Image about Tesla Motors

Think an electric car can't be an honest-to-goodness, rubber-burning, pulse-quickening, pedal-to-the-metal beast on the highway? The Tesla Roadster is here to change your mind - and maybe change the way the auto industry works in the process.

The Tesla Roadster looks like and acts very much in accordance with its pedigree, part Lotus and part Silicon Valley wild child. It races from zero to 60 in four seconds and can reach a curve-hugging top speed of over 130 mph. There's just one thing missing: the keening roar of exhaust escaping a gas combustion engine.

That's because the Tesla is the first automobile to marry sports car performance with a silent, instantly responsive, electric power train. And if you think of an electric car as a gussied-up boxy golf cart, think again. The Tesla Roadster is as cool and mind-bending as it is clean and green.

Tesla Motors, the company that created the Roadster, is the brainchild of three Silicon Valley entrepreneurs, Martin Eberhard, Marc Tarpenning, and Elon Musk, who have turned the idea of the electric car - and of building an automotive company - on its head, much the way Apple once jolted the computer business.

"We have a grand vision; it's an ambitious vision," says Darryl Siry, Tesla's vice president of sales, marketing, and service, and someone who qualifies as a start-up long-timer; he had four months on the job when we spoke.

Audacious is the word Eberhard, Tesla's chief executive officer, uses often to describe the company's ambitions. Eberhard, who has been a car nut ever since he was a teen in Kansas, conceived the idea of using lithium-ion cells (like the ones in laptops) as batteries. "We intend to become a real car company, the next great American car company," he says. "We can't do it in two years. We can't do it in five years. But that's our goal over time."

So far, the reviews of the $100,000 Roadster are glowing. Time named it one of the Best Transportation Inventions of 2006. PC Magazine called it a "dream car." And Forbes named it one of the best cars of 2006, even though it wasn't yet on the road.

"Tesla is remarkable in a number of ways," says Chelsea Sexton, a marketing expert and the executive director of Plug In America, a coalition that advocates plug-in vehicles. "The product is one. The company is another. It's definitely the best-equipped small company I've seen make a go at this. Ever. The Tesla Roadster dispels every golf-cart myth [about electric cars] out there. It's wicked fun to drive."

Over the past year, Tesla has built a buzz about its plans, and especially about its snug two-seat sports car. This is not your neighbor's Prius. The all-electric car has an extruded-aluminum chassis pioneered by Lotus, and it will go for about 200 miles before needing a recharge. Siry says he's glad environmentalism has gone mainstream, but Tesla, based just north of Palo Alto, California, is not banking on the greens.

"The idea the company was founded on was that you could have a highly efficient car without the trade-offs on performance, styling, and drivability," Siry says. "We're not depending on a surge in environmental awareness and global warming. We said we were going to build a car so beautiful, that handles so well, and that's so quick that people are going to buy it even if they're not passionate about the environment."

By early this summer, almost 600 people, including George Clooney, Google founders Larry Page and Sergey Brin, and of the Black Eyed Peas, had plunked down $50,000 deposits to get one of the first Tesla Roadsters, even before the car had gone through its final safety tests. Those who ordered first are expected to get their cars this fall. Tesla, which will not initially sell to auto dealers, plans to open its first dedicated sales center later this year.

"I think people are committing a lot of passion to Tesla, both because the car is awesome and because the people are going about it in the right way, a way that might actually succeed," Sexton says. "They're marketing it first as fun and fast and sexy, and second as electric. It competes, valuewise, with a lot of exotic cars out there."

The idea of building a niche car to create a buzz and then moving into mass production isn't exactly new. Siry points out that a guy named Henry Ford made his name in the early 1900s building race cars. In 1904, shortly after forming the Ford Motor Company, his third attempt to create an automobile maker, he gave an exhibition on the ice of Lake St. Clair, setting a new land speed record of 91.4 mph. Ford then sent the race car driver, Barney Oldfield, barnstorming around the country in the new model, the 999, creating publicity for the Ford brand.

Ford created the Detroit we know today, with its assembly lines turning out millions of cars around the clock. But what was efficient a century ago now comes with huge costs, Siry notes. The big automakers face daunting structural issues, including health-care costs, contracts with labor unions, and a production structure that allows them to make only a high volume of cars.
"We don't have legacy issues," Siry says. "We're taking a different approach. We're producing a low-volume car that will address a certain niche, and then we're moving down the line to larger volumes."

It's a model used by makers of high-tech products, everything from computers to high-definition TVs. "In what other market do you enter at the low end? Flat-panel TVs, cell phones, even refrigerators were all originally pitched at the high end. That drives the technology, creates a brand, and builds desirability in the larger market," Eberhard told London's Financial Times. "That seemed even more important to us with electric cars, because they had been given such a black eye in the marketplace. People thought about them as dorkmobiles, just ugly golf-carty things."

Eberhard has no prior experience in the car business. But then he had no experience with electronic books before he formed NuvoMedia, which helped create the market with its Rocket eBook. He sold the company in 2000 for $187 million (it was later folded by the buyer, Rupert Murdoch's Gemstar).

Eberhard met Musk, who has a net worth of $328 million and helped create PayPal, at a Mars Society meeting (a group dedicated to the "exploration and settlement of the Red Planet") in 2001. Three years later, Eberhard and Tarpenning, Tesla's cofounder and vice president of engineering, approached Musk to back Tesla Motors. "He gave me half an hour to make a presentation, which turned into two hours, and by the end, we had a handshake deal that he would invest in the company," Eberhard explains. (Musk is also backing SpaceX, the rocket-launch company that recently won a NASA contract to develop a vehicle to service the International Space Station.) Today, Tesla has venture capital of more than $100 million, including the initial investment from Musk.

The company is building an assembly plant in New Mexico, but like so many Silicon Valley ventures, it is using technologies invented and assembled elsewhere. For example, the lithium-ion cells used for the battery are wired together into sheets in Thailand and surrounded by a computer system that manages charge levels and cools the cells.

Even the company's signature technology is borrowed. Nineteenth-century physicist Nikola Tesla built the first AC induction motor, the same kind of motor that gives the Roadster its silent roar. What is proprietary and what the company controls are the 15 patent applications that focus on the power train.

The motor, which weighs only 70 pounds, sits in the rear of the car, along with the battery. The battery is equipped with 13 processors that monitor everything from voltage and temperature to smoke levels; these processors are linked to an onboard computer that controls such things as the speed of the motor, braking, and battery charging. And those cooling vents in the rear of the car work like the vents on the back of your desktop PC tower.

"The things that are the core competency of Tesla - like the drive train - are things we hold closely," Siry says. "The battery pack, our power electronics, the mechanism to turn energy into motion, and the motor are unique to Tesla. That's where the patents are."

What Tesla will leverage are the suppliers Detroit uses, as well as its experience. The company has opened an office in Rochester Hills (north of Detroit). It has hired about two dozen auto-industry veterans and employs more than 60 people in total.

"The ecosystem for auto manufacturing looks very different," Siry says. "We have access to the same suppliers Detroit uses. We don't have to build everything from scratch. For example, for White Star [the code name for Tesla's next planned car], we have an assembly plant in Albuquerque we're building. But we are not going to build the tooling to manufacture the body. We'll have someone else do that. They will stamp the aluminum and paint the car for us. We don't need to invest in massive infrastructure to do these things."

When Silicon Valley's talent for innovation merges with Detroit veterans who understand how to make cars, "it really becomes magical," Siry adds.

To ramp up production on future cars, Siry says, Tesla will need access to even more capital. Some of it will come from Tesla's selling technology it has developed. Earlier this year, the start-up announced it had created a new division to sell lithium-ion battery packs and had taken a $43 million order for 2007 and 2008 from Think, a Norwegian maker of tiny electric cars. In his blog, Eberhard said the company went through seven design iterations before producing its Energy Storage Systems.

"Along the way, word got out that Tesla Motors ESS technology is pretty darned good. Unsolicited, cell manufacturers referred companies to us. And other vehicle manufacturers came asking us about our technology," he wrote.

Jan-Olaf Willums, the president of Think, decided to place an order, which Eberhard says will benefit Tesla in several ways. Tesla will be able to ramp up to high-volume cell purchasing, reducing costs. This will also increase the evolution of the cells, perhaps reducing their weight. And the company will get an additional revenue stream, allowing it to grow faster.
But Tesla will need even more money. Siry says venture capital, given the company's prototype success and marketing buzz, is there for the taking. "We're past the major risk," he says. "It's not like we're a company with just an idea. We have a clear runway to being a public company, which would probably need to occur as we need access to larger and larger capital as we move forward with our program."

Will Tesla perhaps sell out to one of the big boys when the time comes? Siry says "everyone has their price" but that it's not in the plan. "Our desire," he adds, "is to build an independent brand."

To do that, Tesla will not rely on independent dealerships. It will own all of its dealerships so it can control sales and service. It's another way Tesla is following the path of Apple and not Ford or GM. In his blog, Musk described the Tesla store: "The type of place we are striving for combines the feel of an Apple store, a Starbucks, and a good restaurant. I include the latter, because in a good restaurant you can always see the chef working in the kitchen. The chef has nothing to hide, and it is a pleasure to see the staff at work preparing the meal."

Tesla plans to open stores in Los Angeles and the Bay Area by the end of 2007 and in New York, Miami, and Chicago after that. Stores in Seattle, Denver, Atlanta, Washington, D.C., and other cities will follow based on customer demand.

But who will buy? Kevin Riddell, an analyst at J.D. Power and Associates, says the Tesla Roadster is a major change from the electric cars of the past, but it still has limitations. It has a limited range, and while it has a fast recharge of as little as a few hours, that still takes longer than pulling into a gas station and filling up.

"I think from the electric vehicles we saw in the late '90s, the technology is finally able to catch up with what people will expect from a car in general, so it does make it more competitive, even though it is more expensive than an internal combustion engine," Riddell says.

Riddell thinks instead there will be a big move toward hybrids. He points out that there is currently no significant infrastructure in place for an electric-only car. "Where do I go so I can plug in for a few minutes and continue on my path outside of to and from home?" he asks.

Siry, Eberhard, and Sexton aren’t discouraged. Tesla announced a deal with Hyatt Hotels earlier this year to install charging stations at three hotels in an arc from San Francisco to Lake Tahoe. A Tesla owner could drive from San Francisco to the lake without worrying about running out of electricity.

The Hyatt chose Tesla because, as Eberhard predicted, it wanted to attract the affluent driver likely to purchase the Roadster. “The kind of customer who would buy a Tesla and stay at a Hyatt is one and the same,” says Jordan Meisner, regional vice president for Hyatt. Tesla has also received a $560,000 grant from the California Air Resources Board to develop a public charging station. And Sexton points out that there are plans for charging stations in major cities. Besides, most people aren’t going to drive their electric cars across the country. They’re going to use them around town.

“These days, people have more faith in Silicon Valley than they do in Detroit,” Sexton says. “People are willing to take a chance on the Davids of the industry.”