The first retail store opened up in LA on Santa Monica Blvd. which was formally I think a kids furniture store. This was a controversial decision at Tesla, in fact the original business plan called for using sort of the regular auto dealer network and that kind of thing. But I was really adamant that we needed to improve the buying experience. For a lot of people the car buying experience was quite negative, they didn't look forward to buying a car. I didn't know anyone who loved the car buying experience. Usually people tended to view it as equivalent to going to the dentist, and maybe the dentist is better, but it was not something people looked forward to. I think if you would ask most people what's the worst retail experience you had, for a lot of people that's buying a car, that's not something you want to emulate. Then on the other side of the spectrum you got sort of like, I think Apple is arguably the best on the retail front, where people are drawn to an Apple Store, and Gap is also excellent in that regard. Better to emulate that then the old way of doing business. We thought look if we going to make a new car company we don't want to inherent the negativity or bad element of the way it has been done in the past. We want to do it right, and we want to make sure that people love coming to buy a car, that they look forward to it. We weren't sure if this made sense from an economic standpoint, but we just knew we didn't want to replicate the negative experience that people had in buying a car. We felt like we want people to love buying a Tesla all the way from the initial buying experience, to receiving the car, ownership, and the post sale service experience. You want people to fall in love, you want them to just love it. We want to have a fundamentally superior consumer experience.
The ideal service is invisible. You don't even notice it, and when it's done, you love it. Service should feel like invisible love. We really wanted to achieve something that was substantially superior to what people have experienced in the past. The most important thing I said to the retail team, is that the number one thing is when someone comes in our store, whether or not they buy a car, the most important thing is they are looking forward to coming back to the store. That's it, that's the goal, just make sure that when people visit our store they look forward to coming again. Don't try to sell them something that they don't need, don't sell, your goal is just to communicate and make people feel good.
We got a lot of opposition from the auto dealers as you might imagine, they were not happy campers about this approach.
So we got the first retail store established in LA, then we got the second one shortly there after in the bay area in Menlo Park. That is where I first met Franz von Holzhausen.
After the Roadster people said, oh, sure, you can make a small electric sports car, but you couldn't make a real car, you know like a Mercedes or an Audi, that has all of the features and capabilities. So we announced the Model S, and so many people called bullshit on that, it was ridiculous.
Having done the Roadster which was very, very difficult, I realized with the designing that there must be people that can do this way better than I can. I knew I couldn't do a great job of designing the Model S, because designing a four-door sedan that is beautiful is incredibly hard. You can make a car look very good by giving it's sort of certain proportions, like making it low and slim. If you do that the utility is significantly affected. The big challenge with the Model S was to try to figure out five adults +2 kids, because we wanted to have a seven seater. I first tried to outsource the design of to a few different companies. That was a whole saga in and of itself, and it really didn't work out. Originally we thought let's have Henrik Fisker, who had a design studio, do the designing. We paid him a good sum of money, and curiously enough the designs that he worked on and that he came up with for us were terrible. What he didn't tell us was that he was actually working on a competing car company, Fisker.
If you say what was the difference between Fisker and Tesla. Tesla is a hard-core engineering company and Fisker is kinda based on styling. I think styling is important, but I don't think that's the reason why we don't have electric cars. There weren't that many car company start ups. There was sort of Fisker and Coda and some smaller ones. So in the case of Fisker they made a car that a lot of people think looked really good, but didn't work properly. So people didn't want to buy the car.
We were pretty upset with him for basically taking, what were at the time, the original specifications for the Model S and going and sharpening a business plan of the same car. That's when I said we really need our own design studio, so I asked around and I was told: “There's this guy Franz that's really great, I don't know if he's willing to jump, but he’s really great and you should go talk to him.” The first meeting we had was at that opening party for the Tesla store, and it was a really good party. I think something that Tesla is good at is throwing good parties. I spend a long portion of the night talking to Franz at the party, and we’ve been friends ever since. So that's when we hired Franz to design the Model S. We didn't even have the money for a design studio so the design studio in the beginning was just in a tent in a corner of the SpaceX rocket factory.
When Jon Favreau and Robert Downey Jr we're doing the first Iron Man they came to visit me to ask for some advice on the script. Someone had told them I was similar to Tony Stark or something. They came and I gave a tour of the rocket factory and Tesla, and everything. They asked me, like, Iron Man has these powers, what kind of explanation could there be for them? that kind of thing. We talked about some of the possible scientific explanations for the powers that Iron Man has in his suit, like maybe you could harness the power of dark energy or something.
It did actually feature a Tesla Roadster in Iron Man 1. The funny thing was they asked Audi, who was the sponsor, Audi had paid a bunch of money to use Audi in the Iron Man films, they asked Audi: do you mind if the Tesla is also there on the background? They said they didn't mind, because that company is not going to survive anyway it doesn't matter, so they put the Tesla in. But then for Iron Man 2 when they said can we put a Tesla in? Audi said: “No way.”
We got an Iron Man statue at SpaceX that was donated by Jon Favreau, and signed by the whole cast including Scarlett Johansson which is kind of cool.
I should point out that Iron Man was only partially based on me, I think there's some important differences. I've got five kids and Iron Man is sort of a swinging bachelor. I spend my weekends going to Disneyland and I don't see Tony Stark doing that.
The Tesla IPO process was certainly interesting, and an interesting IPO roadshow with Deepak who did an amazing job. Maybe we took Tesla public too early, but as a car company we just needed to raise a lot of money to expand, so we went public. If I had a dollar for every time somebody mentioned Tucker or DeLorean we would've not needed an IPO. On the roadshow we would sometimes meet with investors that told us how stupid we were, and that this was a waste of money, and how dare we even take their time. Then we would meet with some that were like: “Yeah guys, you are great, we are all in.” Tesla is a company that either inspires love or hate, people are rarely indifferent. If you say how do you feel about Colgate you say: “it’s OK” but with Tesla it’s either “you guys suck” or “Hey Yeah!” it tends to be love it or hate it.
A lot of skepticism initially, or perhaps still is there to some degree.
So we managed to get Tesla public and shortly after that we became one of the most shorted stock on the NASDAQ. For quite a while we were trading places as the most shorted stock on the stock market with I think it was Skullcandy, Travelzoo and Coinstar.
Also in 2010 proximately the same time as the IPO is when we met with Toyota. Akio Toyoda actually came by, and we had breakfast at my house. He was sort of really interested in working with innovative technology companies, and we said what are the ways that we can potentially work together? We came up with three things. These three parts of the deal were independent of each other. So all three could work out or none of the three could work out. One was to do sort of a joint EV program. That was one part of the deal, another strategic element with Toyota was for them to make an investment at the IPO, and they said that sounds cool we will make a $50 million investment at the IPO. Which was actually very helpful to us when we were on the roadshow, because they would ask us how we were going to compete against the big car companies. We would say look we got the Daimler partnership, and Toyota is investing at the IPO, those are good signs.They invested $50 million at a $17 share price, so it worked out for them.
The third was buying the Fremont Factory, the former NUMMI facility in Northern California, which is one of the biggest car plants in the world. It was 50% owned by GM and 50% owned by Toyota, but it was owned by what was considered the bad portion of GM. GM was split into two pieces, one was called Liquidation Motors, half of NUMMI was owned by Liquidation Motors, and a half was owned by Toyota.
In recent years it had only been making Toyota products. It's where they made the Corolla and the Tacoma. As a result of the recession they decided to close it down, and it was understandable because it didn't make sense for Toyota to be in that kind of a partnership. They were going to shut it down and it was just going to be empty. They were going to turn it into a mall or something like that, but it was going to be empty for a long time. So we sort of said look we'll take it off your hands. We said this is kind of a huge plant for Tesla, and we don't have much money, but we would be interested in buying that. The dream factory location for Tesla was always the NUMMI factory, a great location close to the Tesla headquarters. We thought man there is no way we can ever get that awesome plant, because it just cost too much and we didn't have much money. We were amazed that they were willing to move forward and do it, Tesla was so tiny at the time. It was like imagine you are this little group and somebody says there's this giant like alien dreadnought that you could have for pennies on the dollar. You have no idea how it works, you are like where are the controls, how do you use this thing? We were fortunate enough to buy it at a point where the automotive plants were not worth much in early 2010.
When we first got the plant it is one of the biggest plants in the world, I think it's sort of by footprint like the third or fourth biggest manufacturing plant, it’s 5 1/2 million square feet, it’s amazing, you could go camping in there. It takes you a long time to walk from one side to the other. We have bikes in the factory so you can get around a bit faster. We could conceivably go beyond half a million cars there, long-term we want to try to do several million cars.
We were fortunate in being able to buy at a very good price a very good factory, and thus minimize the incremental tooling cost to produce the Model S. There was an existing paint shop, so we only had to modify the paint shop instead of building one from scratch. There were stamping machines, and all sorts of things there that were helpful. I never expected that we would have this plant, amazing thing is it is kind of full.
The Model S was the first time we build the car, the whole car, with the Roadster Lotus did the main chassis.
The Model S beta was close to production design, or very close really, when we unveiled that to the public. It was quite well received, and we had a lot of people who put down a deposit on the car. That gave us a big boost of confidence, it was like wow people really like the car, and it looks like we will be able to sell enough to pay for the cost of the factory and everything.
Actually, people were quite skeptical. It's funny, before we got the Roadster out they would say you couldn't possibly make that car work, and then we made the car work. Then they would say well nobody's going to buy it, and then people bought it. Then we made the Model S and we brought it to market. Then people were like, oh, you couldn't possibly ramp up production, and then we did that. Then they said you will never be able to make profit, and we did that in Q1. So I'm hopeful that people will observe that there is a trend here.
With the Roadster our annual production was maybe 500 a year, and Lotus made the body and chassis, and we made the power train and battery. We went from around 500 cars a year where we did half the problem, to 20,000 cars a year for a much more complicated car where we did the whole thing. This was a very steep learning curve, very intense. We were basically there seven days a week and all hours of the night trying to figure out how to make a car. It was a huge amount of sacrifice by everyone.
That was a big milestone for the company, delivering the first Model S’s from the Fremont Factory. At the time we were just occupying a tiny corner. It was definitely one of the most joyful experiences in the history of Tesla.
The Model S was actually the only aluminum car made in North America. The Audi A8 and a few of the advanced German cars were aluminum, but there were no aluminum passenger vehicles made in the United States. Although for me, coming from the space arena, it was like: obviously you'd make it out of aluminum, what else would you make it out of? steel is really heavy and not great.
I'll tell you one funny thing, when the Model S first came out I intentionally deleted the rear reading lights in the backseat, because I was like people are just going to use e-books like Kindle and iPads and phones and that kind of thing, so they're not going to need an actual light in the back. Then one of my kids was trying to read a book in the back and said: “This is the stupidest car in the world, how could you do this?” so I put the light back in.
It was Motor Trend Car of the Year 2013. Obviously a big milestone for Tesla getting essentially the best car of the year, not just electric. Motor Trend told us it was the first time that the judges had actually been unanimous in a decision, and they were very complementary they liked a lot of things about the car. The important thing was that it won as a car not because it was electric. It won on the bases of performance, fit and finish and the overall feel of the vehicle.
Obviously it was a bit disheartening that presidential candidate Mitt Romney would take time out of a debate to attack Tesla in two of the three debates. I thought that was a bit unreasonable, and one of the things he did actually was call us a loser. In retrospect it seems he was right about the object of that statement but not the subject. Time magazine awarded us invention of the year, so I think it was a bit unreasonable that he would call us a loser. We had generated 3500 high-quality jobs in the United States and we were a leader in electric vehicle technology, we actually exported Power trains to Toyota and to Mercedes. I don't think Mitt Romney hates us, I think he was just a little too fond of oil.
The thing that was really hard about the Model S, was to combine aesthetics and utility, to balance through. The big challenge with the S was having a vehicle with a high utility, and looked good, and the same with the X. To make a sports car look good is relatively easy, but to make a sedan or a SUV look good is quite difficult.
I think electric vehicles have a fundamental architectural advantage if one designs an electric vehicle from the ground up, and takes advantage of what is possible. If you were just to convert a gasoline vehicle, you would not achieve these advantages. Properly done you can actually package the battery pack in the floor plan and achieve a low center of mass, and have a very compact motor and inverter and gearbox, so that the actual usable space in the car is significantly greater then a gasoline car of the same overall external dimensions.
We unveiled the Model X in early 2012, an SUV that is built on the same platform as the Model S. It's got a slightly longer wheel base but otherwise it's on the same platform. It's really addressing the SUV and minivan market.
It's got a unique innovation which is the double hinged gull wing door on the side. That's never been done before I believe. Certainly hasn't been done in any production car. We call it 'Falcon Wing' instead of 'gull-wing' because they have a dual acting hinge - when both doors are up it looks sort of falcon-like. I think it's the coolest door as doors go, it's pretty cool. They can actually open in a tighter space than almost any door, and certainly a tighter space than a conventional door. The reason it has to be double hinged is that, if you just made it a single hinge gull wing, the arc as it swings out, it swings out too far and then too high, but as a double hinge it's actually going, almost straight up. If you can physically fit between the Model X and another car, then you can open the door. It's actually more convenient than a minivan door, because a minivan door when that opens it actually comes out and slides, so you can't get to the car from the rear, but with the Model X you can, when the door's open. The Falcon Wing door is designed to improve accessibility of the third row. Typically in a three-row car it's quite difficult to access the third row directly. You have to fold up the second row seat; you really somehow have to move the seat back of the second row. Which, if you've got a child or child seat in the second row can make it really inconvenient to access the third row. By having the Falcon Wing door we have a much bigger opening that allows you to directly step to the third row quite conveniently, even if there are baby seats in the second row. If you're a mother putting your child in the child seat in the second row it's very easy because you have such a big opening. You can step into the car and put the child into the child seat, instead of kind of levering your child through a hole over the baby seat. I think parents will really enjoy the Model X.
There's really only two ways to achieve that level of accessibility. One is the sliding door of a minivan, and the other is to having something like that Falcon Wing door. The reason we didn't go for a sliding door like a minivan is that it fundamentally constrains the aesthetics of the exterior of the car. You have to have three support rails which also negatively effects the aesthetics. That's why all minivans pretty much look the same. We wanted to have something that had that level of accessibility, actually greater accessibility than a minivan door, but also looks good.
This program has been challenging.
In retrospect the right thing to do with the Model X would've been to take a lot of the really awesome cool things, and kind of table them for a future version. I particularly need to fault myself here for a fair bit of Hubris for putting too much technology all at once into a product. If I could wind back the clock I would say like we got these great ideas, and we got things that I really want to implement, and other people really want to implement, but the smart move actually would have been to table those for version 2 and so forth for Model X, instead of piling them all into version 1. This was definitely a case of getting overconfident, and in particular the software that controlled the Model X and the operation of the doors was incredibly difficult to refine and getting the complex set of sensors to work well has been incredibly difficult to refine.
In designing the Model S and the Model X safety was our absolute paramount goal. I felt like, obviously my kids drive in the car every day, my friends drive in the car every day, if I didn't do everything possible to maximize safety, and something went wrong I couldn't live with myself. I really couldn't live with myself if there was something that I could have done that would have saved them and I didn't do it. We spent a enormous amount of time with safety, and the whole car is architected around safety. We have physics on our side, which is very important.
Why exactly is the car safe? because you hear things like the car is a five stars and all that, but that is not an actual statistical number. Safety statistics are not really measured in stars. There is an actual probability of injury, that is the number that is most important. You can look it up it's sort of buried in the Department of Transport website, but every car has a combined probability of injury. The reasons basically are that the car does not have a big steel engine block in the front. We have a front trunk as well as a rear trunk. The electric motors are so small that they are actually coaxial with the axles. When you have a high-speed frontal collision what really matters is force over distance. It's really not that complicated, it’s just like jumping into a pool from a high diving board or something. You want a deep pool and one without rocks in it, it’s the same thing for a car. What people don't realize is that they think you have a big steel engine block that is protecting you. Except that when you hit something you are going 60 miles an hour. It is stopping you that is important, the deceleration distance is very important. To describe it in another way, the length of the crumple zone is extremely importan. The crumple zone in the front of the Model S is three times greater than that of any premium sedan, which means that the impact attenuation is 2 to 3 times greater.
The reason the side impact collision is so much better than another car is because the main structural component is the battery pack in the floor pan. The battery pack in the floor pan effectively acts as a big share plate to transfer load from a side impact into the rest of the car, so the whole car moves sideways. The net result is that you are much safer in a side impact. What happens in a gasoline car is, because you got the big steel engine block in the front you got a huge portion of the mass in the front, and the rest of the car is relatively weak. You essentially have just thin sheet-metal on the side of the car and the floor pan of the car. The load transfer for a gasoline car to the rest of the mass of the car is weak and as a result the side impact distance is dramatically greater.
A few other things which are not specifically related to electric cars like using an aluminum body and chassis is helpful, because you can absorb more energy per unit of mass in a crash. That leads to higher safety. I’m really proud on getting the safety to where it is. When we did the rooftop test it got to 4 times the weight of the car, and then the machine broke. Literally the thing that was supposed to crush the car broke instead of the car. It is the safest car by far.