Season 3, Episode 1 Tesla

In this comprehensive exploration of Tesla's tumultuous journey, Ben Gilbert and David Rosenthal of the "Acquired" podcast delve into the electric car company's evolution from its inception to its current status as an industry disruptor. Despite not being founded by Elon Musk, Tesla, under Musk's eventual leadership, has faced a series of critical financial, engineering, and PR challenges to become a leader in electric vehicles, solar energy, and battery manufacturing. The company's success has been fueled by innovative design, world-class engineering, and Musk's unique vision, which has drawn comparisons to fictional characters like Tony Stark. However, Tesla's path has been anything but smooth, with production issues and financial struggles casting uncertainty over its future. The episode also touches on Tesla's pivotal moments, including its IPO, the acquisition of SolarCity, and the launch of iconic models like the Model S and Model X, as well as the highly anticipated Model 3. As Tesla navigates a complex landscape of investor sentiments, production targets, and competitive pressures, the podcast provides an in-depth look at what lies ahead for the electric car giant.

• Ben Gilbert and David Rosenthal introduce the episode.
• They discuss the intrigue of learning project code names, like "White Star" for the Model S.
• The episode is focused on Tesla, a company not founded by Elon Musk but highly associated with him.

Do you know the code name for the Model S? White Star?

This quote is a casual exchange that highlights the interest in knowing project code names and sets up the introduction of Tesla as the episode's main topic.

• Tesla is recognized as an innovative and complex company.
• The company is credited with creating the electric vehicle era.
• Tesla is compared to Ford in terms of automotive success, with Ford being the last successful US automaker 111 years prior.
• Tesla's ventures include solar energy, semi-trucks, autonomous vehicles, and lithium-ion battery manufacturing.
• The company has a car in orbit and a CEO often compared to Tony Stark and Steve Jobs.
• Tesla's survival is attributed to a series of "miracles" in finance, engineering, and PR.

Tesla is an unbelievably complex and nuanced company to research.

This quote underscores the depth and multifaceted nature of Tesla as a company, setting the stage for a detailed discussion about its operations and challenges.

• Tesla's market is polarized between diehard supporters and significant short-sellers.
• The short ratio, indicating the amount of money being shorted versus shares outstanding, is at 27%.
• The public discourse on Tesla is charged with opinions influenced by financial incentives.

The public markets right now are made up of Tesla diehard never sellers, and a tremendous amount of short sellers.

This quote highlights the polarizing views on Tesla in the public market, emphasizing the high-risk, high-reward nature of the company's stock.

• Ben Gilbert and David Rosenthal aim to provide a thorough and nuanced perspective on Tesla.
• They acknowledge the challenge of covering Tesla due to its evolving corporate structure and strategy.
• The episode is structured around Tesla's IPO but will cover the company's current state and future prospects.

We REALLY wanted to do our diligence to make sure that, not NECESSARILY that we took a stance one WaY or ANotHer, but that we did the company justice in telling the story.

This quote expresses the hosts' commitment to providing a balanced and well-researched narrative of Tesla, rather than taking a definitive stance on the company's prospects.

• Elon Musk is often associated with Tesla's founding, but the company was actually started by Martin Eberhard and Mark Tarpening.
• The early challenges of starting an electric vehicle company included skepticism from venture capitalists.
• Elon Musk's investment and involvement were pivotal in Tesla's early funding and development.
• JB Straubel's contribution to battery technology was crucial for Tesla's early prototypes.

So what are we covering today? It's Tesla. TESLA WRit large.

This quote indicates that the episode will cover the entirety of Tesla's history and operations, not just a specific transaction or event.

• Martin Eberhard and Mark Tarpening had a vision of creating an electric car that would appeal to the mass market.
• The naming of the company after inventor Nikola Tesla was intended to honor the history of electricity while signaling a modern and mainstream approach.
• The founders' previous experience in the tech industry influenced their approach to starting Tesla.

The goal that Eberhardt had there, which is really similar to sort of Elon's later vision for the company, is we cannot build something that screams electric car.

This quote reflects the strategic approach to Tesla's branding and product design, aiming to create a vehicle that transcends the niche electric car market and appeals to a broader audience.

• Elon Musk's investment and leadership were critical in Tesla's formative years.
• Musk's personal history, including his experiences with previous companies, shaped his approach to Tesla.
• His desire for control and significant involvement in Tesla's direction was evident from the outset.

I am personally going to lead your series A. I am going to write a check for the rest of the 7 million you need. I'm going to invest $6.5 million myself.

This quote demonstrates Elon Musk's decisive action and substantial financial commitment to Tesla, indicating his strong belief in the company's potential.

• Tesla raises an additional $13 million in Series B funding, leading to a total of $20 million raised.
• The funds are allocated to get the Roadster into production.
• Initial plans involve modifying the Lotus Elise to create a unique Tesla vehicle, leveraging existing supplier relationships.

"So on top of the previous 7 million, they've now raised $20 million. And they're going to use that money to get the roadster to production."

The quote indicates the total funding raised for the Roadster's production and the intended use of these funds.

• Elon Musk, owning a significant stake in Tesla, is highly opinionated and often right about his visions.
• Musk's dissatisfaction with the Lotus Elise leads to a redefined vision for the Roadster, aiming for a mass-market luxury vehicle.
• The Roadster's design and production are significantly altered to meet Musk's standards, causing delays.

"The Lotus Elise is unacceptable to Elon. His vision is he wants his then-wife Justine, a celebrity in her own right, to feel comfortable driving it."

This quote reflects Musk's desire for a more accessible and comfortable vehicle, rejecting the original Lotus Elise as a base for the Roadster.

• Tesla holds a press conference in July 2006, announcing the Roadster and future plans for a sedan.
• The company starts taking preorders, with a unique strategy to circumvent regulations by selling club memberships that include a "free" car.
• Martin Eberhard, co-founder and CEO, is the public face of Tesla during this period.

"They start taking preorders for the roadster after the event, and people go nuts."

The quote highlights the excitement and success of Tesla's preorder strategy following the Roadster's announcement.

• Tesla faces management conflicts, with Elon Musk feeling his role is underrepresented in the media.
• Major production issues arise, leading to the ousting of CEO Martin Eberhard and a series of interim CEOs.
• Production costs for the Roadster are significantly higher than anticipated, leading to financial strain.

"And if there's one thing that Elon is, it is opinionated, and he also happens to often be right."

This quote underscores Musk's influential role in Tesla's direction and the weight his opinions carry within the company.

• By 2006, Tesla has grown to 100 employees and is facing a financial crisis, requiring additional funding.
• Elon Musk personally invests $12 million, and clean tech becomes a trend among VCs.
• In 2008, amidst a financial crisis, Tesla scrambles to secure funding to continue operations.

"They raise another $40 million. At this point, Elon invests 12 million personally."

The quote shows Musk's personal financial commitment to Tesla during a critical funding round.

• Despite challenges, Tesla begins Roadster production and sells about 2,500 units, generating significant sales.
• The company receives a $465 million loan from the US Department of Energy to support the production of the Model S.
• Tesla's survival and success with the Roadster set the stage for future developments.

"They sell about 2500 of them at this point. $100,000 a pop. That's a quarter of a billion in sales, 250,000,000 in sales."

This quote summarizes the financial impact of the Roadster on Tesla's revenue, highlighting the importance of this initial success.

• Tesla's next project, codenamed White Star, aims to create a $50,000 sedan.
• After a failed collaboration with designer Henrik Fisker, Tesla recruits Franz von Holzhausen for the Model S design.
• Strategic investments from Daimler and Toyota, along with the US Department of Energy loan, provide capital for Model S production.

"They unveil the Model S. When they unveiled it, it was completely glued together, like, basically non-functional."

This quote describes the early prototype of the Model S showcased to the public, indicating the rapid development and the ambitious nature of the project.

• Tesla purchased a massive, previously abandoned GM plant for $42 million.
• The plant had originally cost over a billion dollars to build.
• Under Toyota, the plant had a peak production capacity of 500,000 cars per year.

"and GM abandoned this plant. It was sitting there empty and it was a massive, massive plant. Tesla was able to come in and buy it for $42 million. This thing had once it cost at least a billion dollars to build."

The quote highlights the significant discount at which Tesla acquired the large manufacturing plant, emphasizing the potential for high production capacity that Tesla stood to gain.

• In 2009, Tesla had shipped a total of 2,500 Roadsters and a few Model S vehicles.
• Tesla filed to go public on the back of the news about the plant acquisition.
• The IPO was straightforward, with Tesla seeking more capital to grow.
• Tesla's IPO on June 29, 2010, raised $226 million, with the stock jumping 41% on opening day.
• It was the first IPO of an American car company since Ford in 1956.

"Summer of 2010, they filed to go public. June 29, the IPO happens. They raised $226,000,000. The stock jumps 41% on opening day. And it is the first IPO of an American car company since Ford in 1956, which is crazy."

The quote outlines the successful IPO of Tesla and its historical significance as the first American car company to go public since Ford, marking a milestone for the company and the industry.

• The Model S revolutionized the automotive industry, likened to the "iPhone of cars."
• It featured over-the-air updates, a touch screen in the dash, and could seat up to seven.
• Tesla's sales strategy eliminated dealerships and haggling, creating a seamless buying experience.
• In certain states, Tesla faced regulatory challenges, leading to volunteer-run showrooms by passionate Tesla owners.

"The Model S is a computer on wheels. It's upgradable via over the air updates. Car companies just weren't thinking about all this stuff."

This quote emphasizes the innovative features of the Model S that set it apart from traditional cars, highlighting its technological advancements and the shift in consumer expectations for vehicles.

• Tesla faced production issues with the Model S, producing only dozens per week despite the plant's capacity for 500,000 vehicles per year.
• The company required significant capital to scale up production, including investments in equipment and batteries.
• Tesla's origins in tech contrasted with traditional car companies' expertise in manufacturing.
• Tesla's culture and capital needed time to adopt efficient production processes.

"They're making like dozens per week. And the backlog, which, it's funny, the phrase dozens sound as high until you think about it in this context. Yeah, dozens. It's like saying we should go out and we can make dozens of dollars."

The quote captures the stark contrast between the plant's potential and Tesla's actual production rates at the time, underscoring the company's challenges in scaling up manufacturing.

• In early 2013, Tesla was on the brink of bankruptcy, with customers canceling Model S deposits due to delays.
• Elon Musk offered to backstop the resale value of Model S vehicles to maintain faith in the company.
• Tesla's board of directors had close ties to Musk and his other ventures.
• Musk and Tesla employees engaged in a massive outbound sales effort to pre-sell Model S cars.
• A surge in sales and a profitable quarter in 2013 saved Tesla from bankruptcy and ended acquisition talks with Google.

"All of those employees that Elon had set to work basically manning a call center, doing outbound telesales of Model S's, it ends up working. And Tesla sells a huge number of cars in the first quarter of 2013."

The quote describes the extraordinary measures taken by Tesla and Elon Musk to generate sales and avoid bankruptcy, highlighting the turning point that allowed Tesla to remain independent.

• Tesla ramped up Model S production, selling 22,000 vehicles in 2013.
• The company introduced new features and models like Autopilot and the Model X SUV.
• Tesla's strategy was to use proceeds from high-end models to fund the development of mass-market electric vehicles like the Model 3.
• The Model 3 received over 325,000 reservations, signaling massive demand.
• Tesla acquired SolarCity in 2016, expanding into the solar energy market despite SolarCity's financial challenges.

"In all of 2015, they do 100,000 unit sales of the Model S. Then by the end of 2017, they've eclipsed 200,000 unit sales of the Model S."

This quote summarizes Tesla's sales milestones, indicating the company's growth trajectory and its ability to scale production and meet consumer demand for its vehicles.

• As of 2018, Tesla faced production difficulties with the Model 3, similar to its early days.
• Despite high reservation numbers, many customers had not yet received their Model 3 vehicles.
• Tesla's financial health and ability to continue operations without further capital infusions were uncertain.

"We're sort of at an all-time high for that right now. And I think what I want to do in this section is really break down sort of what's scary about Tesla and what could be, dare I say, the end of Tesla, or at least the end of Tesla in its current sort of structure and form, or what's going to be fine, and how are they going to pull out of this."

The quote reflects the uncertainty surrounding Tesla's future, acknowledging both the potential risks and the company's history of overcoming significant challenges.

• Elon Musk owns 20% of Tesla, and the rest is primarily held by institutional investors.
• Tesla's financial position is unstable, with various obligations tied to the stock price.
• Convertible notes could become equity if stock prices hit certain levels; otherwise, Tesla faces cash needs to repay loans.
• Elon Musk has borrowed heavily against his Tesla shares, creating personal financial risk tied to stock performance.

"ELON MUSK owns 20% of the company... Elon has borrowed 627,000,000 from big banks... against his personal holdings in TESLA to secure it."

This quote highlights Elon Musk's significant ownership stake in Tesla and his personal financial risks due to loans secured by Tesla stock.

• Tesla's operations and Elon Musk's personal finances are highly sensitive to stock price fluctuations.
• A substantial drop in Tesla's stock price could trigger margin calls for Elon Musk, potentially forcing him to sell shares to cover loans.
• A margin call could lead to a downward spiral if Musk's shares are sold off to satisfy lenders.

"If the stock price goes down... Elon personally could have a margin call where the banks could say, hey, the collateral on this loan is no longer valuable, and you need to pay us."

This quote explains the risk of a margin call on Elon Musk's loans, which are secured by his Tesla stock, and the potential consequences for both Musk and Tesla.

• Tesla has about $10 billion in debt, with $3.5 billion from the SolarCity acquisition.
• The company faces substantial interest payments and upcoming debt maturities.
• Tesla needs significant cash to cover debt obligations and capital expenditures.

"They have about $10 billion in debt... about $500 million went to interest payments... they're going to have to pay off a lot of this debt as a company."

The quote summarizes Tesla's debt situation and the financial burdens of interest payments and principal repayment obligations.

• Tesla's ability to meet production targets is critical for generating the necessary cash flow.
• The company's focus has shifted to the Model 3, which has a different profit margin than Models S and X.
• Tesla's production ramp-up is aggressive and may be challenging to achieve.

"The stated goal for 2020... is a million a year... they would need, by 2020, an entire second Fremont factory."

This quote discusses Tesla's ambitious production goals and the significant manufacturing capacity required to meet them.

• Tesla may face challenges in raising capital through equity or debt markets.
• The company's junk bond rating and potential regulatory issues could limit financing options.
• Tesla may need to raise equity without destabilizing the stock price or upsetting investors.

"Will they be able to dilute existing shareholders and issue new stock without doing dangerous things to the stock price by introducing a whole bunch of new liquidity?"

The quote raises concerns about Tesla's ability to issue new stock and the potential impact on the stock price and existing shareholders.

• Traditional automakers are formidable competitors with electric vehicle offerings.
• Tesla's supply chain includes many sole-source suppliers, which could be a bottleneck.
• Competitors have established supply chains and manufacturing expertise.

"They have 350 sole source suppliers... each of those has to ramp up to meet Tesla's demand."

This quote highlights the challenges Tesla faces with its supply chain, particularly the reliance on sole-source suppliers to meet production demands.

• Tesla's valuation and financial metrics are speculative and challenging to compare with traditional automakers.
• The company's price-to-sales ratio is high compared to industry peers.
• Betting on Tesla involves weighing complex factors and potential outcomes.

"Tesla produces what, 53,000 cars per quarter. Ford does about twelve x that... A lot of this is speculative, so you kind of feel like you might be buying in when it's already really expensive."

The quote reflects the difficulty in assessing Tesla's valuation given its production volume relative to established automakers and the speculative nature of its stock.

• Tesla could potentially achieve its production targets and maintain a high stock price, allowing for capital raising.
• The company could also face a range of less favorable outcomes, including acquisition or bankruptcy.
• Tesla's future is uncertain, with many variables in play.

"A plus... if they hit 500,000 this year... F is obviously the company goes bankrupt. C is they end up getting acquired."

This quote outlines the range of possible outcomes for Tesla, from successfully meeting production goals to facing financial distress and potential acquisition.