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The Real Founding Story of Tesla (It Started Over Lunch)

By Elon Musk · Founder Stories · 2 min read

Musk tried to convince AC Propulsion to commercialize their electric car. They weren't interested. So he said — if you're not going to do it, I'm going to do it.

Key Points

Musk's interest in electric cars goes back 20 years — he came to Stanford to work on energy storage for EVs
He tried to fund AC Propulsion to commercialize their prototype. They weren't interested.
The only entry strategy that had any chance of success: start expensive, go mass market by version three

If you're not going to do it, then I'm going to do it.

Twenty Years of Obsession

Musk: My interest in electric cars goes back 20 years to when I was in college. The original reason I came out to Silicon Valley was to go to Stanford to work on a PhD in applied physics and material science — to develop advanced energy storage technologies for electric vehicles.

The thing that spurred things in 2003 was a lunch I had with Harold Rosen and JB Straubel. JB mentioned this company called AC Propulsion that had a very rough prototype electric sports car running on lithium-ion batteries.

The original reason I came out to Silicon Valley was to develop advanced energy storage for electric vehicles.

The Test Drive

Musk: JB arranged for a test drive of the AC Propulsion T-Zero in 2003. The performance specs were very similar to the Roadster. But it's a much more primitive car — basically like a kit car. It didn't have a roof. No safety systems. Very expensive and handbuilt. Not something you could ever sell to people.

I tried to convince the AC Propulsion guys to commercialize the T-Zero. I said I'm willing to fund you. But it just wasn't of interest to them. They were a very small outfit. They liked to tinker and experiment.

It didn't have a roof. No safety systems. Not something you could ever sell to people.

If You Won't Do It, I Will

Musk: I kept pushing them on this. Eventually I said — look, if you're not going to do it, then I'm going to do it.

They said — well, if you're going to do it, there are some other people we should introduce you to. Maybe you guys should team up. That's how I met Martin Eberhard, Marc Tarpenning, and Ian Wright. Then JB joined. The founding team of Tesla was the five of us.

If you're not going to do it, then I'm going to do it.

The Only Entry Strategy That Could Work

Musk: It's actually the only entry strategy that I thought had any chance of success. As a small startup we don't have the economies of scale of the big car companies. Plus we're working with first-generation technology.

There are two things that are really important in making technology available to the mass market — economies of scale and being able to optimize the design. It usually takes by the third version of something for it to start reaching mass market potential.

So the strategy was: start with a high-price, low-volume sports car. Phase two is the Model S — mid-price, mid-volume. Phase three is the high-volume, low-price car.

It usually takes the third version of something to start reaching mass market potential.