By on October 16, 2008

The San Jose Mercury reports that the credit and stock market meltdowns have finally taken their toll on Tesla’s plucky startup plans. No sooner had the ink dried on its deal with San Jose to build a giant headquarters and production facility then everything went to shit (i.e. got put on hold thanks to the dry-up in venture capital). The Model S Sedan (formerly Whitestar) is in development Hell, Tesla’s Michigan engineering facility has been closed and an undisclosed number of employees have been laid off. But cuts and delays are just the start of the shake-up. Tesla Chairman Elon Musk has installed himself as CEO of the firm, ousting Ze’ev Drori, the second such ouster since Musk booted Tesla founder Martin Eberhart last year. Owen Thomas of Valleywag thinks this news could be more dangerous for Tesla than any credit market issues.

“According to Elon Musk,” writes Thomas, “Elon Musk was the driving force behind PayPal during his brief, tumultuous reign as CEO of the payments company. Musk’s version of events is a fiction believed by no one else. I know this because I spoke to PayPal insiders regularly while he was CEO, and they told me of chaotic management, boneheaded marketing and technology decisions, and serious turnover under Musk’s reign… With a parlous economy, Tesla was already in for a bumpy ride. Musk is keeping his second job as CEO of SpaceX, a private rocket company which has seen several botched launches. Add to that the infamous tale of his PayPal-era car crash, and you’ve got an entrepreneur who’s better known for destroying vehicles than building them.”

RF reckons there’s more spin left in this electric appliance, but clearly, the wheels have come off the Roadster roadshow. We’ll watch the aftermath on your behalf.

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24 Comments on “Tesla Death Watch 25: Zoinks!...”


  • avatar

    I’d like to know how many of those deposits are gonna get refunded when the shit hits the fan. Of course, I think we all know the answer.

  • avatar

    Since they have so many buyers lined up, and the car is producible, what’s not working here?

  • avatar
    psarhjinian

    I don’t think it’s entirely fair to blame Musk, because the company under Eberhart was a textbook example of Engineers Run Amok. Planning the Whitestar sedan before the Roadster was effectively produceable should have been a warning to everyone involved that ADD was deeply rooted at Tesla.

    Rather like a small-scale General Motors, in a way.

    Musk was supposed to reconcile the requirements of Tesla’s investors (ie, they want to make money) with the expertise of it’s engineers and visionaries. What he did do was walk into a set of problems that were beyond his actual ability to fix, but not his own personal belief in said abilities. Either that, or he was just running cover and doing the best he could with an untenable situation.

    Tesla might have made it if someone could have a) kept the engineering on-track and b) been honest about how things were actually progressing. Musk didn’t, or couldn’t, do either.

  • avatar

    sad

  • avatar
    becurb

    I have yet to know of a CEO that does not have the requisite extra-colossal sized ego, excretes gold bricks and assumes that you are stupid/gullible enough to believe everything they say.

    Musk certainly fits the bill of a CEO.

    Whether he was or was not capable of making Tesla work, actually telling the truth as to what was going on at Tesla was never in the cards – it would have scared too many potential investors (ie VC’s) away.

    Bruce

  • avatar
    Phil Ressler

    I spent several years in a venture capital firm that was among the funding sources for PayPal. PayPal was a company in considerable tumult until it wasn’t, and found its exit via eBay. Because it was successful in becoming a standard and achieving an exit for its investors during a downturn, many fathers claim its success. In 30 years of participation in the start-up ecosystem, I don’t think I’ve ever witnessed a company spur more conflicting stories from “insiders” about its origins and outcome than PayPal.

    Musk is among the sizable coterie of entrepreneurs cultivated or produced by Silicon Valley that became wealthy but are not yet successful. Nothing in his past suggests this change in executive management will raise the operating competence of Tesla, but he *is* giving himself a chance to prove otherwise.

    Phil

  • avatar
    Engineer

    Here’s the scary part for any GM cheerleaders: This is the company that inspired the Hail Mary Pass, aka Chevy Volt! Maybe Bob Lutz should have done his homework, before jumping in with both feet.

    Oh, I forget, that’s not the executive way…

  • avatar
    1996MEdition

    “chaotic management, boneheaded marketing and technology decisions, and serious turnover under _____________’s reign”

    Just fill in the blank with the auto exec of your choice.

    Maybe he wants to build him a rocket car…..

  • avatar
    M1EK

    As for the slam at engineers, Eberhard’s tenure looks a lot better in retrospect than does Musk’s – yes, planning a 2nd car before the 1st is done seems odd to the outside world, but it’s done all the time in technology (what are you going to do with your designers otherwise? Lay them off and assume you can hire them back a year later?).

    Musk reminds me of the CEO who drove my favorite job into the ground (software startup here in Austin) – a sales guy with a far greater opinion of his own intelligence than anybody else had – who drove away some critical engineers, some even on purpose, and ended up flaming out in disgrace.

    You can build a startup with nothing but engineers, as has been shown repeatedly in SV, but you can’t with nothing but sales guys, except during an irrational bubble. Keep that in mind.

  • avatar
    cwallace

    Chrysler should ask about borrowing that Relevance Optimizer in the the photo, and use it on their ’09 Ram product launch.

  • avatar
    guyincognito

    @ Michael Karesh:

    Lets see:

    ~$240M in fininancing + say 1K vehicles sold at $100K = $340,000,000

    – Material, development, and production costs for said roadsters ~ $340,000,000

    – 100 Employees @ ~ $100K/year * 4 years = $10M

    – Headquarters in San Carlos, CA ~ $5M

    – Tech center in Mich ~ $47M

    – LA Delearship ~ $3-4M

    – Several iterations of transmission design ~ $10M

    – Development of Model S ~ $1-2 M

    – Lawsuits against Fisker and Magna ~$1-2 M

    – Marketing/trips to Europe ~ $1-2M

    Of course these are just estimates but this probably isn’t a complete list. The only money they likely have is the money that should be directed toward material and production costs for already ordered roadsters. Soon that money is gonna run out and they aren’t going to be able to build any more roadsters. Look for Elon on the Moon by then.

  • avatar
    Redbarchetta

    Damn I was right Tesla is about to die. See ya, won’t be missing ya. I’m tired of the all the PR and unvarified claims the car can walk on water.

  • avatar
    Usta Bee

    How do you make a small fortune in the automobile industry ?…….start with a large fortune.

  • avatar
    psarhjinian

    As for the slam at engineers, Eberhard’s tenure looks a lot better in retrospect than does Musk’s –

    That has a lot to do with reality not having set in yet. Eberhardt’s tenure was during the magic pixie dust stage, and his ouster was largely at the behest of VCs who were waiting for him to produce an actual, salable product, rather than just screw around with their money.

    I didn’t mean to slam engineers specifically, but it’s too often that the profession gets a free pass. Accountants can nickel and dime a company to death, true, but engineers can do the same through lack of focus on business and customer requirements.

    GM is often cited as Accountants Gone Wild due to the relentless penny-pinching that hamstrung their products for so long. Have a look at Mercedes or Volkswagen (or Tesla, pre-Musk) for an example of what happens when Engineers Run Amok: needless complexity and products that are built for customers that, quite frankly, don’t exist in sufficient numbers to sustain the product.

    Do you know who runs Toyota? A corporate strategist.

    yes, planning a 2nd car before the 1st is done seems odd to the outside world, but it’s done all the time in technology (what are you going to do with your designers otherwise? Lay them off and assume you can hire them back a year later?).

    Yes, but you don’t assign people to a new project when you have core issues with your existing one, which was what was happening with the Roadster.

    If you want to see classic symptoms of a company in trouble, number one is talking up a new product when the current ones are in a world of hurt. It’s distraction activity, both to keep customers from focusing on your problems, and a natural, subconscious self-defense.

    If you’ll note, successful companies (Honda, Toyota) keep their cards very close to their chest and concentrate on operational matters. Ones that are in trouble bang the Next New Thing gong loudly and often. Sound like anyone we know?

  • avatar
    guyincognito

    @ psarhjinian:

    I think your analysis is off, and not just because I’m a bean counter hating engineer. Eberhard’s plan for the roadster was to apply AC Propulsion’s technology to a Lotus with LiIon batteries. It was Musk who introduced the 2 speed transmission, the lowered door sills, and other feature creep that derailed the production schedule and budget. In any case, there never was a pre-Musk Tesla. He and Eberhard started the company together.

  • avatar
    Pch101

    All kinds of people can ruin companies. Accountants who are pennywise and pound foolish are particularly adept at it, but finance people who focus on quarterlies at the expense of the long haul, and engineers who design for themselves instead of for their customers, are almost equally as good at it.

    GM is unique, as it has been nearly destroyed by both engineers and finance guys at different times in its history. The finance guys will probably be the ones to finish them off, but back in the day, the engineers came really, really close.

  • avatar
    factotum

    becurb wrote: “I have yet to know of a CEO that does not have the requisite extra-colossal sized ego, excretes gold bricks and assumes that you are stupid/gullible enough to believe everything they say.”

    Jim Sinegal, CEO of Costco, comes to mind. Bucks Wall Street’s demands of higher profits in order to provide a better wage for employees.

  • avatar
    psarhjinian

    I think your analysis is off, and not just because I’m a bean counter hating engineer.

    I’m a bean-counter hating systems analyst, but I have to say that, after working with a few engineers, I’m not fond of that profession, either.

    Eberhard’s plan for the roadster was to apply AC Propulsion’s technology to a Lotus with LiIon batteries. It was Musk who introduced the 2 speed transmission, the lowered door sills, and other feature creep that derailed the production schedule and budget.

    I’m not entirely sure of that. It was already well behind when Eberhard was fully part of Tesla, and one of the reasons he was pushed was for allowing, if not abetting, that creep in features.

    I don’t think Musk is an angel, but I think a lot of people who bought into Tesla’s hype are giving him more (and Eberhard less) of the blame than is warranted.

    In any case, there never was a pre-Musk Tesla. He and Eberhard started the company together.

    In the same sense that Mike Markkula founded Apple, yes, you’re right–but it was Jobs and Wozniak who really developed the product, Markkula was more or less a ground-floor VC. At Tesla, Eberhard was the technology person, Musk was largely financial backing and a liason with the other VCs who came on later.

    Musk’s problem, I think, is that he came in as a fundraiser, and later a fixer, but is starting to believe himself to be a visionary. Eberhard was a visionary, but not necessarily a good operational executive. Both should have taken very early steps to hire professional management and restricted themselves to what they were good at.

  • avatar
    marc_m

    @Editor / Moderator

    Could the caption please say: “Shit, I’m constipated!?”

    Thank you.

  • avatar
    stevelovescars

    Having been in Northern CA through the peaks and valleys, it does seem that the VC community gives an aweful lot of passes to people who have made them money in the past, whether or not they were just lucky rather than brilliant. The Valley is full of “smart” people, heck, so is Detroit, it’s just hard for most of them to be heard.

    I don’t know a lot about PayPal during the Musk era but I do know about eBay during Whitman’s rein and I count her as another who got lucky and who’s incompetence was hidden by meteoric growth not of her making. From what I’ve heard of Eberhard, he was another one who made a fortune selling an empty promise and was lucky to get out before due-diligence could be practiced. Yet, it seems that VC money bet on the come again with Eberhard and John McCain bought Whitman’s story hook, line, and sinker. In this world of high finance it seems it’s better to be lucky than right.

    I always thought that the biggest threat to Tesla would be serious EVs and plug-in hybrids from major manufacturers. Seems to me that perhaps this may still yet be true. I just hope that Tesla’s situation (not yet a failure but they do need to start showing some true operating successes rather than just hype) doesn’t sour the larger market against the idea of electric propulsion.

  • avatar
    lewissalem

    You can say what you want about GM, but they make cars (for now at least) that I can go into a store and actually buy. The fact is, at the end of all of this, Tesla is irrelevant.

  • avatar
    Mirko Reinhardt

    @guyincognito
    Eberhard’s plan for the roadster was to apply AC Propulsion’s technology to a Lotus with LiIon batteries.

    Yoz are right.
    Most people don’t understand that – Tesla did not innovate, they just licensed AC Propulsion’s motor, power electronics, battery module concept and charging system, did some optimizations for mass production, went to Lotus and told them to build a car around that.

    Nothing wrong with that, other than Tesla’s marketing constantly downplaying both the ACP and the Lotus connection.

    Problems started with the integration of the 2-speed (didn’t Musk say they needed the 2-speed because Tesla’s own engineers didn’t understand the ACP power electronics well enough to get more power out of them?)

  • avatar
    Geotpf

    Building an electric Lotus Elise shouldn’t be this damned complicated. They should have Kept It Simple Stupid, and basically made a straight electrical conversion of the Elise with a new body so it wasn’t that obvious. Looks like they got carried away with product creep, though.

    In any case, how many Teslas have actually been shipped to actual customers? Is it more than 10 yet?

  • avatar
    tesla deathwatcher

    More than 50 Tesla Roadsters have been delivered as of early November, according to rumor.

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