Chapter 44: Rocky Relationships: 2016–2017

This chapter examines Tesla's foundational design and manufacturing philosophy—vertical integration versus outsourcing—and the escalating tension between co-founder Martin Eberhard and investor Elon Musk over control, credit, and the Roadster's design during 2005–2006. Musk's intensive involvement in aesthetic and engineering details drives up costs but transforms the car into a desirable product, while a simmering dispute over founder status erupts into public tensions and legal posturing.

Tesla's early strategy centered on outsourcing: Eberhard and Tarpenning sourced batteries from Asia, bodies from Lotus, drivetrains from AC Propulsion, and transmissions from overseas suppliers. After building a hand-assembled development mule by January 2005, the team attracted Musk's investment of $9 million, but the question of leadership remained unresolved. Both Eberhard and Musk claimed founder status—Eberhard believed he had conceived the company and enlisted talent; Musk argued he had provided funding and connected Eberhard with Straubel and capital. Initially cordial, with Musk as board chair and Eberhard as CEO, the relationship destabilized as Musk became increasingly hands-on with engineering and design. When Eberhard and Ian Wright clashed, each sought Musk's backing to oust the other; Musk fired Wright after consulting Straubel, deepening his doubts about Eberhard and prompting greater managerial involvement. Musk rejected the cost-conscious approach of minimal modifications to the Lotus body. He insisted on enlarging the door frame (adding $2 million to costs), widening seats, redesigning headlights ($500,000 additional cost), switching to carbon fiber for the body, installing electric door handles, and overhauling the dashboard—details Eberhard resisted as unnecessary expenses. Musk's modifications eliminated Tesla's cost advantages from using Lotus's crash-tested design and multiplied supply-chain complexity, forcing Tesla to source hundreds of new components. By May 2006, Tesla had grown to seventy employees and needed fresh capital. Tarpenning informed the board they were running short on funds, partly due to hires Musk had pushed for; Musk reacted angrily until Kimbal intervened with spreadsheets showing the connection, prompting Musk to agree to raise additional financing. Musk leveraged his Silicon Valley network (Gracias, Brin, Page, Skoll, Pritzker, Jurvetson) and secured $40 million from VantagePoint Capital (led by Salzman and Marver) in May 2006. However, the press release identified only Eberhard and Tarpenning as founders, omitting Musk. Sensitive to credit, Musk had fought similar battles at PayPal and was not going to accept erasure at Tesla. When Eberhard became a public face for the company and appeared in media as Tesla's founder, Musk moved to reclaim prominence. The tension surfaced during planning for the July 2006 Roadster unveiling. Switzer, the PR chief hired by Eberhard, proposed a celebrity event at Santa Monica airport with catering and prototypes. Musk rejected her plans, walked out, and demanded she be fired; he then personally oversaw the event's details—guest list, menu, napkin design. Both Eberhard and Musk spoke at the unveiling, but media coverage overwhelmingly credited Eberhard as the visionary founder while treating Musk as merely an investor. Wired's lavish story focused entirely on Eberhard; the New York Times article did not mention Musk at all and incorrectly called Eberhard chairman. Furious, Musk sent sharp emails threatening to end relationships with the PR firm and declaring his contributions to the car indisputable. He then published "The Secret Tesla Motors Master Plan" on Tesla's website, outlining the company's long-term strategy to move from hydrocarbon to solar electric economy, framing himself as the visionary funder and strategist. Concurrently, Musk cultivated celebrity ties—giving Robert Downey Jr. and Jon Favreau a SpaceX factory tour while they filmed Iron Man, resulting in a Tesla Roadster product placement in the film and a cameo for Musk in Iron Man 2. By late 2006, the Roadster prototype had shattered the image of electric cars as golf carts, attracting high-profile deposits from Schwarzenegger, George Clooney, and Steve Jobs, positioning Tesla to revive the electric car industry after GM's EV1 cancellation.