Inside a messy garage on a side street in the unglamorous Silicon Valley suburb of San Carlos, David Lu is struggling to make the shift to the future of transportation. The 25-year-old engineer taps away at a laptop, while behind him technicians crawl over a sinewy yellow sports car with a jumble of wires spilling from its carbon-fiber body. They're trying to work the bugs out of the transmission for this high-speed racer. "How the transmission handles, is still a subject of debate," says Lu. But something's different in this monster garage. On the walls, big yellow and red signs warn: DANGER: HIGH VOLTAGE. And the car has a thick black electrical plug sticking into it. This two-seat hot rod—which slingshots from 0 to 60 in less than 4 seconds—is powered by the same batteries as Lu's laptop. And what's even more shocking: This automotive antidote to our oil addiction does not come from a big car company. It is the work of Tesla Motors, a Silicon Valley start-up with 250 employees. Maybe you caught a glimpse of the Tesla Roadster making a cameo at the end of last year's documentary, "Who Killed the Electric Car?"
Or maybe you heard that celebrities like George Clooney and Matt Damon already have put down deposits on this $98,000 road rocket. Or perhaps you know that Silicon Valley A-listers like the Google guys are Tesla investors. Even Detroit, long derided as environmental knuckle draggers, is showing respect for tiny Tesla. "They have a real shot at success," says GM car czar Bob Lutz, who credits Tesla's arrival with jump-starting GM's plans to build its Chevy Volt plug-in hybrid electric car coming in 2010. "Their Roadster, if and when fully reliable, is an extremely attractive proposition."
That "if and when" is proving problematic. This green machine was originally due to hit the road this month. But that tricky transmission and other mundane issues for major automakers—like crash-testing the cars—are taking longer than the neophyte auto moguls expected. It now looks like customers won't get their cars until early next year. "I had a friend cancel his order because he didn't want to wait," says Chris Paine, the director of "Who Killed the Electric Car?" who still has his deposit down.
Some critics see Tesla as woefully underfunded with $105 million in start-up money, from a variety of Valley players like Jeff Skoll, eBay's original president, and the Technology Partners venture capital fund. The car business, the auto analysts warn, takes billions, not millions. All the delays have editors of auto-buff magazines wondering if Tesla is for real. "Until they have a drivable car, everything else is just flapping their jaws," says Car and Driver editor Csaba Csere, who's been awaiting a promised test drive for months. Tesla's overwhelmed executives hope everyone will be patient as they work through a long list of tests and tweaks. "Everybody will tell you that starting a car company is really hard," says Tesla's intense 47-year-old cofounder Martin Eberhard. "And they're right."
You could fill a junkyard with the magnificent failures in automotive history. There's Preston Tucker, who built just 51 of his ahead-of-its-time eponymous model in the 1940s, and then in the 1980s there was John DeLorean's gull-winged sports car, which is best remembered as a movie prop. But electric vehicles have proved a car conundrum that has confounded giants from Thomas Edison to General Motors. Guzzling gasoline, while environmentally incorrect, has always been cheaper and easier than propelling pollution-free in an electric car, with its balky batteries, limited driving range and endless recharging time. In the '90s, those factors helped short-circuit GM's EV1, whose ignominious death was the subject of Paine's documentary. Nearly a century ago, Edison was so frustrated by the failure of his electric car that he wrote a note of surrender on a napkin over dinner with Henry Ford. "The electric car," Edison wrote, "is dead."
What makes Tesla—named for the inventor of alternating current—any different? For starters, Tesla's timing may be perfect. Ever since Al Gore let us in on the inconvenient truth, the idea of an electric vehicle has emerged as the purest play against global warming, since cars spit out 20 percent of the greenhouse gases that heat the planet. Plus, Tesla's founders and financiers created a compelling car that blends Silicon Valley smarts with the kind of pulse-pounding performance that earnest, eat-your-peas electric cars always lacked. They're powering their car with a 950-pound bundle of 6,831 lithium-ion cells, each about the size of a AA battery, which come from a device these Valley boys know something about—a laptop computer. Lithium ion is the new battery of choice for electric cars—Toyota and GM are looking at it—because it goes farther on a charge (Tesla claims well over 200 miles) and doesn't take as long to juice up (about 3.5 hours with a special garage charger, or seven hours with a conventional plug). And all this technology is wrapped in a curvaceous car based on the exotic Elise by boutique British carmaker Lotus, which is building the Roadster for Tesla in Hethel, England. The first year's production of 600 cars is sold out.
The road to high expectations began in 2002, when Eberhard was looking for the next big thing after selling his electronic book company, NuvoMedia, to Rupert Murdoch for $187 million. Eberhard's automotive epiphany occurred after he crashed his Audi when avoiding a deer on his way home in the hills above Silicon Valley. He looked at replacing it with a Porsche, but it just didn't feel right. "Post 9/11, post the Kyoto protocols [on climate change]," he says, "getting another sports car that gets crummy gas mileage felt a little irresponsible."
A Prius wasn't an option. "Not everybody wants a car that ugly," says Eberhard. So he began investigating an experimental electric sports car, the tzero, which supposedly could outrun a Ferrari. It was the work of AC Propulsion, a Silicon Valley start-up that was founded by Alan Cocconi, the engineer who created the prototype for the electric-drive system in GM's EV1. Eberhard wanted to buy a tzero for himself and even help sell it to the public. But AC Propulsion wasn't interested. The tiny company didn't have the resources to make the sports car street legal and didn't believe it would have mass appeal anyway. AC Propulsion CEO Tom Gage suggested Eberhard connect with a rich Internet investor also shopping for an electric sports car: Elon Musk, who made his fortune by founding PayPal, the Web pay service, and selling it to eBay in 2002 for $1.5 billion. "I don't know whether to blame myself or credit Martin," Gage says now, "for gathering in Elon and all his investment money."
Musk would go on to become Tesla's chairman and primary investor. But when he first approached AC Propulsion, he was just a guy trying to find a way to go green in his distinctly un-green Porsche 911 Turbo. "I'm very much an environmentalist," he insists. "But I'm a proponent of solving problems with better products, rather than deprivation." Musk offered AC Propulsion a quarter-million dollars to sell him a tzero or to electrify his Porsche. It refused, offering instead to sell him an electrified Scion xB, a boxy economy car from Toyota, for $70,000. Musk's response: "Nobody wants an e-Scion for 70 grand." (Apparently, somebody did. AC Propulsion sold its first electric Scion to Tom Hanks earlier this year.)
Eberhard, who once met Musk at a meeting of the Mars Society (dedicated to exploring the Red Planet), sought a meeting in early 2004 to explain his concept of a plug-and-play sports car for the rich. The pitch: most technology breakthroughs show up first on luxury goods, but electric cars have always tried (and failed) to appeal to budget-minded buyers trying to pinch pennies at the pump. Why not take the luxury lane? "Our first half-hour meeting turned into two hours," recalls Eberhard. "And by the end of it, we had a handshake deal."
Eberhard quickly struck a development deal with Lotus, but he and Musk didn't want to simply electrify an Elise. Instead, they substantially redesigned the car, lengthening it by a foot, adding a trunk big enough to hold a set of golf clubs and jamming a big battery pack and electric motor behind the driver's seat where the engine used to be. They also tackled one of the biggest drawbacks of lithium-ion batteries: their propensity to run so hot they burst into flames (remember those laptop fires?). J. B. Straubel, a Stanford engineer who was one of Eberhard's first hires, came up with a way to encase each of the 6,831 battery cells in a fire retardant material so that if one fails, it won't cause a wildfire. The $20,000 battery pack is pricey, but it is generating so much interest, Tesla hopes to license it to major automakers.
But Tesla's ambitions go beyond becoming a battery supplier and creating a sports car for the Hollywood set. The company's aim is nothing less than becoming the plugged-in Henry Ford, electrifying the highways for the multitudes. After the Roadster, there's a $50,000, five-passenger luxury sports sedan on the drawing board, code-named White Star, that's due in 2010. And a few years later, Tesla hopes to have a $30,000 model for you and me, code-named Blue Star. "This is only interesting if we go mass market," says Musk. "The world isn't lacking for interesting sports cars."
With the drive of a budding Silicon Valley mogul and the heart of a shade-tree mechanic, the 36-year-old Musk has a taste for the grandiose. His day job is running SpaceX, a company he founded to build rockets to take Earthlings to Mars. But he spends plenty of time—some insiders say too much time—tinkering with Tesla, whether it's the design of the Roadster or the structure of the company. He recently demoted Eberhard from CEO to president of technology and installed an interim chief, while looking for a permanent replacement who had experience running a big company. "He can potentially feel a little hurt," Musk says of Eberhard, "but I didn't think we could wait. We need somebody who understands running a larger company and can take us from 300 people to 3,000 people in the next two or three years." Eberhard says he understands the need for a more seasoned CEO but admits his ego was bruised by Musk's management change. "If you know Elon," he says, "you know he does things abruptly."
Musk also insisted the Roadster's doorsills be lowered after his wife had difficulty exiting the car modestly while wearing a skirt. "With doorsills like that," he says, "those shots of Britney will get a lot more common." Eberhard resisted that move, saying it would be too costly and time-consuming, adding, "My wife tends to wear jeans." But Musk won by arguing: "I'm the guy saying this isn't too much money because it's my money."
So far, Musk has sunk $37 million into Tesla—more than one third of its $105 million in start-up funding. That's a big bankroll by Silicon Valley standards, but chump change in an industry where it can cost $1 billion and take four years to get a car from drawing board to dealer showroom. "They are definitely undercapitalized," says auto analyst Jim Hall of Auto- Pacific in Detroit. "You know what $105 million will buy you at Toyota? Headlights, taillights and a bumper." Tesla plans to float an initial public offering once the Roadster hits the street next year. But even billions from a stock sale could burn up quickly as Tesla creates its next models from scratch, without Lotus's help. "White Star will require more capital than these guys even realize yet," says Hall. "And the problem with investors is they want their money back."
Tesla had better get its car on the road soon because the big boys are coming up in its rearview mirror. Toyota, which has already sold more than a million hybrids, is testing a plug-in Prius powered by lithium-ion batteries. GM is fast-tracking the Volt, which it says will offer 40 miles of electric drive before a small engine kicks in to recharge the battery, allowing for up to 150mpg. And even if Tesla gets a head start, the auto establishment could still crush it by copying its cars and undercutting its sticker price.
Tesla, of course, has designs on becoming a major automaker itself. It's even opened an engineering office in suburban Detroit, staffing it with refugees from the beleaguered Big Three. Musk says he expects a 10-fold increase in employment at the company within three years. But for now, as Tesla struggles to get its first model out of the garage, some wonder if it is being hobbled by delusions of grandeur. "At some point their vision got altered to a 'change the world' mentality," says AC Propulsion's Gage. "But you can't change the world if you don't deliver the car." Will Tesla prove the skeptics wrong? Perhaps, but success might mean eventually being bought up by one of the big wheels they're showing up right now. And even if Tesla ends up as another automotive roadkill, this small band of Silicon Valley dreamers could leave a legacy that paves the electric highway for others to follow.