a premium, and then drive down market as fast as possible to higher unit volume and lower prices with each successive model. If you look at any new technology development in almost any sphere you start with something that's expensive. Because the first thing is to make technology work, and then you go to optimizing the technology. If people are aware of the history of internal combustion engines cars, in the early days of gasoline cars they were considered toys for rich people, because everybody else was riding a horse. So you need to go through this phase of having an expensive car that's available to a few, in order to get to the car that is available to the many. Consider say cellphones and how they started out, you know, in Wall Street 1 with this guy walking down with this brick on the beach, talking into a phone the size of a shoebox. Now we got a phone that is tiny, has the power of a supercomputer, and you can buy one for about 100 bucks. That’s gone through many design iterations. With electric cars we are trying to get to mass market in three design iterations. Which is about as fast as you can do it.
Also, a low volume car means a much smaller, simpler factory, albeit with most things done by hand. Without economies of scale, anything we built would be expensive, whether it was an economy sedan or a sports car. It didn't matter what that car looked like. If we would have made something that looked like a very standard Toyota Corolla, or a Ford Fusion, or something like that, it would have cost say $70,000. Nobody will pay that for what looks like a mid-sized economy sedan, they just won't. No one was going to pay $100k for an electric Honda Civic, no matter how cool it looked, or very few people would. But at least some people are willing to pay $100,000 for a fast sports car. There's only a few kinds of cars that people are willing to pay a high price for, sports car is being one of them, and really premium sedans being another.
Sometimes people think the reason we started with the sports car is because I somehow thought there's a shortage of sports cars in the world. Or that rich people really need a break or something like that. That was not the reason. It was simply that anything we produced would be expensive, because we did not have the economies of scale necessary to make things inexpensive.
Our goal is not sort of to become a big brand, or to compete with Honda Civics, but rather to advance the cause of electric vehicles. The whole purpose of Tesla is to draw the rest of the car industry into electric cars. The more electric car programs I see announced the happier I am. The whole purpose behind Tesla, the reason I put so much of my time and money into helping create the business, is because we want to be a catalyst for accelerating the electric car revolution. The point of all this was, and remains, accelerating the advent of sustainable energy, so that we can imagine far into the future and life is still good. That's what "sustainable" means. It's not some silly, hippy thing -- it matters for everyone. Our mission is fundamentally to transition the world to electric cars. I think most of the good that Tesla will accomplish is by putting a path through the jungle, to show what can be done with electric cars, and that's exactly what we're trying to effect, is to show people - hey, you can have a - hell of a better experience with an electric car than you can with a gasoline car.
I think it has taken a while for the industry to come around to this point, and I think it is largely at this point has become conventional wisdom that the future is electric cars. The only question is the interim period of this transitional period, but if you look at the pace of battery improvement, it is clear that it is inevitable. The future will be entirely electric. Almost everything that we have in our daily life is electric.
I certainly believe that the future is pure electric cars, not hybrids. For a while at Tesla we considered doing a plug in hybrid, but as we got into the details of the design we found it was just impossible to make a great car in my opinion, because you split the baby. I think hybrids are an interim step. They're sort of like an amphibian. You know, when life was going from the oceans to land, probably a lot of amphibians, but that's not the end solution. I think you want to go all electric because that is the truly sustainable path, and I think if you split the baby and you have a car that is trying to be a good gasoline car and a good electric car, you end up being not as compelling as either a pure gasoline car, or pure electric. We looked very closely at the plug-in hybrid thing. Basically what it comes down to is a technical point because we had to drill in real deeply to appreciate why it wouldn't be ideal to have a plug in hybrid. It's just going to have to be a better electric car, or a better gasoline car. Also if all the cars in the world were hybrids, would we solve our oil addiction? no, we wouldn’t. We might delay our day of reckoning a little bit, but we would not fundamentally change the equation. So the strategy we've decided to adhere to is a pure electric strategy. That's the reasoning that caused us to focus on electrics and continue to focus on electrics.
The success of Tesla as a company financially, is going to be a function of the quality of the products that we produce. We have to make better cars than, say, GM and Chrysler. I don't see that as a huge challenge. The sad thing is that generally in the United States, if someone can afford an expensive car, they do not buy an American car. I think in the 60s the U.S. made great cars, and before that made great cars, but then something happened in the 70s. I don't know what happened. A lot of bad things... architecture went to hell, fashion was questionable, and our cars turned to shit. I think the big American car companies sort of got complacent at a certain point, they just stopped trying to innovate. They didn't think anyone could sort of out do them. I think as soon if you have that sort of attitude somebody is going to out do you. The only way to bridge that is with innovation, is to try to make electric cars better, sooner than they would otherwise be. As a friend of mine summarized, “The Tesla strategy long term is to make cars that don't suck.”
If historians would look back at the impact of Tesla many years from now I think that Tesla hopefully advanced the advent of sustainable transport by something like a decade, maybe two decades. I do think electric cars are inevitable. I think it would happen anyway, just out of necessity. The goal of Tesla is to try to act as a catalyst to accelerate those sort of normal forces. The normal sort of market reaction that would occur. It's very important that we accelerate the transition away from gasoline for environmental reasons, economic reasons, national security reasons. It's very very fundamental.
I think we helped set the ball in motion. Now what is important is to continue the momentum. People that really believe in sustainability, that really believe in the electric car revolution, people like yourselves are very important to the success of Tesla, and to the success of electric vehicles in general. There are still many people out there that don't believe in electric cars, they think nothing is going to happen. We have to overcome that negativity, otherwise it's going to be way too slow, and there will be tremendous damage to the environment as a result. Word of mouth is super important, it's vital, and we need you to be able to go out there, and talk to people that you know and say 'Hey, electric cars are ready.' It's time to make it happen. If the big car companies see that our sales are good, and that we are actually able to take a little bit of market share, I mean, we're a tiny company, so a drop in the bucket, but if they see that people are buying these cars, then they will have no choice but to conclude that electric cars are the right way to go, and that will accelerate the transition to sustainable transport.
We are just going to keep making more and more electric cars, and driving the price point down until the industry is very firmly electric. Until like maybe half of all cars made are electric or something like that. Which is not to say that we expect to make half of all cars. The car industry is very big. It's not as though there is one company to the exclusion of others. There is like a dozen car companies in the world of significance. The most that any company has is approximately 10% market share. It’s not like somebody comes up with a car, and they suddenly kill everyone else, it’s not like that.
We want to just have that catalytic effect until at least that occurs. I think the point at which we're approaching half of all new cars made are electric, then I think I would consider that to be the victory condition. The faster we can bring that day, the better.