With the recent lawsuit filed by Martin Eberhard, which seeks to perpetuate a version of Tesla’s history that is at odds with the truth, I felt it was important to set the record straight. This post is not a complete response to the allegations in the lawsuit (we will be responding fully in court soon), but rather an effort to correct several misconceptions propagated by Eberhard that are now being reported as truth.

I’ve included several relevant emails as source documents to show that this is more than just my subjective opinion versus Eberhard’s. As you will see, the evidence overwhelmingly supports a different account of the past than the one presented in his lawsuit.

At the heart of his attack, Eberhard plays to a common archetype – that of the noble inventor whose invention is usurped by the rich and powerful businessman. He has labored hard to create this impression and there is an intuitive appeal to it, as there is with any archetype, but in this case it is false.

The facts are that when I requested through AC Propulsion to meet Eberhard, he had no technology of his own, he did not have a prototype car and he owned no intellectual property relating to electric cars. All he had was a business plan to commercialize the AC Propulsion Tzero electric sports car concept. Three years later, when Eberhard was asked to leave Tesla, most of the work that he had been paid to do had to be redone.

Some Personal Background

My interest in electric cars reaches back two decades to when I was doing my undergraduate degrees in physics and business as a student at UPenn/Wharton. Bizarrely, Eberhard’s lawsuit claims I didn’t get those degrees, even though a casual search of the web shows I recently gave a talk there about Tesla and SpaceX, where the University listed my degrees on the poster.

I felt then, as I do now, that electric cars were the right technical solution to sustainable transport. As a student, I would talk to pretty much everyone I knew about them, including people like Christie Nicholson, now a writer for Scientific American, who still remembers the conversation 17 years later.

After working briefly on ultracapacitors at Pinnacle Research in Silicon Valley to understand their potential as an energy storage mechanism for electric cars, I decided to do graduate studies at Stanford in materials science & applied physics. My thesis idea was to use advanced chip making equipment to create a solid state capacitor with enough energy density for use in electric cars.

I ended up putting my graduate studies on hold to start a couple of Internet companies, and with the capital from these ventures, was able to take real action in two more areas that I had always considered truly important. These were space technology and the transition to a sustainable energy economy including, of course, the creation of a viable electric vehicle.

In addition to my Tesla duties, I still serve as CEO and CTO of SpaceX, leading design of the rockets as I’ve done for the past 7 years. Last year, we reached orbit and won the primary NASA contract to replace the cargo transport function of the Space Shuttle when it retires in late 2010.

Despite putting grad studies on deferment two days into the first quarter, my connection to Stanford ended up being pretty strong and I still help out on the Stanford Engineering Advisory Council. Eberhard’s lawsuit also claims that I misrepresent my affiliation with Stanford, but I would not be on their engineering advisory council if that were true.

Reconnection with Electric Cars via AC Propulsion

In October 2003, Harold Rosen, the brother of Ben Rosen (chairman of Compaq, who bought my first company), invited me to lunch with himself and JB Straubel. They told me about a company called AC Propulsion that had developed an all electric sports car called the Tzero with a range of 300 miles, a 0 to 60 mph time of under 4 seconds and a lithium ion battery pack with seven thousand cells (email A below).

A few months later, I met with Tom Gage, president of AC Propulsion, who gave me a test drive in the Tzero, which confirmed their claims. Over the course of several months, I tried repeatedly to convince AC Propulsion to commercialize the Tzero, but they were not interested. When I said I was moving forward with creating an electric car company anyway, Tom Gage offered to introduce me to one of two groups that were interested in commercializing the Tzero concept (email B below). The first one they introduced me to was Martin Eberhard and Ian Wright. Marc Tarpenning wasn’t present at the first meeting.

At the time, “Tesla Motors, Inc.” consisted of Eberhard, Tarpenning and Wright, plus an unfunded business plan and they were looking for an initial round of funding to create a more advanced prototype than the AC Propulsion Tzero. While there was a basic corporation in place, Tesla hadn’t even registered or obtained the trademark to its name and had no formal offices or assets.

To save legal fees, we just copied the SpaceX articles of incorporation and bylaws for Tesla and I invested $6.35M (98%) of the initial closing of $6.5M in Series A funding. Eberhard invested $75k (approximately 1%). In another crossover, I had the same people who created the SpaceX logo also create the Tesla logo. I became chairman and provided top level guidance on the technology and product design, but left the day to day running of the company up to Eberhard, trusting him to execute on the task of commercializing the Tzero.

Shortly after funding, I convinced JB Straubel to join Tesla when he called to ask about the company. JB ultimately led development of the Tesla powertrain well beyond what we initially licensed from AC Propulsion, to the point where we are now far in advance of that early prototype and no longer employ any of their original intellectual property. JB was recognized as 2008 innovator of the year by MIT for his work on the Roadster and, by any reasonable definition of the word, should certainly be considered a member of the founding team of Tesla, along with Eberhard, Tarpenning, Wright and me.

Commercializing the AC Propulsion Powertrain and Developing a Chassis

For the first few years of Tesla’s existence, I trusted Eberhard to execute on the operational task of taking the Tzero concept and creating a commercial electric sports car. My involvement was primarily focused on the body design, technical specifications and building the Tesla brand.

Eberhard has simultaneously implied that I had nothing to do with the creation of the Roadster and that I micromanaged the design and thus caused the cost overruns. Obviously, those claims are mutually exclusive. The reality is that I spent considerable time on the details of the product and particularly the body styling -- you will see elements of two of my favorite cars (Porsche and McLaren F1) in the Roadster body -- but left most day to day management of the company up to Eberhard.

One of the most difficult battles I had with Eberhard on the product detail and body styling was over the door sill. I insisted that we lower and narrow the door sill by two inches, to make the vehicle easier to enter and exit . As it turned out, we were forced to redesign the chassis anyway, so we gained this advantage at no cost or schedule impact.

There were several smaller items I suggested, such as the touchpad door latch that Eberhard tries to use as an excuse for why it cost over $140M to bring the Roadster to market instead of the $25M that he estimated in the 2004 business plan. That would have to be one hell of door latch! The $140M excludes any costs associated with the Model S.

The real reason that Roadster development cost so much more than can be accounted for by typical entrepreneurial hubris is that we essentially had to spend the development money twice. After Eberhard was asked to step down from the CEO role two years ago, almost every major system on the car, including the body, HVAC, motor, power electronics, transmission and battery pack, had to be redesigned, retooled or switched to a new supplier. With the release of the Roadster 2 this month, we are finally at the point where Tesla has a solid supply chain and a unit cost that allows us to operate the Roadster business line profitably.

Uncovering the Problem

We conducted a funding round in May 2007 that was intended to be the final round before Roadster production and profitability. In that business plan, Eberhard stated that the cost of the Roadster would be $65k after the first 25 units. When I questioned that number, based on piecing together what I’d heard from various people in the company, Eberhard told me that while the initial cost may be higher, he still felt confident of achieving $65k or lower after the first 100 units.

Eberhard also told the board that Tesla would be in production by Sept 2007. It is worth noting here that both the unit cost and production timing *included* all the extra features and delays that Eberhard ascribes to me. In his lawsuit, Eberhard claims that I was opposed to hiring a CFO when nothing could be further from the truth. Contrary to what he claims in the lawsuit, one of my highest priorities was bringing on a VP Finance or CFO (email C below).

In July 2007, one of the new investors in Tesla sent in someone to help with supply chain issues. While he was doing that, he conducted a cost audit of the Roadster and discovered that the production cost after the first 100 cars would be about $120k – almost twice what Eberhard was claiming it cost. Several months later, that actually turned out to be an underestimate, as material cost alone was $140k. Given that we had been charging a price of $92k and had taken advance orders for hundreds of cars, this meant we had a life threatening problem.

The cost auditor also discovered that there was no possible way that we would be in production or pass our regulatory requirements by September 2007. As it later turned out, not a single major vehicle sub-system would be ready anywhere near that time. Initially, not being aware of the depth of problems at Tesla, the board and I were under the impression that it was just a matter of fixing the transmission. That did turn out to be the long pole in the schedule, but there were a host of other issues behind it.