Season 3, Episode 1: Tesla

0:00 Do you know the do you know the code name for the model S? Uh White Star. Yeah. Yeah. Amazing how cool you feel doing this and learning the code names of projects and you're like, ah, that was a codename, even though it has no it's not secretive, it's not it's just boring, but I think it's cool. Welcome to Season 3, Episode 1 of Acquired, a podcast about technology, acquisitions, and IPOs. I'm Ben Gilbert, I'm David Rosenthal, and we are your hosts. Today we are covering a company that was not founded by Elon Musk.

0:41 Tesla. Debatable. Depends who you ask. Tesla's an unbelievably Complex and nuanced company to research.

0:51 They're without a doubt one of the most innovative companies in the world right now. They've created the electric vehicle era that we're in. They've invented the most adored cars on the market through sheer force of will, brilliant design, and world class engineering. In fact, the most recent US automaker to reach success before Tesla was Ford, and that was a hundred and eleven years ago. Tesla is also a solar energy company, semi-tru company, autonomous vehicle pioneer. They're becoming the world's largest lithium ion battery manufacturer. They're a creator of large-scale charging infrastructure across the country. They have a car in orbit. And by all accounts, their CEO appears to be the love child of Tony Stark and Steve Jobs.

1:31 strung together, David, before you get too excited about this company, a series of miracles to stay alive and make this all happen. both financial, uh engineering, PR, the you know, you string the miracles together correctly and threadle exactly right, and you get Tesla. And in fact, as we'll talk about in the latter half of the show, they're in a pivotal moment right now to see if the company can even stay alive. The public markets right now are made up of Tesla, diehard never sellers, and a tremendous amount of short sellers. And for those who pay attention to short ratios, which is the amount of money being shorted on a company relative to the number of shares outstanding.

2:06 twenty seven percent is their current short ratio. So that's twenty seven percent of the amount of shorts the ratio, the number of shorts to the ratio of the uh number of people who hold the stick. Number one Yes, is is twenty seven percent. So everybody's got an opinion. There's lots of incentives. Everything you read is probably charged with somebody that knows somebody or that actually represents somebody that has a lot to gain by Tesla moving one way or another. And there's high risk and high reward everywhere. So David, can you feel it? Oh boy, can I ever. Uh this is uh word of caution to listeners. This is gonna be a long episode. We wanted to really do this justice and uh give the full acquired treatment to Tesla. Uh so we have Gone very deep.

2:53 I won't claim in advance for this to be the definitive take on Tesla, but it will be the definitive acquired take on Tesla. It's not like nobody's ever in the Slack requested, hey, you guys should do Tesla before. I mean, we've gotten a ton of this and I think we've been Almost a little daunted by it because it's really There's an incredible amount of nuanced corporate structure here, uh evolving strategy. You could look like a complete fool. By being

3:18 too bullish on Tesla or too bearish on Tesla because something amazing is gonna happen to this company over the next Ten years or six months, and I think in in retrospect, you could either be looking like the guy that said the car wasn't gonna be a thing, or the guy that says that Enron was gonna be the next big company. 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 in telling the story. Indeed. So What are we covering today? It's it's Tesla, Tesla writ large. We're uh we're gonna be talking about the IPO as sort of the way that we structure the episode, but then also doing sort of an extended take later in the episode on where's the company today, what's its future, um, what are key risks and and opportunities for it. And so

3:59 Unlike other required episodes where it's purely centered around a transaction, this is loosely around the IPO, but really about the company as a whole. Alright, a little bit of a administrative work before diving in. If you like the show I guess if you don't like it too, but we like it more if you like it, leave a review on iTunes. It helps us to grow the show. If you're ever wondering sort of how can I help the show, uh review on iTunes is a great way. If you're new to the show, you can join the Slack at acquired.fm where we are uh always chatting with the fourteen hundred uh strong and growing group of people that you know, talking about the most recent things that are going on, which David and I sometimes talk about the show, but don't always talk about on the show. So if Amazon's buying whole foods, that's the place to be for that day where there's lots of hot takes and good insights on it. All right listeners.

4:46 Now is a great time to talk about a new partner of ours here on Acquired, Lagora. The agentic operating system that is redefining how the world's best legal teams work. Yep. It's sort of obvious that AI is gonna completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chat bot out there. Ligora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry? So the founders did exactly what great founders do. operate with obsessive customer focus.

5:21 They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Lagora's Bet Here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work. and do higher value work. And this means that the pie can grow even as each individual task takes less time. And they recently launched Lagora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

6:12 And Legor works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Lagora numbers essentially speak for themselves. When they have a head to head pilot with their top competitor, they win seventy percent of the time. Lagora now has over a hundred thousand lawyers on the platform from twelve hundred legal teams in fifty countries. And crazily, they went from one million to a hundred million in ARR.

6:40 In about. Eighteen months. truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client.

6:55 If your legal team wants to check it out, whether you're a law firm or you're in house at a company. You can learn more at Lagora.com slash acquired And just tell'em that Ben and David sent you. Alright, David. You know, this is what we've all been waiting for. The main event. Oh, I'm a little nervous. We'll do it justice, my pages and pages of notes here.

7:18 Okay. Let's kick it off. History and facts of Tesla. So a little bit of background to start. So One of the things.

7:26 I we did in preparing for this episode, we went back and listened to our PayPal episode, which was one of our early ones. And um Listeners may or may not know, but Elon Musk, the potential co founder of Tesla, uh, who we're gonna focus on a lot in this episode, was also a co founder of PayPal. The Series A Investor. The series A investor. Uh the current CEO of Tesla was a co founder of PayPal. Relistening to that episode, it was definitely the early days of acquired, and we've come a long way since then. It was fun to go back and listen to it. We did not really get the story right. So you know, at some point We need to redo the whole episode on PayPal because there's so much there. But I'm gonna cover a couple things that weren't in that episode that's important to know about Elon and his personal history coming into Tesla. So

8:15 Even before Elon co-founded the company X.com, which would morph into PayPal via a few iterations. He had started a first company uh in the US. I say in the US because he is, of course, South African, uh was born there and then immigrated first to Canada and then to the US. But his first US company was a company called Zip2. And it was a startup during the dot com era in Silicon Valley. Elon was was the founder, he was the original CEO, and the VCs, uh, more David Al was the main VC. After they invested, they brought in a quote unquote professional CEO, which was all the rage back in the day, and they push Elon out of the CEO seat and into the CTO seat. And that really left a scar on him. And he resented it ever since and

9:03 Still resents it to this day, and I think you can see a lot of his behavior through that light. Certainly after it happens at Ziptu, he actually attempts a coup to regain the uh the CEO seat, attempts a board coup and fails. That was his first failure in the startup world. Zip two, uh shortly after that ends up getting acquired by Compaq. For about three hundred million dollars. Elon nets about$22 million out of that sale. And so he's kind of been burned through his experience there, but now he has twenty two million dollars. He doesn't really know what he's gonna do with his life. Uh, he decides to basically become a playboy, live like the playboy lifestyle in Silicon Valley. And the media kind of gets wind of this and and loves it. He's like this dot com wonder kid. So the first thing he does, and this is gonna directly lead to Tesla here. And it's not the media in the sense that he's covered in the media today. It's amazing to even think about Elon five years ago, let alone fifteen, twenty years ago, of just not being the sort of global icon that we know of today. Yeah, this is a very, very different Elon and a very different kind of media coverage here. So the first thing he does

10:07 He buys a McLaren F one. For one million dollars in cash. So the McLaren F one was was, maybe still is, I think the fastest car ever made. There are only about fifty of them in the world. And then he gets CNN to live broadcast the delivery of the car to his house and him taking receipt of the car and then driving it around. Which is one of the best things on YouTube. Oh my God. Unreal. Unreal. And then he he cold emails Larry Ellison, the the Oracle CEO. He doesn't know Larry, um, but he knows he that Larry also owns of a Clarin F one, so he cold emails him and says, Let's get together and race these things which they do. This is the world that that Elon is in. So he's blown A million dollars of his twenty-two million dollars straight off on this car. But he also wants to start another company and he wants to make sure that the VCs will never oust him as CEO again.

11:00 He starts a company, he calls it X dot com. And the goal is he's really ambitious. He wants to become an online bank. He wants to bring banking online. He funds it himself. He invests twelve million dollars uh directly into the company. Um and he has a few co-founders. But this time he has problems with his co founders. So One of his co founders stages a coup and ends up taking most of the employees and going and starting a rival company doing exactly the same thing. Not good. Elon keeps going with X dot com. We didn't get any of this in the PayPal episode. X dot com would become. 'Cause they now have all this empty space in their office. They sublet some of that empty space to a plucky startup in Palo Alto called Confinity that was founded by Peter Thiel and Max Levchin and The rest of the PayPal crew.

11:47 They're working on some crazy palm pilot stuff. But they see what Elon and X dot com are working on and they're like, Oh, that's a good idea. We should just do that and change pivot and compete with these guys who we're subletting space from. They do that and they change their name to PayPal. Then a bunch of stuff happens, Elon kicks them out of the space, they go somewhere else. So David, the people that spun off to form a rival company, what what did that end up being? Or did that just fizzle? Uh that just fizzled. Yeah, that didn't go anywhere. But now he's had like two major blows. So there's the initial blow at zip two, two major blows.

12:21 in the PayPal journey. They end up X dot com and Confinity end up merging, they change the name to PayPal, all that has been much has been written about. After the merger happens. the board decides the new board of the combined company decides to House to Elon.

12:36 bring in a professional CEO again. So his worst nightmare has just happened. Again. He would be better suited by becoming one of these professional CEOs, it seems. He really would. He really would. So that that doesn't last very long, Elon Stage of the coup again, he comes back, he he becomes CEO, but his employees of the combined company are so unhappy with him that they then go behind his back on the day he's leaving for his honeymoon, they go back to the combined board and oust Elon, once again. out of the CEO role of PayPal, bring Peter Thiel back as CEO again on the day that Elon is leaving for his honeymoon for his first marriage.

13:15 Brutal. Uh you know, again, it's the dot com crazy days. I guess it's actually after the crash, as we covered in the PayPal episode. Shortly after that, the company gets acquired by eBay. And probably a lot of that drama had a lot to do with why they decided to sell to eBay, uh, which we didn't talk about in the PayPal episode. Anyway. Elon Nets from that sale about a hundred and eighty million dollars after taxes. So he is now

13:38 Rich at a whole nother level than he was from his SIP two acquisition. One thing you sort of see with successful people is you know, one time they're lucky, twice they're good, three times you know they're good. And what you see with Elon is is a pattern where People do the things that made them successful because they believe that that is the the way to do things and

14:01 He has Every data point so far to show that When something goes really well and you get a bunch of money, you should plow all that money back into your next thing. Because that will do well too.

14:15 Be I think because that will do well too, and like he just has this complex that's like deep within him from these early days of like I need this to be mine. I need control. He's been burned time and time and time and time again. Again, all that all that is just background, but I think it's really important to understand as we look at The journey of Tesla and what's happening today and

14:35 Why Elon necessarily behaves the way he does. Okay, so he gets a hundred and eighty million dollars after taxes. He decides he's done with the dot com playboy stick. He wants to actually have a really big impact. This is the summer of two thousand two after the PayPal sale. He still has his whole life ahead of him. That leads to him starting SpaceX. Which uh is a story for another day. We won't go into it. Uh that will certainly be another acquired episode at some point in time. But that is gonna be his next chapter. He's gonna start SpaceX, he's gonna make the human species a multiplanetary species, and that is his calling.

15:10 Along the way, though, he gets involved with Tesla. And that's the story we're here to tell today. How did Tesla start? About a year later, in the summer of two thousand three, Elon has moved down to LA and he's building SpaceX in LA, where it still is today. And at the time the biggest status symbol that you could have in the Hollywood LA ecosystem and and also in Silicon Valley, but even more so in Hollywood was a Prius.

15:39 because these were the days of the Iraq war and of course, you know Hollywood and all of California is very liberal, but it's very against the war, uh viewed uh, you know, the U's oil interests and oil dependencies were uh terrible. And so all the big movie stars. I remember there was a whole um series of uh curb your enthusiasm episodes with Larry David about buying a Prius, driving a Prius, having it be the status symbol. It was the thing to do. And so Elon kind of gets swept up in this too, he gets really interested in alternative fuel sources for powering vehicles and reducing Did Elon drive a Prius?

16:14 I I actually wasn't able to find that out. Uh If he didn't He certainly was living in a milieu where Priuses were the thing. He also still had I believe he still had his McLaren F one at that point. Actually I think he does because I I think it'll resurface later. So meanwhile, back in Silicon Valley, a guy named JB Strable is hanging out. Uh well, actually JB lives in LA, but he's spending a lot of time back up in Silicon Valley hanging out there. He's a Stanford grad, and while he was at Stanford, he had been part of the university's solar powered car team and

16:49 And this was a intercollegiate competition that um Stanford had a team for gone on for years where engineers um from different universities would build vehicles that were powered by solar power and then they would race them across the country. It was kinda like a um alternative track to the DARPA challenge where you had un university teams would create autonomous vehicles to navigate terrain. This wasn't autonomous, but it was powered by solar. And so Strable had been part of the team while he was at Stanford and through a variety of ways, ended up staying in touch with the current team members after he graduated and spent a lot of time with them.

17:23 He along with some of the current members of the team, kinda came to this realization that they could use Laptop batteries, lithium ion batteries. in these cars to store the energy much better than they had been. I think think they had been maybe been using ultra capacitors before. I'm not quite sure what technology, either that or lead acid batteries. They weren't using lithium ion. But this was, you know, 2003, laptops were really taking off replacing desktops as the primary way that at least college students, if not many people, did their computing

17:56 And so lithium ion batteries were getting much, much better. And they realized that you can string together a bunch of these and actually have enough power to power a car. He's working on this. Uh he gets really excited about it and he starts looking around for people to fund Essentially this. team at Stanford, uh and kinda like a

18:13 passion project. Uh he he views this very much as a side project to develop a prototype of a car that would be powered by lithium ion batteries in an electric vehicle. And in the fall of 2003, he gets introduced to Elon. Elon thinks this is a super cool idea, and he's like, Great, I'll give you$10,000 to help fund this. Stoffel's like, awesome. Uh, by the way, you know, you're like this, you know, the McLaren F1 guy, you know, you're really into cars. You might want to check out Down here in LA, there's this kit car manufacturer, this essentially uh car enthusiast uh group of guys called AC Propulsion. And they make this electric kit car called the T Zero. T Zero T Zero. Listeners, you you gotta Google this thing and look at it. It looks like a joke.

19:00 It looks like a joke, but it goes zero to sixty in sub five seconds. Yep and it's powered entirely by it's an electric drive train. Now it's not using lithium ion batteries. I believe it's using lead acid batteries at this point in time. But Strawball takes Elon over to the AC propulsion garage, shows him this thing, Elon gets in, drives it, and he's like, Oh man, you know, the acceleration on this thing is like as good as my McLaren F1. This is awesome. I want to find a way to go all in and really turn this T zero into like a a consumer car. And maybe this can replace the Prius as the status symbol in LA. The A C propulsion guys though.

19:41 They're just like car enthusiasts, they don't really have any intention or desire to start a company, turn this into mass production. They're making kit cars, um, you know, for other enthusiasts to get the part. They sell the parts, the other enthusiasts put it together. That's what they do. And in fact, the car, while street legal, isn't a car the way that we think about a car that can like endure conditions. Like if left out in the rain, it will stop working. Nothing was ready for the element. So it's not like you could leave this thing in your driveway and go grab it in the morning. It's it's a it'd be a huge risk. Yep, this is not the Tesla you know and love. Though it does kind of look like uh for people aren't who are not Googling it, sort of like the goofy clown car illustration sketch version of the original Tesla Roadster.

20:25 Yes. Uh the well there is the DNA of A C propulsion is very much within the roadster, as we will see. So Elon is like okay. the AC propulsion guys aren't gonna do this. Strawbull is great, but like he's not really gonna start a company either. He's doing this as like a You know, Save Humanity side project, building batteries. He starts looking around for others who might be Interested in building a Real electric car company.

20:53 And it just so happens that at the same time. There are two other guys back up in Silicon Valley who had also approached AC propulsion and tried to convince them to license their technology to them or become a real company or do something. They uh they had the same goal as Elon. And those two guys are Martin Eberhard and Mark Tarpening. names that you probably haven't heard of. The two of them, who who are Mart and Mark, they had had a successful exit themselves. They were startup guys in the valley. Uh they had co founded a company that was a really early eBook reader. So like a you know Kindle competitor before the Kindle. That ended up getting acquired for, I believe, about just under$200 million. So they had a successful exit. And they were just like Elon looking to do something more meaningful with their lives in their next gig. And the dotted line you can kind of draw here is one of the trends that led them to start an eBo company was that battery technology was getting better. And what can we do with smaller, better, more efficient, rechargeable batteries? Gosh, I maybe eBooks could finally be a thing. And so, you know, I think they sort of still had that bug in their mind when uh when they sold the company. Yep. So unlike Elon though, so they're basically in the same position as Elon

22:06 They're trying to get the AC propulsion guys to do this. They realize they won't. Elon already has SpaceX, though. He's already started a company. Everhard and Tarpeting, they're free agents, though. So they're like, Great. We're gonna do it. We're gonna start this company. We're gonna get the band back together. On july first, two thousand three. They incorporate the company. Eberhard goes down on on a trip to Disneyland in LA, ironically, with his wife, and he's walking around Disneyland and seeing all the, you know, the the history and how Disney's incorporated that into the lore and mythology there. And he comes up with the perfect name for the company.

22:42 Tesla Motors in in honor of Nikolai Tesla, uh the famous inventor uh who did much, much work on electricity. And the goal that Eberhard uh 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. We cannot scream something that says environmentalist or nerd or like it it just can't be about that. The T zero That's what the T zero was. You know, the name T zero represents like the time on the X axis where it intersects the Y axis. Time is zero and going on from here. So it's for like, you know, math nerds and battery nerds. You know, the whole vision of starting Tesla when they're thinking of, you know, what's the right name for it. is really around how do we go mass market with this thing, yet still pay a loose homage to sort of where we where the history of the industry is. Yep. And so they again Day and Elon are are on the same page. They just haven't met yet.

23:36 They think that the best way to get this thing going and get it to market is to actually start with what AC propulsion is doing with the T zero and make it, you know, a consumer version. They do a bunch of Thinking about like where the technology is, both with batteries and drive trains and everything, and they realize that it's not like a big SUV they should be building. They should be building a sports car. That's what's gonna best express the technology of electric vehicles at the time. And not a Prius and and those sorts of things. So they take this business plan and they actually not just the business plan, but an actual T0 itself to Sand Hill Road. And they go start pitch on raising a series A to start building this company, to start building Tesla. And of course, they've raised money before, they've had a successful exit.

24:22 And everybody on Sandhill is like, You guys are nuts. You want to build a car company? Like you're tech dudes. Like, what are you doing? If you're a V C firm and uh pair of entrepreneurs, not just even a single entrepreneur, but the whole team, like the the two co founding team has had a successful exit for you, made a bunch of money, and then they start another company, it's almost like a blank check. It's kinda like Aaron and the Rever episode, like whatever you do, like I want in, I'll I'll lead it. It's so bad that their lead investors from their old company are like Uh I mean We'll give you five hundred thousand dollars, but we're not gonna lead because this is nuts. And it's sort of a fascinating case study too, where like you don't know what wave is coming. And you know, Elon started this wave, or I guess Eberhard and Tarpening may have started this wave, but it Tesla started this wave of

25:12 electric vehicles and then you sort of get into an overlapping wave of autonomous vehicles. And now like everybody's got a thesis on that. Every firm's got chips somewhere along the value chain there. But it's very difficult when you're the first one to sort of brave the storm a little bit. It's as if they were going and pitching like You know Uh the next step for VC back tech companies is definitely hot air balloons. And everybody would look at them like you're completely insane. That's I don't I don't understand. No one else is making bets there. I haven't read anything about this. I haven't heard about this. My consciousness is not, you know, there's nothing leading me to believe that this is the next thing. And so it's super hard to make those bets. Totally. Well, and in their somewhat defense. The VCs weren't totally wrong. Like Tesla becomes a you know Burning money pit for for well, really still to this day. Really still to this day. Uh, which we will discuss later.

26:03 So they get five hundred thousand dollars from their old VCs. pre product using their competitors product. Like they're taking people for test drives. in you know it's like it's gonna be like this, but like a commercial version of this. Yeah. Now to be fair, I don't know if they had already agreed they're certainly in discussions to license the drivetrain from the T zero and they ultimately end up doing that, and that is the drivetrain for the roadster for the first roadster. An interesting nuance too in that license is that they cannot raise money from any of the investors that that were in AC propulsion. So A C propulsion says basically, Yeah, yeah, you can totally do that. You just can't raise money from people that we raise money from. A C propulsion had previously pitched Elon and he had said no, which made Elon eligible to be pitched. Yeah. Uh interesting. I didn't I didn't get that detail. Well

26:56 That perhaps leads to Everhard and tarponing. They're like kinda out of luck. They don't know where to go. Uh, they think they need seven million dollars to get um a prototype of what would become the roadster. built. Every V C in the valley has turned them down, and the A C propulsion guys Tell them about Elon. They're like, Oh, hey, there's this other dude down here in LA. He's got a bunch of money. He's running the space company. Um, but he wants us to do this too. Maybe you guys should chat. They introduce them, Elon meets them, and within a matter of days, typical Elon fashion from First meeting and hearing about these guys, something like four days later, he's like, I'm in, I am personally going to lead your series A. I'm going to write a check for the rest of the seven million you need. I'm gonna invest six point five million dollars myself. Now this is not like you know, typically when you raise money

27:45 As a startup, you know, you do a seed or a series A or whatever, and you have individuals involved, they come in as angels, they're writing like twenty five K checks. It's Incredibly rare that an individual person would lead a series A. Um, let alone one who is the CEO of another company with a full time job. And that other company is actually how they had a chance run in before uh Eberhard and Tarponing with Elon Musk. Did you did you find this at all? I did, I did, yep.

28:14 Yeah, in in two thousand one, tarponing, so big space nerd drags Eberhard to a Mars society conference at Stanford and sees Elon speak about SpaceX. The idea for what would become SpaceX. He hadn't started SpaceX yet. Ah good call. Is it just fascinating, like, hey, we saw this guy speak once and uh he's kind of a car guy. Yeah. Well, and the A C propulsion guys it kinda reminded them it's uh an introduced so You know, again, typical fashion, he's in. He's all in. But he also, you know, he's also given ten thousand dollars to J B Strobel, uh, as we talked about with the battery packs. And so he says to Eberhard and Typerning, he's like, Hey, I know this other guy who nominally lives in LA but basically spends all his time up in the valley anyway, he's really into batteries. You're gonna need some better battery tech. You should go talk to this guy. They're like

29:01 Okay. They bring Strobel in, uh, they hire him on the spot to uh come in and join Tesla as one of the very first employees and he leads battery engineering. Thus between Eberhard Tarponing Strable and Musk as Chairman and uh uh lead investor. Tesla is born. So this is kind of end of 2003, beginning of 2004. They work for a little over a year, and at the end of January 2005, they have the first prototype car built, and it works amazingly. So they've taken the drivetrain from AC Propulsion. They've taken the car body from the lotus Elise. Lotus is uh I believe a

29:42 British car manufacturer, I think. And they made the Elise sports car. And it's the chassis from that, and they custom built their own sort of m body and shape. I'm not sure actually for this prototype if it was maybe it was for the for the mule. Yeah. I think I think you're right for the prototype they hadn't done their own custom body design and they were just stuffing it full of their parts. Exactly. I think it actually was the body of the Lotus Elise. So they have a board meeting as as soon as it's done at the end of January. And again, the board is like

30:11 Elon'cause he's the dude who's the investment. There's no firm the V C firm here. Elon drives it at the board meeting, likes it, and he's like, Great. I am now going to lead your series B. And they're like, uh, okay. So Elon invests nine million dollars more into the company leading the series B. They raise thirteen more million in total, the few other investors come in. So on top of the previous seven million, they've now raised twenty million dollars and they're gonna use that money to get the roadster to production. Ha we will see um how that should only cost twenty million dollars. Sure, you know, no no no big deal. Uh how hard is it to build a production car And the plan was something along the lines of, Oh yeah, the Lotus Elise, but you know, we'll replace enough parts so it doesn't look like an elise, like it'll kinda look like our own thing. We've basically got all the tech down and gosh, you know, we feel like

31:09 If we have access to all these different suppliers that are commoditized at this point, you know, Lotus already has relationships. They can just get all the parts sent to them. They can do all the assembly and like it should be pretty much taken care of. Right. Elon now. owns a significant amount of the company and um if there's one thing that Elon is It is opinionated. And um

31:33 He also happens to often be right. So that plan would maybe you could get a car built on twenty million dollars with the plan, Ben, that you just described, but Elon's like No, that's not what we're gonna do. Lotus elise. is unacceptable to Elon. His vision is he wants his then wife, Justine, celebrity in her own right, which we won't get into here, to feel comfortable driving it. The at least like you basically had to jump into the car. Like this was not a car you were gonna like

32:01 Take to work or you know, it's not mass market. And it's a hundred thousand dollar car. So they're they're marketing it to people who would be comparing it against Like, oh my gosh, this is such a nice luxury vehicle to get into. Mm-hmm. You know, I mean there are people who will buy a hundred thousand dollar sports cars that are completely impractical, but that is a very, very, very small market. And Elon's like, No, no, this is gonna be like a sports car, but it's gonna be a sports car that's gonna compete with, you know, a Mercedes sports car or whatever. And so he keeps pushing them to to do that. That of course leads to tons of delays. Side fun fact, during the summer of two thousand five as they're working on it. Uh they take one of the prototypes to Burning Man. They all like Elon goes to Burning Man every year. This will come back up again later. Uh and they're like, Well let's we're going to Burning Man. Let's take the Tesla prototype. Um

32:49 So they keep working on it. It's now summer of two thousand six. the company has a hundred employees at this point working on the first production roadster candidate. They Or out of money. They Raise another forty million dollars at this point.

33:03 Elon invests twelve million personally, um, and they raise the rest from a group of VCs who are now finally like, Okay, there's something interesting here, and like clean tech is all the rage, and you know, for some reason VCs have changed their mind. Surprise. July of two thousand six, uh they think they're pretty close to production at this point. They hold a press conference where they announced The roadster to the world. You know, this is the beginning of like the Elon Musk s showmanship. They announce this car, they get a whole bunch of celebrities to come, they hold it in Santa Monica. Arn Schwarzenegger, who is at that point in time the governor of California, He comes. Uh I think Larry and uh Sergey from Google are there. There are a whole bunch of people, celebrities. Um and they have it they have it like at an airport or something so that you can if you're in the room where it's being announced. It the the way that it happened is basically they unveil the car, the someone gets in the car, drives it, does a lap around like a runway or some extended piece of road and then drives it back into the building. Yeah. But they announced that it's gonna go zero to sixty in four seconds or less, uh, which is pretty impressive. Elon also announces at the event that they're gonna release a sedan for

34:16 Fifty thousand dollars. Within the next three years. So by two thousand nine. So begins Elon's early promises. So begin the Tesla promises, at least. Yes. Um They start taking pre orders for the roadster after the event. And people go nuts. Uh this is the talk of the town uh you know in LA, in Silicon Valley, in San Francisco, in the automotive press. People start showing up to the Tesla offices. I can't I don't know if they're in Menlo Park or Palo Alto at this point, if they'd move to Palo Alto. People just like randomly like walk in are like,

34:52 I wanna put my name in. The at the event they were trying to sell the initial one hundred. There was like a special club of people that were gonna get the first a hundred. There was gonna be a plaque, there was gonna be signatures. It's like the uh Gavin Belson signature edition box. I think they they sold like a hundred and sixteen or something. So they hit their goal there. Well, and it's even better than that. They're they weren't actually legally allowed to sell the cars because they hadn't made the cars yet. And there's a bunch of regulations about this, and like, you know, selling cars and whatnot, and and we won't really get into it here, but Tesla, of course, does not use the dealership model, which is very disruptive to the existing car industry. Anyway. What they decide to do is

35:29 You join a club for uh initially it was eighty it was eighty five thousand dollars, uh and then they raise the price to a hundred thousand dollars. You join a club for eighty five or hundred thousand dollars and as a benefit of joining the club, you get a free car. And nothing else. And nothing else. Yeah. Well, you're also you get the plaque and all the things you're saying. You get like a you know, a membership card and whatnot. Uh he should say too, like we've been saying Elon, Elon, Elon he has appearances on stage, but it's really Eberhard's show at this point. Eberhard's talking to the press, Eberhard's doing that that big announcement. He's uh subsequently flying around to you know, do interviews with car magazines and go to car shows and he's really the face of the company and he's being sort of heralded as a as a genius. In two thousand six, he was featured as the face of research in motions campaign for the Blackberry Pearl.

36:22 um as as the guy who created the first electric sports car. And really like like when you think about Apples think different when they were like heralding geniuses, like Eberhard is is the guy that appears in that ad as like, this is the face of innovation. And so it's kind of amazing. I mean, three years into Tesla, it's still not the Musk show and He's and Eberhard's really starting to get recognized for this. That's so funny, and I think says everything about Rim that like their version of the Apple campaign they choose every hard instead of I mean who could have known at that point, but Anyway This is yes, Everhard is very much the CEO and you know

37:03 co founder and CO of the company. Elon is the You know, series A and B and C investor. Uh and I think at this point probably largest shareholder. After this little road show, he's starting to make a little bit of a ruckus about this. He m he mentions in an email that um he's feeling a little bit neglected. He'd like to talk with every major publication within reason, and that's a that's a direct quote. to sort of put his stamp on it. He says that the the way that my role has been portrayed to date where I am merely an early investor is outrageous. Um, that would be like Martin Eberhard being called an early employee. Apart from me leading the series A and B and co-leading the series C, my influence on the car itself runs from the headlights to the styling to the door.

37:42 to the door sill to the trunk, and my strong interest in electric transport predates Tesla by a decade. Martin should certainly be the front and center guy, but the portrayal of my role to date has been incredibly insulting. And he's talking to their PR guy. He says, I'm not blaming you or others at Tesla. The media is difficult to control. However, we need to make a serious effort to correct this perception. Well, and this is why you know it I Wanted to spend the time talking about the background up front. Um By the way, a lot of this history comes from Ashley Vance's Great book biography of Elon called Elon Musk. Elon is for all of his Tony Stark Iron Man, you know, much like Tony Stark, like he's very sensitive and emotional, like inside. Like he ha went through

38:25 just terrible, you know, betrayals and you know heartache and burns with his with his first few companies and like you can s very much see that coming coming out here and demanding this role, demanding this recognition. So All this is happening. There's personality clash starting to happen between Elon and Everhard. And in the midst of this, as we get into early two thousand seven,

38:47 it becomes clear that there are major, major problems with roadster production. It's not gonna ship any time soon and there it Things are not good. So One of the new investors that came in in the series C was a firm called Valor Equity, and they Had

39:04 invested in other things in the automotive industry. They were more, you know, not a VC. I think they're based in Chicago. I could be wrong on that. Um, but they're, you know, not a Silicon Valley VC. They have experience in this industry. They send in a fixer to kind of assess the situation of what's going on with production with the roadster. He comes back and he reports to the board. At this point they're intending to sell the car for eighty five thousand dollars. And of course they would have to, you know, produce it for less than that to make a profit. Um that's how business works. That's not gonna happen. He assesses the cost to make uh the roadster a model at about Two hundred thousand dollars. So literally they're gonna sell dollar bills for Fifty cents. Yeah, and listeners, the places where this are going off the rails, I was attempting to try to chalk it up to something. It's everything. They've basically taken the vision of we are going to modify a lotus elise just enough so you don't notice that it's a lotus. And you know, they not only did they They held a contest for a custom design. They picked their own custom design. They then basically gave those specs over to Lotus to start manufacturing, but a lot of it was

40:10 not only extremely difficult to do, but constantly changing. So Elon custom designed some headlights, which are awesome and give it a very iconic feel, and you know the Tesla Roadster when you see it, but you know, created months and months and months of new parts that had to be created and suppliers that had to be sourced. they dropped the bottom of the door frame so you could get your feet in by three inches, and so they had to sort of re-engineer the whole bottom of the car to do that. Rather than having a few sub assemblies, it's like four or five that they were planning on doing, and then having the Lotus Company do the the rest of it, Tesla has now decided that so much needs to be custom. that they themselves, having never produced a car before, are responsible for over a hundred of the sub assemblies of the car themselves. So rather than the initial vision, and it's kind of funny, you can look at the original business plan that Eberhard was pitching around that says, Oh yeah, you the thing that's changed in the auto industry is you can just grab from the parts bin of, you know, any of these suppliers now and throw them together. He wants to be a fabulous car manufacturer in the same way that like a lot of these chip companies are fabulous chip companies that are actually outsourced and made by someone else. Tesla in the initial vision wanted to be like a fabulous car company, and now they are a full blown auto manufacturer with zero experience ever making cars before.

41:24 Yeah. Yep. That's basically what happened. Now, to be fair, again, like if Eberhard had had his way, I think they actually would have tried to be a fabulous car manufacturer and Just use the Elise body and and the A C propulsion um drive chain and whatnot and slapped it together and called it a day. Elon was the one who was like, No, this is unacceptable. We need to make a real car here. All this culminates in August two thousand seven. The board

41:52 has a vote, you know, board is controlled by Elon, and they oust Eberhardt as CEO. So And and how they got there is nuts because Eberhard brought up in the previous board meeting or maybe two board meetings before, like hey You know, it's 150 people now. I've never managed something of this scale. We had to switch on to SAP. That migration's going terribly. I don't understand how to do it. It's not in my wheelhouse. Maybe we should have a CEO. I'm I'm amenable to that. And so he expects like there's gonna be some discussion after that. The board sort of looked around and out of their heads and and they were like, Yeah, it does feel like maybe that this is going off the rails and we should bring in a CEO. So they call a private board meeting without him and take a vote and then Call him and say, Hey, you're out.

42:31 And he's like wait, wait, wait, wait, w I I just was sort of floating that, like I thought And then he looks in the bylaws and realizes that they can't actually do that. So then they have another board meeting with him there just to vote and inform him. Totally the mature way to handle all this. Yeah. Yeah. Oh boy. Fun times. So he's out he becomes like an advisor to the company or something, but by December of two thousand seven he leaves altogether and is

42:58 Very bitter. He ends up suing Elon and the case gets settled. Um and so they still I I believe the two men have not talked uh since then. Uh yet they settled this case so there's non disparagement agreements on both sides. And Everybody's At least financially set, I think, at this point. So

43:16 The board though. Needs a CEO. Elon still isn't contemplating yet that he would become the CEO. He's the CEO of SpaceX. So they bring in Michael Marks as interim CEO. Uh he was never intended to be full time CEO, but as interim CEO. Michael Marks is a legend. Uh he is the founder and CEO of Flextronics. At this point in time, all the way still through today, if you are doing something with hardware in The valley like you want Michael Marks involved. found a a private equity firm and growth investor that has done very well. But

43:49 It was a huge coup to get Michael to come in and try and start to turn the ship around. He shows up And he institutes the Marks list that it gets uh known as, which is a ten point plan for getting all of the problems with production uh back on track, you know, as quickly as possible. He stays, he he basically draws out the plan and is like, I'm not gonna Do this. At the end of two thousand seven, Elon and the board bring in a guy named Zev uh Drori, I may be butchering that name is Israeli name Z Zev uh Drori, uh to be the CEO.

44:26 He was not their first choice. You know, he had some experience. He had started a memory chip company that he had sold to AMD and he had been the CEO of a car alarm company, so knew sort of something about cars and I guess. Bring him in to execute the Mark's plan. Go too well. Still lots of delays. Musk starts getting more and more personally involved. Um, he starts showing up at the company, he demands that everyone at the company work twenty four seven, and eventually later in two thousand eight, in October of two thousand eight, he makes it official and he fires Drory and just becomes the CEO himself. Um pretty pretty quick couple years there. Yeah. Well, it was a a couple of years at at Tesla, but um

45:08 uh Drury lasts less than a year before Elon Musk. Right, but with with Marks and you know that that that rapid transition there. Yep. So Elon is now CO of Tesla. He's you know focused on getting the the Roadster out the door in production. There's just one problem though. This is the fall of two thousand eight and Lehman Brothers has just gone under And the world is literally falling apart. particularly the financing world, which is important for, you know, people who want to buy hundred thousand dollar cars. The automotive world where, you know, GM has gone bankrupt, uh or is going bankrupt, the car industry is literally being bailed out by the US government. And all throughout all of this, uh Tesla has all the problems of, you know Any startup, let alone one as complicated as this. They are burning four million dollars a month. At this point and things are not looking good.

45:57 Yeah, Musk himself is fifty five million deep into the company personally. Yeah. And uh between SpaceX and Tesla. Musk is literally out of money at this point. But So is Tesla. They need money by Christmas of two thousand eight, or like they won't be able to make payroll and the company will go bankrupt. So he's desperate for money. He starts going around to all of his friends in the valley and raising money from them in like angel sized chunks. So he gets like a whole bunch of people, including Sergey Bryn, who invests five hundred thousand dollars, to like scrape together

46:30 Just some money to keep the company going. Uh Musk takes out a loan. at SpaceX, like a space loan that he then takes the proceeds from and pours unbelievable and pours that into Uh into Tesla. Bank and it was

46:46 securitized against his equity in SpaceX or something like that. But he ended up SpaceX at this point had gotten lots of contract and loans from the US government and NASA. It ended up having to be approved by by NA to do this, crazily enough. Yeah, and a quick derailment. The way that they basically started SpaceX was that Elon had enough money to buy I think it was Two Russian rockets. Uh, and this was like him personally funding the company. And basically, if they didn't have uh something successful with those two rockets, then Elon would be both bankrupt and the company would shut down. And like I think the first rocket blew up the second rocket actually worked, so they had enough

47:27 proof point to go and raise more money. So Elon is sort of out of money from personally funding buying those Russian rockets for SpaceX and of course leading all these investments in in Tesla. And so is now um Literally out of it. I think it was actually it was even crazier than that at SpaceX. We will definitely tell that story someday. I think they were on like the fourth launch. Like they had money for two, they didn't work, they blew up, then the third one blew up, and then like so anyway, it was bad. Musk somehow manages to scrape some money together. He does two other things to get the money. He sells some shares of Solar City, which he owns on the secondary markets. Uh Solar City had just been started. That will come back into the narrative in a little bit. His cousins had at some point built a a data center comp also moved from South Africa to Silicon Valley, built a data center company called Ever Dream that was sold uh I think at the end of 2007 to Dell. Um and so Musk was an investor in that. He used all the proceeds from that plowset into Tesla. We're approaching Christmas.

48:24 And the other way that Elon extends the runway is as soon as he comes over, he lays off twenty five percent of Tesla's employees. Yes. Yes, as soon as he becomes official CEO. We're approaching Christmas. Elon has now scraped together between like Sergey Brin and the loan from SpaceX, his money from proceeds from the Ever Dream sale and all this stuff, uh about twenty million dollars. He goes to all the rest of the investors around the table and he asks The investors to match it for a forty million dollar total round. Vantage Point Capital Partners, which was one of the investors, they block the deal. They had the right to block the deal. So they block the deal and they hold the company hostage. And that's normal, like as you know, if a VC uh leads around I don't know how they would have this as not being a lead, but you have the right to block future um do you have approval over future equity raises. So Musk is like all right Fine, you're gonna block this equity raise. I'm gonna do this deal as debt. He puts the money in his debt and he gets he convinces the other investors to do this as a debt deal. Um Is it convertible or is it a pure debt deal? I'm not sure exactly uh whether it was convertible or not. It ends up closing on Christmas Eve. Um and uh

49:33 And the company the company is given a lifeline and and thrives. Goes on to th thrive. Debatably, as we'll see, but survives, at least. Goes on to produce amazing cars. Goes on to produce amazing cars. So two thousand eight was a crazy pivotal year for Elon and Tesla. All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture.

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51:25 So you can get$1,000 off Vanta at vanta.com slash acquired. That's V-A-N-T-A.com slash acquired for a thousand dollars off. And just tell them. That Ben and David sent you. The other thing that we have to talk about in two thousand eight, I remember this vividly. Uh so I was working on Wall Street as an investment banking analyst in two thousand eight. It was my first year out of undergrad and watching all this like destruction around me, you know, of banks failing, you know, first Bear Stearns and then Lehman Brothers, it was just like

51:55 Unreal. But In the middle of all this, when things are so bad, a movie comes out. And This movie, like I actually could, you know, I remember going with all my colleagues uh at UBS at at the bank I was working at. Uh, you know, we were also depressed and we went out one night to go see this movie because it was getting so good reviews and it kinda sparked a glimmer of hope. And it was this movie called Iron Man. And uh which was obviously the first Marvel movie of uh that we talked about in the Marvel episode um that would lead to Marvel and the acquisition by Disney and all that. That movie made me sure I wanted to be an engineer. I saw it freshman year when I was like in my first engineering classes and I was like

52:34 I'm in. Yeah. I mean this movie I mean it's it's hard to remember now'cause it was ten years ago, but like it had a huge amount of cultural impact in the US. I mean, things were Not good when it came out. And so why are we talking about this here?

52:49 Robert Downey Jr., who, of course, you know, who portrays Iron Man. As he's preparing for the role and seeking inspiration, he learns about Elon Musk and his story, and he actually goes and seeks out Elon and And spends a bunch of time with him as he's preparing for the role uh and uses Elon in his life as like uh part of the inspiration that leads to creating the Tony Stark character. So much so that Downey actually asks uh and and makes a request that in Tony Stark's workshop in the movie That a Tesla Roadster be in it. And not just that it be in it, but that it be the object that is closest to his workbench because it's closest to like his heart and like an example of like what's going on in the real world in America that's you know paralleling this movie. Whoa, I didn't realize they had talked before that. That's wild. Isn't that crazy? Yeah.

53:37 Ah, I guess I even I wrote that stupid intro, I didn't even uh it's real. I mean of course like, you know. Mm. Tony Stark is not, you know, Elon Musk or vice versa. But like there is a you know Actual thread of Elon in uh Tony Stark. So you know, just like

53:54 Iron Man and Tody Stark himself. Um Elon and Tesla do come back to life, uh from the brink of death with, you know, a uh uh nuclear reactor heart installed in them. And over the next few years, uh you know, in in two thousand I think it was I think it was beginning of two thousand nine, uh, when they actually started shipping the Roadster. They sell about twenty five hundred of them. At this point, a hundred thousand dollars a pop. That's A quarter of a billion in sales, two hundred and fifty million in sales. And that is enough to keep the company going. Well that that and a four hundred and sixty five million dollar interest bearing loan from your public energy. We will we will get to that in a minute. Okay. That uh has to do with the uh codename White Star project uh that we will get into in just a sec. But just on the roadstar like the company

54:41 You know, survives. If the company were to stop at the roadster and not go forward, like It is a you know self sustaining business at this point. Which is a major, major accomplishment. Uh they have produced a car. It is you know, gets great reviews. They they only sell twenty five hundred of them, but you know, that's meaningful. Here comes the thread of Elon being the guy that doesn't quit. Like

55:04 Reinvest it all. All the time. I'm not resting on my Laurels, this is not enough. No. So Elon we've talked about on this show and uh Ben and I've talked about this is just like I love this this mantra and nobody Exemplifies it better than Elon, but like Elon plays offense, not defense. Many people would play defense in this situation of like, okay, we finally stabilized the company, let's like take a breath. And like not Elon. Um So as things stabilize with the roadster.

55:34 Elon is obsessed on making good on his promise that he made at the Redster introduction of Introducing the sedan for fifty thousand dollars and the project codename for it is White Star. And so the first thing Elon does is as all this is you know, it's kinda end of two thousand eight, all this is happening, he goes out and he recruits an superstar car designer from the automotive world. He hires

56:01 the chief designer from Aston Martin. to come in and be the designer of the White Star, what would become the model S. A a very, very celebrated man in the Automotive industry. Henrik.

56:14 Fisker. Might ring a few bells for some people. Fisker like the Fisker automotive company. That is a competitor to Tesla. Uh was was a competitor to Tesla. So Fisker comes in from Master Martin, he comes over to the US, he starts working on the design, and it's like He and Elon do not get along. The design is horrible. Within a few months he bolts, he leaves the company and starts his own competitor, Fisker Automotive.

56:41 Musk later learns that apparently well who knows with Musk. Uh apparently Fisker had been think it was his intention to do this all along. He just wanted to come to Tesla to learn what they were doing, steal some secrets, and then go start his own company. Musk sues him later, ends up losing, Fisker wins the suit. It doesn't really matter though because Fisker, uh the company and Hendrik Fisker, uh the founder, they decide to make the car a hybrid instead of a fully electric vehicle. Tesla's philosophy was that hybrid is too many compromises, isn't gonna work, so they just kind of ignore and Fiskar ends up going bankrupt, flames out, massively burns tons of capital. Again, a story for another day. Tesla though, back to the drawing board on Project White Star. Um, so they decide to kinda hack it together internally, just like they did with the Redster.

57:27 Tesla. ends up survey the luxury sedan market and deciding that their favorite and best luxury sedan out there is the Mercedes CLS. And they're gonna start using that as their inspiration, both design and otherwise for the model S. Listeners, if you know um what the Mercedes CLS looks like, um uh if you don't you can google it. It actually bears quite a lot of resemblance to what the final model S looks like. So they go buy one from a dealership uh in Palo Alto. Uh they

57:57 Gut it and they essentially just like they did with the T Zero, they turn a Mercedes CLS into what becomes the first model S. Um at least the first prototype of the model S. At the same time, you know, Henrik Fisker has now left. Elon is still trying to recruit a superstar to come in and and really lead the design for this thing. The first person he goes to try and replace Henrik is uh his friend fellow Silicon Valley Luminary. Tony Fidel. Who of course we've talked about on the next episode. Bringing it all back. Bringing it all back. And this is when, you know, there's all the turmoil in the CEO role. Uh, you know, Elon has just come in as as CEO. Uh unclear and still, you know, debatable by um different people have said different things whether they were whether Elon was recruiting Tony to be the CEO of Tesla. It certainly was something that probably was on the table at some point. However, uh Steve Jobs counters an offer and does

58:58 his Steve Jobs magic to keep Fidel at Apple uh until he would leave and start Nest in twenty ten. So they lose they lose Tony. Um, but they do end up hiring another guy from the automotive industry, Franz von Holzhausen. I think he was at Mazda at this point, but he had redesigned the Volkswagen Beetle in the, you know, the iconic reboot of the Beetle in the nineties, you know, kinda two thousands. He was super entrepreneurial. He'd bounced around in a bunch of traditional auto manufacturers because he was fed up with all their bureaucracy. Tesla ends up recruiting him to come in and be the lead designer for what would become the the Model S. He moves to LA. Uh Franz is is now based in LA. Uh they decide that they're gonna set up the design office for the sedan in LA. And so the natural place to do that is where there's already a lot of office space, you know, that Elon controls, which is The SpaceX office. So so Franz and the design what is now the design team for for Tesla, they set up office inside these the SpaceX offices and hangars uh in in Hawthorne, California. Um and I believe that they are still there today, which is quite funny. And then they end up doing lots of press events at

1:00:09 Uh Tesla press events at SpaceX. Uh and of course there's now the crossover with the new roadster being blasted off into space. Why not? Why not? Synergies. Synergies and a lack of corporate governance. Indeed. Musk and and Franz, they they kinda are Um, they become really kindred spirits during this time and and and still to this day. Musk uh decides the car body has to be aluminum to save weight, and this is like no no car has ever mass production car has really ever been uh made in aluminum before and Fron's like, sure, we got this. Um they together decide on the design for the door handles, uh the iconic door handle design where there are no door handles. Apparently all the engineers at Tesla were like livid and ripping their hair out of this. It's like, Why would we do this? This is gonna cost so much time and money and like it's a door handle. But uh Musk and Franz uh have their way and uh it's an iconic part of the model three.

1:01:04 That's very Jobsyan. Like when Jobs insists that it has to fit in this specific form factor, and then everyone's like, What are you crazy? And then it takes like, you know, some engineer figuring out you can fold a motherboard over on itself in order to make the iPod shuffle. That was uh That was apparently what happened with the door handles. Once Franz comes on board, work actually moves super quickly on designing the model S uh or uh codename White Star at this point. In March two thousand nine, so like real fast, um they hold a press event at SpaceX and they unveil the model S. When they unveiled it, um it was completely glued together, like basically non functional. If you like touched it, it would fall apart. the the car that they unveiled was still a Mercedes CLS chassis. The first Model S that was shown to the public was was still a Mercedes under the hood. People get really excited about it and momentum starts to build. And and actually I don't know if it was on the back of this or a separate relationship and introduction, but Daimler, the parent of Mercedes Benz, uh the German company, they get pretty excited about what Tesla's up to.

1:02:12 And they end up contracting with Tesla to build two prototypes of A class Mercedes that are powered by Tesla electric drivetrains and batteries. And they end up placing an order for a thousand uh smart cars that Tesla would manufacture the drivetrains and batteries for to electrify them. And as part of that order, so obviously there's revenue associated with that. Um, they also invest fifty million dollars into Tesla at a five hundred million dollar valuation for ten percent of the company. This is summer two thousand nine. And that gives the company a foothold of capital to start ramping up mass production of the model S. Toyota does basically a similar deal, also invests into uh into the company. And then the big coup in January twenty ten.

1:02:58 Tesla lands a deal with the US Department of Energy for this has been, of course, what you were referring to earlier. A four hundred and sixty five million dollar loan agreement w low interest loan from the US Department of Energy. And this is gonna be all the capital between that and the I believe it was in total hundred million dollars from Daimler and Toyota, all the capital that Tesla thinks they'll need to get model S production off the ground. In exchange, the terms of the US DOE loan are that Tesla will produce its own electric vehicle and produce it in the US. Which of course they do. Um, but that is one of the major reasons why the Tesla plant and manu manufacturing facility is in Fremont, California. The other reason is that there was an existing very large car manufacturing plant already there in Fremont. Former Toyota and GM joint venture plant that was completely abandoned after the recession when um

1:03:54 you know, demand for for new cars had fallen sharply in the US. Toyota and GM abandoned this plant. It was sitting there empty. Um and it was a massive, massive plant. Tesla was able to come in and buy it for forty two million dollars. This thing had once it costs at least a billion dollars to build. Uh and and when Toyota was operating it, It was peaking at being able to produce five hundred thousand cars per year. Yeah. Crazy, which of course Tesla is still nowhere near that production figure. Right.

1:04:24 Yeah, and where where were they around this time? They had shipped In two thousand nine. Uh they had shipped in total across all the years that they were doing the roadster, twenty five hundred roadsters and like, you know. Maybe yeah. A couple model S's has been delivered at this point. So a lot of headroom in that plan, if we make it make it efficient. Yeah, indeed. On the back of all this news, they filed a go public. Uh which, you know, it's funny. This is it's like a detail of the history here for acquired. Usually our main event is the IPO. It's actually pretty straightforward. They just

1:04:56 Need more money. Yeah, and this is a classic we will see this theme over and over and over again with Tesla. on the back of something very exciting and and and very speculative doing an equity offering. Yes. Get everyone as excited as possible. And every startup, you know, every startup does this and every startup should do this. It's the moment where you have the best story to tell, you go, you get the highest valuation, you can raise the most money with the least delution. Tesla did it private and Tesla does it public. Yep. Summer of two thousand ten. They filed to go public. June twenty ninth.

1:05:28 the IPO happens, they raise two hundred and twenty six million dollars. The stock jumps forty one percent on opening day, and it is the first IPO of an American car company since Ford in nineteen fifty six, which is crazy. Um Oh wow, Ford was private for a long time. Ford was private for a long time, yes. Uh and then of course GM would re go public later after it had been delisted through the bankruptcy process and then owned by the US government and then was was ultimately relisted uh a little while later. Crazy. So on the back of all this, they Are hard at work, you know, getting this new plant in Fremont, California online, getting the Model S out the door, you know, at production scale.

1:06:11 But they're they're they're having some problems. So so the the model S start trickling off the line. The reviews and the response is amazing. I mean i it's really not an exaggeration, I think, to say that the model S was like the iPhone of cars. Like it completely change the game of what it meant to be a car. And really, you know, people talk about it. Cars were cars before the Model S. The Model S is a computer on wheels. It's upgradable via over the air updates. Like it car companies just weren't thinking about all this stuff. I mean it had Crazy acceleration and handling, of course. You can get it configured to seat seven. It's got a touch screen in the dash instead of all the knobs and stuff. I mean Even today, like I ended up um through a whole bunch of crazy circumstances uh two winters ago, had to rent a car to drive in a snowstorm, and the only thing they had were like the luxury Mercedes SUVs at the car rental place. So I rented like a new, you know, Mercedes luxury SUV. I couldn't figure out how to operate the stupid thing. Like the knobs and the like it's just

1:07:14 crazy where car companies have gotten to at this point. Unusable. Tesla, by contrast, was like Let's put an iPad essentially in the dash. And in truth Tesla fashion, let's not put an iPad, let's custom build our own iPads of course and put that in the dash. There are no dealerships, so there's no haggling, like the buying a car in the US is such a highly stressful, like awful process haggling when Tessa's like Nope, you can buy it on the internet, you know. Yeah, it's worth taking a quick dovetail into this just'cause there's one thing that shows how

1:07:46 Deeply Tesla has created a community of people that love, love, love their vehicles and buy into the lifestyle. So in most states Tesla has had to go through crazy regulation where they cannot both be the uh manufacturer and the dealership because Basically lobbyists and entrenched uh industry interests. So what they do is they have these showrooms and the showrooms have Tesla employees and they show you you can't actually buy it here, but look how cool the car is and I'm happy to walk you through it and stuff. And sometimes in the stores, if the states allow it, you can actually buy it online in the store using their website or they recommend to you you should go home um and buy it at home with this exact configuration. There are states and I believe Texas is one of them where it is illegal to even do that.

1:08:28 And so you cannot have employees in the showroom, even though it's a showroom and not a dealership. And so There are volunteer Tesla owners who are so passionate about owning those cars that they take shifts. Just hanging out and volunteering in the showroom with no employees. Nuts. Tesla has created an unbelievable product with

1:08:50 Apple level fanboyism. Uh absolutely. It is It it is no exaggeration to say it is the iPhone of cars. It is the unanimous two thousand twelve Motor Trend car of the year. I don't know that there's ever been a unanimous uh car before. Like I mean it it uh gets all of the all of the press accolades, all the reviews, you know, it just is Truly game changing for The car industry.

1:09:13 There's just one problem though, which is that they can't make them. So like, you know, when Apple comes out with a revolutionary product, like Apple has Tim Cook and the supply chain and Foxconn and everything, and like, you know, they can deliver it into people's hands. That's never been Tesla's strong suit. So While all this is happening throughout twenty twelve, production is like anemic. They're making like dozens per week. You know, and and the and the backlog to Which like it's funny, the phrase dozens sounds high until you think about it in this context. Yeah, dozens. It's like saying, like, we should go out and we can make dozens of dollars. That's literally what was going on. I mean, and again, remember this this plant that they bought in Fremont was making five hundred thousand Toyotas in GM vehicles a year and Tesla is, you know, pumping out on the order of like hundreds. Not hundreds of thousands, hundreds of model S at this point. And we should say for a few reasons. One, it requires enormous capital expenditures in order to buy all of the right equipment and well just scope it to equipment to build these cars. And so like if they're ever gonna get up to five hundred thousand in that plant, then they have to spend probably at least high single digit billion.

1:10:22 billions, maybe tens of billions of dollars in order to put all the stuff in place. And especially batteries, which is not a problem that, you know, traditional cars have No. Yeah. But Tesla has the giga factory for that. So they they well. will have the giga but at this point the giga factory isn't even a gleam in Elon's eye. So they're trying to source batteries that like also Apple and, you know, Microsoft and HP are trying to source. Like um now Tesla has all their own IP and stuff, but they're still

1:10:51 Their suppliers are still the same suppliers in Asia making these batteries as as other, you know. computers. The biggest thing here between Tesla and a regular car company is Tesla is born of tech and these car companies have been around for a hundred years and are born of manufacturing. And Toyota, you know, invented Kaizen and Lean and Six Sigma, like anything that we borrow in tech and believe is like this new sort of like lean startup or uh the way that we think about our our change in uh in the way that we do engineering and and technology organizations is largely borrowed from the things that Toyota pioneered in order to have organizational efficiency and nimbleness when you need it and the ability to uh know how many flaws could come up and allow tolerances for those things. It's I think we often paint car companies as big and slow, but they've created processes that work extremely, extremely well for this that are gonna take years to internalize, both in the culture and in the the capital to be able to institute them. Yep. It's also what makes Tesla so and the Model S so revolutionary, right? Like you can update the car over the air, just like you get a new version of iOS. Like

1:11:53 Um, you know, like they add autopilot to cars. Like that's crazy. Um But you know they also Have to get good at producing the things and um they're still in that journey. All this is happening, like on the one hand it's a tale of two Teslas, like, you know Motor Trend Car of the Year. They've revolutionized the industry.

1:12:12 Things couldn't be better, but they also can't make them. And so like they have these huge production problems and it creates you know huge liquidity and cash problems uh at the cash cycle. Problems at the company. ends up like a a huge uh once again a huge short position builds up in the stock. People are like Tesla's gonna go bankrupt. Like like they're running out of money. They can't make these things, they can't sell them, they can't get the revenue, they can't keep the factory going. By early twenty thirteen, things are looking

1:12:38 Really really bad. People start canceling their five thousand dollar deposits on the Model S because like the delays are just you know people are on the wait list for years at this point. Musk announces that he is going to backstop the resale value of model S as a way to like sure up faith in the company. Um so like if you want to sell your model S, you know, you're not happy with it, Musk will buy it back from you. Which that of course does interesting things to a company's balance sheet having made those guarantees on every single unit sold. Yeah. Totally. As we've talked about on the show well ha alluded to but haven't been clear about the line between Tesla financials and SpaceX financials and Elon Musk's personal financials.

1:13:18 And solar city financials. And solar city financials is blurry at best. At best. The other thing that he does, um, and we'll we'll come back to this later, is he actually like things are so bad and the company is so close to going bankrupt, Musk takes hundreds of Tesla employees that are doing other things in the company like HR, you know, engineering, customer service, whatnot, and he recasts them. He basically reassigns their jobs to be call center employees to just start cold calling people. Anyone who has ever the a lead Of anyone who has ever expressed interest in Tesla or the Model S that is in their database. he sets like the employees of the company to just start calling them and trying to convince them to Pre order a model S. Um that's how bad things were. Now this is this is I think the craziest part of the whole episode. I did not know this until I read the Elon Musk book. I'm curious, Ben, if you came across this. I think we're thinking of the same thing, but maybe not. If it has been reported, it it probably has. There's just so much news about Tesla, I glossed it over.

1:14:17 There's one call that he makes that is not to a potential customer. Yes, there is one call that he makes. Uh, I think we're on the same page here. He's so desperate that he c makes a call. Uh I think he goes to C One of his very best friends in the world. A person that he um You know, routinely so also Elon doesn't own a home in Silicon Valley. He only has his home in in Bel Air in LA. Um so when he comes up and works at Tesla, he just crash on friends' couches. And he often crashes on the couch, uh probably more than a couch, of Larry Page, the CEO of uh then Google Now Alphabet. Fun fact, this was right down the street from the

1:14:55 garage that I lived in when I was a student at at at Stanford at at GSP. My wife Jenny and I rented a one bedroom apartment in a converted garage in Palo Alto. We were like half a block away from Larry Page's house. And Elon, while all this was happening, Elon goes to Larry and he's like, I don't think we're gonna make it. I need Google to acquire Tesla to keep this dream going. Larry Is in. And Google very, very nearly acquired Tesla during this period. For six billion dollars. Six billion dollars. They hammered out a deal where Google would acquire Tesla, uh again, this is the beginning of 2013, uh for six billion dollars and commit two things. One that

1:15:35 Elon would retain personal control of the company for the shorter of eight years or until they hit mass production of a mass market electric vehicle, what would become the model three. So Google would have no control. It would only be Elon. And Google would be willing to give Tesla up to five billion dollars in capital to accomplish these goals.

1:16:01 Which interestingly enough would not have been enough. Would not have been enough. Probably wouldn't have been anywhere near enough. Oh man. Uh you know, those VCs way back in the day, they they were not wrong that this was going to become a burning money pit. Then Basically a miracle happens. So the deal is like done. I believe Elon had presented to the Google board of directors. Google was scheduled to come in and and return it and present to the Tesla board of directors. I. e. Elon. Uh there are other people on the board, but he controls the whole thing. It's actually worth a quick, quick detour to say what does the board of directors of Tesla look like at this point.

1:16:42 because it's a little shocking if you haven't dug into this before. So it's Elon Musk, and I'm actually this is a twenty sixteen board, but I think it was probably the same in twenty thirteen. Brad Buss, who is the CFO of Solar City. Maybe this was after the Sor City acquisition. Uh Robin Den Olm. Who Is a person with no ties to Elon. Which is

1:17:02 I think the only person on the board Ira Enfries, I'm probably butchering that name, uh, managing partner at DBL, which is an investor in Tesla, SpaceX, and Solar City. Antonio Gracias, who's the board member at SpaceX and Solar City. Steve Jervison, who's the managing director of DFJ, a significant SpaceX shareholder, or was a significant SpaceX shareholder, and of course Kim Ball Musk, Elon's younger brother. Of course. Anyway.

1:17:26 The deal is done. It's about to happen. But like I said, then a miracle happens. All of those employees that Elon had set to work basically manning the 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. So many cars that they post a profit. They do over half a billion in sales, five hundred and sixty two million in sales in the first quarter of twenty thirteen. And they have a you know net income of eleven million dollars.

1:17:58 And the company is saved. Can they recognize that revenue? I guess they can recognize the pre sales revenue. The pre sales revenue, yep. I'm not exactly sure how the accounting work, but while all this is happening, they do start to ramp. model S production, they deliver just under five thousand model S throughout the quarter. They announce all this at their first quarter earnings call in in May of twenty thirteen, and the world is is dumbfounded. Uh the stock was trading about thirty dollars. It jumps immediately to a hundred and thirty dollars. And all of the short sellers that had built up those the short positions in the stock, they take huge losses. Just a quick aside on short selling for for

1:18:36 people that that that don't understand how this works. W when you sell short of stock you're you're basically It's a financial instrument to bet that the stock price will go down. Now the beauty of venture capital and equity investing in the stock market or anywhere else in general is it's and Talib writes about this, it's asymmetric upside and downside. You can only lose one times your money, but you can make an infinite amount of an infinite multiple on your money. There's no ceiling to how high a stock can go. When you start playing with short selling, that reverses You can only make your money, but you can lose an infinite number of times your money. Um, because you're betting that the stock will go down. It can only go to zero, but it can go many multiples higher than where it is when you take the short position. So the short sellers lose like five times their money that they put into um uh into their short positions, you know.

1:19:26 Bad for them, Elon. Has a field day. Which which buys him years, perhaps five years, of people believing that gosh, I really shouldn't be betting against Tesla,'cause look what could happen to me. Look what could happen, indeed. And so on the back of that, they they end up repaying that Department of Energy loan. early, I believe. They of course end the Google Talks. They don't need to be acquired by Google anymore. At that point in time. We'll see now. And basically, you know It's never smooth sailing with Tesla, but they ramp up model S production.

1:19:58 Th how does the stock price going up positively? impact them from a cash flow perspective. Do you know if they did another equity offering or if They sold some of the how does that work? So i I don't have all the details. You you may have them, but um as this happens, then they start doing a regular drum beat of secondary equity offerings on the stock market, uh bond offerings, so various forms of debt, both convertible debt into equity and and non convertible debt, uh and they raise A lot more money.

1:20:28 uh subsequent years. Yeah, I don't have anything from this era. I know in twenty sixteen and twenty seventeen they raised about two billion dollars from offering just more shares out to the public. Yep, yep. But they're also doing um debt offerings throughout all this time. So you know, the stock price going up and people having faith in in Tesla uh enables them to both sell more equity, um, but also uh be able to Raise money in selling bond offerings to uh the investing public as well. Let's see. In the rest of twenty thirteen. They sell twenty two thousand

1:20:57 model S. At an average price of seventy thousand dollars. Uh so that's about one and a half billion dollars in revenue. Super impressive. In twenty fourteen, they unveil the crazy what is it, like the P a hundred D or something version with two modes. With ludicrous mode. Elon had some tweet he's like get ready for the D You know, it's like when they're about to unveil the the dual motor offering, but nobody knows what the D is. You just keep saying the D until you find out oh it's a dual motor. Dual motor. This thing, you know, it's a it's a model S, it's a sedan that you know you can get configured to seat seven people. It does zero to sixty in three point two seconds. Like that's

1:21:35 Insane. They also launched autopilot uh in twenty fourteen. They're um Uh, I don't know what level of autonomous they are at at this point, but you know, freeway at least autonomous driving that continuously improves. The next year, September twenty fifteen, they released the Model X, the S E V, uh, which It's like the same chassis and they just bumped it all up a few inches. Yep. And at least judging by, you know.

1:21:58 San Francisco and uh Silicon Valley uh is uh the new Ick car around here replacing the uh Uh the model S. And and I should note too, I meant to say along the way. Basically the vision, you know, that Elon and uh Martin and Mark the original, you know Founders of Tesla.

1:22:16 Two founders of Tesla had of replacing the Prius as the status car. Of you know At least the liberal population of the US completely happens. So with the model X, they launched it in Q one of twenty sixteen and by Q call it Q. Four of twenty sixteen.

1:22:33 It was doing just about as many sales as a model S and has effectively continued like that until now. Yep. Yep. In All of twenty fifteen they do a hundred thousand unit sales of the model S. Then

1:22:48 by the end of twenty seventeen, they've eclipsed two hundred thousand unit sales of the model S. And in February of twenty eighteen, they announced that they've done over three hundred thousand units uh total across all vehicles. Now along the way though For sure mention before wrapping up. And let's and let's give credit. Totally amazing. They've produced a uh you know, a third of a million of these cars. They ramped up to about twenty five thousand units per quarter.

1:23:17 And then the the sort of the most recent quarter before this one up to thirty five thousand. So that's the number you should have in your head is what is K Tesla capable of making. They bought this plant that Toyota was able to do five hundred thousand a year, and they're now doing twenty five thousand a quarter to call it maybe a hundred thousand a year. in sort of the their production velocity. Yep. Elon's state of gold. I think he actually tweeted it when they announced uh the model three in March of twenty sixteen that the super secret, you know, master plan for Tesla was uh that he was revealing to the public, uh which he had revealed to the public, you know, when when he got involved was Make a sports car, electric car. Use the proceeds from that to make a luxury sedan for, you know, the one percent. Use the proceeds from that to make a mass market electric vehicle that will, you know, compete with um

1:24:07 you know, the Toyota Camry, uh, if you will, and bring electric vehicles to uh the large part of the mass market in the US. That was The model three that they, of course, announced in March of 2016. They originally wanted to call it, Elon wanted to call it the model E. uh the letter E and uh this is very Elon he wanted that because they already had the model S and the model X and so then their three models would be S, E and X. You can do the um

1:24:34 And of course the the next announced model, the model Y. The model Y for S E X Y. They can't call it the model E, though, because Ford Ford blocks them. Ford owns the trademark to the name model E. And Elon is livid. Elon calls up uh Uh I don't know if it's I I think Bill Ford is no longer the CEO of Ford at this point. Alan Malale, right, is the CO for it. He calls up Alan Malley's like, dude, WTF, like you're not gonna make a model E. You're just blocking me from doing this. Like you're ridiculous. And they're like, Oh no, no, no, we're actually thinking about releasing a model E

1:25:12 Of course they haven't released a model E. So that's why it's the model three because it's an E backwards. And of course it's also th Chesla's third car, so there's a double entendre there. There was something with I think it might be uh because they had the model T, they had also trademarked models for the founder, like I think it's E for Edsel. Like I think it's related to the you know, the the Ford family name.

1:25:36 Anyway, they announce it and the world goes nuts. Once again, within a week, they have three hundred and twenty five thousand reservations at a thousand dollar deposits each. Um Massive, massive demand. So demand for more model threes than they have sold of all of their cars in history at this point. The stock goes nuts. Everything's great. Tesla and Elon are on top of the world. And so in August of twenty sixteen, they expand their ambitions for Tesla even further. By acquiring

1:26:05 Solar City for two point six billion in stock. Now, we had debated making uh at the time doing a whole acquired episode about the acquisition of Solar City. There's really no way to separate this out from all of the history of Elon and Tesla. Just a quick, you know, to talk about this here. Remember that data center company called Everdream that Elon you know this was an hour ago. Sorry, this is such a long history and facts, but like the story is too good. When Musk, his cousins had started Everdream, they sold that to Dell in two thousand seven. That gave him the cash from the proceeds of his his investment there to help bail out Tesla the first time. Turns out

1:26:42 That those same cousins are the Rive brothers and they were The founders and CO and CTO of Solar City. And that uh even before that happened in the summer of two thousand four, they of course went to Burning Man. with Elon. And on the way to Burling Man, Elon was like, You know, I've been looking into the solar industry and I think there's something there. When you're done with Ever Dream, I suggest that you pursue it. In the way only Elon can

1:27:09 Of course that's what happened. Elon invested, uh and finance them and pursuing solar city along with their proceeds from uh their own proceeds from Ever Dream. They built Solar City, it was a publicly traded company, most successful solar company out there. Elon was the largest shareholder. Tesla then acquires it in August of 2016 for two point six billion dollars in all stock. And that raised some questions. I'm gonna dive into here what did Tesla actually buy when they bought that. And special thanks to Ben Rush, who is a

1:27:40 Associate of mine at Pioneer Square Labs who has has done an incredible deep dive on Tesla, trying to understand the company and and um and contributed significantly to this episode in in understanding Tesla's current position. He's got this great presentation and and part of it is what does Tesla buy? And it's five point eight billion dollars of leased solar energy systems. A billions of property, plant, and equipment, so you know, some serious capex there.

1:28:06 three point four billion dollars of long term debt, which is now saddled up onto Tesla's balance sheet. A company that burned five hundred million dollars in operations from the prior year. So it's not like they're buying a cash cow by any means that's gonna be able to pay back all that debt that they're they're buying. And and of course Quick aside here that I think is is important. Solar City was so successful originally and went public and was the one story of like a clean tech company that worked. precisely because they didn't make the solar panels themselves. They were a finance company. They let other people make the solar panels and then they helped consumers finance the purchase of them and get them installed on their homes. Well In sometime around this, maybe like

1:28:48 Two thousand fourteen, two thousand fifteen, they switched their business model to actually making the solar panels. And that's why they took out all this debt and why they started burning huge amounts of capital. So Tesla. Not exactly what they're doing. Has to make cars. is having trouble making cars. Solar City now has to make solar panels is having trouble making solar panels and Elon's like Neither of us know how to do this manufacturing thing, so what if Let's not know how to do it together. Are you also a struggling company? Boy have we been there.

1:29:30 Anyway, sorry to interrupt. Continue. No, and the and the last thing is the synergies. And you know, you start to see like the Tesla doing the power wall and Tesla doing the little solar roof, which is really cool, probably with some of the solar city stuff, but like not materially contributing to their business. Maybe in a ten, fifteen year roadmap and vision as as a part of the company so that it more effectively allows you to uh effectively and efficiently and and environmentally friendly charge your car at home, power the supercharge network, things like that. But like Really now?

1:30:02 Now is the time where we're gonna do this to our balance sheet. Well, you know, in twenty sixteen, again, Tesla was riding really high. They had announced the model three, but they had not yet started shipping them. uh they had very ambitious uh production goals for the model three that they thought they could hit uh in part due to lots of automation at the new uh at the well then not so new at the uh expanding plant in Fremont Unfortunately though that didn't work out too well and the production issues with the model three have been like a return to the roadster days. They are having such a hard time getting these things off the line.

1:30:40 It's all relative, right? Like relative to the Roadster days, they're producing them in incredible quantities super quickly and very soon after they announce the existence of the car, relative to what they need to do and what they've told, you know, what the I'm foreshadowing a little bit, but the guidance that they've given, uh it's a tricky road ahead. Well, and relative to the three hundred and twenty five thousand people that made reservations for them in March of twenty sixteen, the vast, vast majority of which still here in summer of twenty eighteen have not received their cars. Uh it's a little bit more billion dollars in uh interest free loans. Alright, thus we have mostly concluded the History and facts. Thanks with us, listeners, but uh

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1:33:00 Who's managing them all? So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, Go check out service now.com slash acquired and tell'em that Ben and David sent you. Before we go into what would have happened otherwise, I think why don't we flip these sections and talk about the future of Tesla here, and we can do what would have happened otherwise after. I think that makes sense. Listeners, for this episode we wanted to do kind of an extended news section.

1:33:26 That's really because the interesting thing to talk about with Tesla right now is not where they came from, although it's a fascinating, fascinating story. But Oh my God, what's gonna happen? Because there's a chance that something happens in like the next six months. If you look at Tesla, you know, they've been in this position before where it's everything doesn't really add up and you don't know what Elon's gonna pull out of his sleeve, but he manages to pull something out. But we're sort of at an all time high for that right now. And I think uh what I wanna do in this section is really break down sort of the what's scary about Tesla and and what could be

1:34:01 dare I say the end of Tesla, um, or at least the end of Tesla in its current sort of structure and form. Or what's gonna be fine and how are they gonna pull out of this and and you know, continue the magic that they've they've been creating. And so um I'm gonna start with Sort of concerns and why you might think

1:34:20 Gosh the the market cap right now is a little crazy and can they continue to operate given the conditions that they've created. So we'll start with some facts. So Elon Musk owns twenty percent of the company. There are lots of things, and and the rest is mostly institutional, there are lots of things that create sort of a tenuous position that they're in right now. And a lot of things are contingent on the stock price. So for one, there's a bunch of convertible notes outstanding, which at certain prices could convert to equity, but if if the the um stock price doesn't hit that equity, then suddenly Tesla's got a bunch of uh of cash needs to go and and pay off these loans. The other thing that's sort of contingent on the stock price is Elon personally.

1:34:59 Elon has borrowed six hundred and twenty seven million from big banks, so think Morgan Stanley and Goldman Sachs, against his personal holdings and Tesla to secure it. So it's secured against the changing, you know, something that's changing in value, which is his Tesla stock. And he's pretty much entirely used those borrowings to buy more shares in Tesla. Why would he do that, Ben? the the loan is totally secured by the assets this that are is exactly correlated to the assets that he's buying. Um so it's not a line of credit. It's a secured loan. And so you could see if the stock price goes up, then good things happen. If the stock price goes down, then the thing securing the loan That he took out.

1:35:45 is itself going down. So you know, you could imagine if if the price drops significantly, Elon personally could have a margin call where the banks could say, hey, the collateral on this loan is is no longer valuable and you need to pay us whatever,$100 million or something, and put up the cash in order to back the loan, because they're saying these This these shares are no longer backing the loan. Which I don't know how much cash Elon has personally, but if he really has done what he's done over the course of his life and sort of plow it all back in, if he goes personally bankrupt,

1:36:18 Then all of his Tesla shares, twenty percent of the company could go to the lenders that he's borrowed money from. And at twenty percent of the company, you know, if if you start to see significant sell offs of those in order to get cash for those big banks, the the whole thing could start to spiral down. Yep. It's turtles all the way down. It's Tesla all the way down. It is. So that's that's one thing to know is like it the the stock price can trigger all sorts of things. So that's why everyone's sort of watching it so carefully. And another thing.

1:36:47 You might be about to You know, we we said earlier that the line between SpaceX financials and Tesla financials and Elon's personal financials are Very blurry. You know, Elon's

1:37:00 Wealth uh he's worth on paper about ten billion dollars. Much of that is Tesla stock. The other part of it is SpaceX stock. SpaceX is not a public company. There's no liquidity in in SpaceX stock. Now there is a very active secondary market. Elon certainly could sell some of his shares on the secondary market, but it's not. easy or immediate. Like if he has a margin call on his loans securitized loans from you know Goldman and Morgan Stanley uh and he needs liquidity to pay that off immediately.

1:37:29 He's not gonna be able to get that super quick from SpaceX. So other things you should know about Tesla. They have about ten billion dollars in debt. uh three and a half of which came from the solar city acquisition and some of those but maturity dates are are coming up soon. I'll get to this kind of later, but uh this let's summarize by saying it's unlikely that a lot of that convertible debt will convert into equity and so they're gonna have they're gonna have to to pay off a lot of this debt as a company. And so they're gonna need cash to finance that.

1:37:58 Well let's look at sort of what have they been doing already just in interest payments, let alone paying off the principal, because they certainly haven't been doing any of that. And if you look at their their financials in twenty seventeen, Uh About five hundred million dollars. went to interest payments.

1:38:13 And in twenty eighteen, I actually don't know if this is so far or if uh this is over the total over the course of the year, I think it's so far is that they've ha done six hundred million dollars in interest payments. So big heavy interest payments that they're having to make in addition to And that's just interest. That's not principal repay. Yeah and so you think well maybe Elon will f sell some shares in order like the th there could be a scenario where Elon sells shares slowly in order to get like to s make sure that the company's financials are not you know, dependent on his personal financials, he's repeatedly said he's the last guy to sell shares. So that we know we know that's not happening. Tesla is now tied for the largest number of cell recommendations from analysts. So of of all sort of the public companies where there's buy and sell recommendations are tied for for analysting you should sell. We're also looking at a twenty seven percent short to float. So

1:39:03 tons of people that are you know chopping at the bit to benefit from Tesla stock going down. So all sorts of interesting things could agitate to make that go down. The other interesting thing to know about that number is people obviously think it's going to go down. So that's the reason that people have sort of piled on in such great numbers. The other thing I was gonna say about the the banks and the sell recommendations as a uh refugee of Wall Street myself, uh I know how this works. Remember we mentioned that you know, banks like Goldman and Morgan Stanley and and and others have made loans to Elon to, you know, support the Tesla stock. Well who who are the equity analysts who put out ratings on company stocks. It's banks, right? So there's like a massive conflict here, right? Like banks have large exposure to Elon and Tesla stock, right? And are massively incentivized for that stock to retain its value. And those are also the analysts that put out recommendations on Stocks. Now, of course there's a Chinese wall between different divisions of you know banks, but like of course, right

1:40:04 Of course. Yeah, think about that for a little bit. That's why, you know, buy ratings, Tesla had so many buy ratings. One of the reasons potentially why Tesla had so many buy ratings for so long. that banks are now starting to break ranks and put sell ratings on Tesla. Just think about all the incentives that they're having to Go against to do that. Yeah, except. Okay. So uh a few more things we should know. Now now let's talk a little bit about delivery promises and production. Why should we be thinking so deeply about delivery promises and production? Well

1:40:33 it's likely that they're gonna need two to three billion dollars of cash by the end of this year in order to pay off some of this debt and then also sort of to to just finance a lot of the the operating activities and capex that they need to do. And so if you look at their current capital expenditures in in 2018, um we're looking at 3.6 billion of capex that they'll need. We're looking at seven hundred and fifty million in CapEx for the first quarter of twenty nineteen. We'll need one point one five billion to refinance all this debt that's maturing. So the estimates are that they'll need about five point five billion in cash.

1:41:11 from the beginning of twenty eighteen through Q one of twenty nineteen. Of course they don't have that. And so we're looking at uh either we will need to get cash from another equity offering. And so The question then is sort of can will that work? Will they be able to dilute existing shareholders and issue new stock without doing dangerous things to the the stock price by introducing a whole bunch of new liquidity. News from the last twenty four hours, a former employee is claiming to be a whistleblower to the SEC about fraud at Tesla and uh

1:41:46 the nature of which that if that were proven to be correct, Tesla would be barred from issuing any further equity. Unclear how much merit that case has, but um SEC is actively. Investigating. Huh, because I was trying to do some research a couple days ago because I had seen that there is unopened letters or letters that have not been disclosed to shareholders that Tesla has received by the SEC and some have speculated, and I wasn't gonna bring it up because it's like too speculative, that an investigation has been triggered and where that means that they are unable to do any equity offerings, but the whistleblower thing kind of substantiates that a little bit more.

1:42:20 We should look into that. But so I I'm not gonna say that it's it's likely that they're barred from doing any equity offerings, but it looks like that road is is a little fraught anyway with uh you can't do it in large quantities without risking sort of destabilizing the stock or upsetting your your investor base. It's all gravy when the stock's going up, but if it's not going up significantly, then people don't like dilution. So what could they do? The other things they could do, they could access the bond markets and and go and try and and saddle up some more debt, but As we know. Tesla is

1:42:54 that now a junk bond rating and their current bonds are trading below face value. And so it seems unlikely that they'll have access to bond markets to be able to borrow from big banks to get that done. So then if equity is a little bit of a tough road, which they could do, they presuming they're allowed, they could do by the end of this year, and they can't really access any more deadlines, Well, gosh, could they generate enough cash flow from operating? And maybe. The answer is maybe. And the way that they would do that is by producing highly profitable cars.

1:43:29 Which they were doing, you know, when they were producing a bunch of the model S and Model X, super profitable. That was really great. Um, but the the attention has shifted to producing the model three. So they're actually they've ramped down a little bit of the S and X production lines in order to be able to hit the numbers that they want to hit for the three. They're now producing the model three at the rate of about five to six thousand units a week, which after talking with Ben and other folks uh who've sort of analyzed this, it's believed that that is their break even point. The amount they're producing, they don't make any money, but at least they aren't losing money by producing these cars. And that's because they're obviously making margin on the cars, but they have huge fixed costs in setting up all that production. And so they're basically just repaying The fixed costs right now. Nailed it.

1:44:16 Okay, well gosh, it seems like the option then is to uh produce a ton of these model three cars and that will generate enough free cash flow in order for Tesla to do what they need to do both in investing in future CapEx and just, you know, paying off this maturing debt. Okay, how are they gonna do that? Do we feel good about them doing that? Do we feel like that's a reasonable thing? Well The twenty eighteen delivery promise that they made to investors was five hundred thousand across all cars.

1:44:49 They were doing like twenty five thousand a quarter. I think Q one they did thirty five thousand a quarter. And and to give you a sense of like what's their history been over the last thirteen quarters or so, they were producing uh initially 10,000 cars and then ramped up to thirty five thousand cars. So it's been it's been changing, but sort of like by a factor of three. In order to hit the ramp that they need to in order to produce five hundred thousand cars in twenty eighteen.

1:45:16 They would need Q two production to be over fifty thousand, which they hit. They they came out last week and they hit that fifty three thousand cars produced in Q two. With great growth. Now, of course, lots of people talking about interesting things they did, like pre-produce some of the cars except for the doors, and then throw the doors on and call that done. Uh there's also photos of them setting up a tent in the parking lot in order to push more cars through because they don't really have it fully set up in the factory in order to be able to do that. What do they need to do next quarter now that they've hit this?

1:45:48 In the third quarter they're gonna need to produce like a hundred and fifty thousand. So that's three X what they did this last quarter. And then in Q four. because gosh, we're still nowhere close to that five hundred thousand across all cars, they need to do about three hundred twenty five thousand. So they need to triple next quarter and then more than double after that. And this is not shipping software.

1:46:10 This is making cars. It's a tall order. Mr. Tony Stark. I'm not here to say if they can do that or not. I'm just sort of here to paint the picture of what they would need to do in order to hit sort of the promises made to shareholders. And what I don't know for sure is that that is that forecast the thing that allows them to generate enough free cash flow from operating in order to

1:46:36 do what they need to do for all the capital needs going forward. Or is a buffer in there. Yeah. Right. Right. Yeah, I'm not I'm not totally sure. Let's continue playing this out a little bit. The the stated goal for twenty twenty, which we sh probably should just ignore because of it they've never hit a three year goal before. Because Tesla. Right, is a is a million a year. So um

1:46:57 If they were capable of producing the peak that Toyota was able to produce. Which My God, that would be incredible if Tesla could suddenly become Toyota from a manufacturing perspective. They would need, by 2020, an entire second Fremont Fractory.

1:47:14 Because remember the Fremont factory was like Toyota producing five hundred thousand. Yep. Okay, they just signed an MOU for a a factory in China. Maybe that will materialize in the next few years. That MOU, of course, is contingent on Tesla having the massive capex in order to build that factory, which we're already seeing them sort of struggle to produce. So one of the bottom lines here is Tesla could probably do this all if they stretched out their timelines a little more and had like ten billion dollars more to play with But their access to capital seems to be lessening over time and sort of instead of g you know getting greater over time.

1:47:48 Another interesting thing that I realized in diving into this is people always talk about, oh, will the giga factory be big enough? The giga factory is definitely not the problem. The the main bottleneck is the Fremont plant and the fact that you know they're they're just assembling these cars is tough. and is a highly manual process, despite the fact that Tesla and and lots of other people wanted to be able to do it more with with machinery. Okay. So That sort of takes us to where we are today.

1:48:12 You gotta make a as usual with Tesla, you have to believe they can really thread the needle and really do something that they thought was impossible on a time frame that that um May well figure out how to do, yeah. Um, in order to do all this. You know, one way that they could slip out of this, that that that could be okay. Is They probably won't hit all these production targets. So they'll they'll make an admirable effort. Stock price will stay high. This is now making the bull case.

1:48:41 They do an equity raise. And if you model it out and look at what they They raise an equity. If they do two and a half billion dollars of of equity raising at two hundred and fifty dollars a share, which is a little bit less than than it is right now, but you you kinda wanna do an offering at a little bit less than the the where it's trading publicly to get other available shares. they could sell 10 million shares and it would only be six percent dilution. So if the stock price stay sufficiently high, they could do that. It wouldn't it likely wouldn't tremendously destabilize. They kind of kick the can down the road, but they do buy themselves a little bit more time to start paying off some of this debt, invest in CapEx, and thus increase the ability to produce more of these cars in the future. So if you wanted to bet

1:49:21 against Tesla, one argument you would make is there's no are there's no way they're gonna be able to hit these production targets and I don't see how they're going to be able to get cash in the door otherwise. And if you wanted to make the bull case, you'd say yeah, they'll be able to raise a little bit more money. These timeframes aren't quite realistic, but they'll get there because they're superheroes. you know, to drew like literally a literal superhero. And they they produce something with just tremendous incredible product market fit. And so if they can just actually produce it, then this delightful product will go out into the hands of all these people and really change the world. And so I think that's really what you're looking at if you were to bet on Tesla right now. Now, of course it's

1:50:01 tricky to bet on Tesla in either direction right now because Buying the shorts is so expensive because there's already so many people doing it. It's a big risky bet to short the company normally. And now you're piling on with all these other people too. It's tricky to short the company right now. If you wanted to buy Tesla, one thing you could look at is the price to sales ratio, because a price to earnings ratio would be. non existent. And so we should just look at price to sales. What is their price to sales ratio? It's about four point nine, which is eighteen times Ford's price to sales ratio. If you want to look at other car companies at at comps.

1:50:34 You're like, okay, well, what does that put them at in a as a market cap perspective? It's fifty four billion, which puts them between Ford and BMW. as what people believe the the company is worth. Now Tesla produces uh what, fifty three thousand cars per quarter. Ford does about twelve X that.

1:50:55 And so if you try and make any apples to apples comparisons with other car companies, it gets frivolous quickly because you're like they're m eighteen X, they're they're they're multiple on price of sales, they're producing one tenth the vehicles. You know, a lot of this is speculative. So it it gets a little you kind of feel like you might be buying in when it's already really expensive. So it's hard if you wanted to bet one way or another to make a bet on this company right now. Yeah. Phew. Well,

1:51:25 There we are. Two hours later. Yeah. There's two other things to be aware of. One is nobody really talks about their competitors. Like as I was saying Ford in my head, I was thinking Are you really comparing Tesla to Ford right now? But these other car companies are are not as sexy of a brand and they didn't invent electric cars and they weren't the pioneer, but they are really formidable competitors. And so GM has sold somewhere around thirty thousand volts. And those are all electric vehicles. They know how to make cars. Once they decide to just put the pedal to the metal, they're able to really just ramp production because they know how to do this super well. And like, yeah, the lithium ion stuff is different, the the drivetrain is different, but like uh if it becomes a game of of how fast can they ramp and there's existing car companies with products that are finding traction. That gets a little bit scary if you're thinking about becoming a Tesla shareholder.

1:52:20 BMW, of course, has the I three and the I eight that just came out in sort of the sports car market. Um Ford's spending four and a half billion dollars over the next five years to to add thirteen electric models to their product line. And so where we previously were talking about, gosh, are the can these really these old car companies really make it into the electrical vehicle space? It's starting to materialize. And it's not hard to see that That continuing. So that that of course takes us to well these these car companies need to get their parts from somewhere. How does that work? Well, for the most part, except for the drivetrain and the electric batteries, it's all the same parts that they've had access to before. If you look at Tesla's supply chain, they have 350 sole source suppliers, which means they are the only people that make that product.

1:53:03 And each one of those has to ramp up to meet Tesla's demand. So as Tesla, you know, has their own problems and can we make cars quickly enough, each of those three hundred and fifty suppliers that they rely on that are the only person that makes that part for Tesla, so they can't look elsewhere. also has to be able to meet that demand. And so a lot of these things start to add up for Tesla where you're thinking

1:53:25 Wow, not only is it uh the the cash needs are a little bit Scary. Thinking about their competitors, their Production targets. Then you start thinking about their whole supply chain and their supply chain versus the existing car company's supply chain and sort of who knows how to actually do that.

1:53:42 Tesla's got a Lot of big challenges in front of'em. That's probably why Elon is sleeping on the factory floor. On the other hand, It's Elon.

1:53:54 I think he probably could, um it would take a little while, but I think he probably could liquidate some SpaceX stock uh and pump that into Tesla. Yeah. We'll see. So That's sort of

1:54:06 Tesla's future or the different directions of of Tesla's future. Yeah. Uh Tech themes? Tech themes. Yeah. I think let's we'll skip what would have happened otherwise because we've painted so many branching paths here already. Uh it's wrapped up in the speculation. Um okay, tech themes. I have I have two real quick. I mean So many throughout the

1:54:26 throughout the episode, but two I wanna highlight. One, there's a saying in uh Silicon Valley or or at least in V C that hardware is hard. And On the one hand, it's a VC cop out, like all those VCs who passed on, you know, uh Mart and Mark way back in the original Tesla days. On the other hand, there's an element of truth to it. Like any time you're working in the real world and doing production, like You really need to have people

1:54:50 who know what they're doing. And and and I think this is where Apple actually is so great. Like Apple makes hardware. Apple has spent decades, and this is really what Tim Cook Building their hardware. And supply chain muscle. That's one.

1:55:04 theme that kind of pops out to me here is like people tend to think of IPOs as the End point, you know, the destination for a company. Like, man, it is just a point on the journey. Like there is a lot of, you know Still existential risk and challenges, and Elon's still sleeping on the floor, you know, at the company. Yep. Alright, I've got one.

1:55:24 So Tesla. Actually I probably have two. Uh Tesla was made possible by I think what Eberhard was calling Slow Moore's Law. They noticed that batteries and specifically lithium ion batteries were getting seven percent efficient year over year. And so while at the time they started the company, it felt like Uh this is kind of silly.

1:55:44 you know, you can only go 120 miles or whatever on a a charge and that's impractical. They knew that by the time they got to 2018, we'd be going between three and four hundred miles on a charge for the model S. I love the notion that if you can see a trend and you know where you want to be in a certain number of years, you should start the company X years ahead of time before other people sort of realize that the future has arrived. And my other one is that Something happened in like, I don't know when it was, sometime between the sixties and the nineties, where Car companies, rather than entirely vertically integrating, started to work with external manufacturers for components. And so if you were to buy a Ford car in the fifties or the forties,

1:56:29 You're buying a lot of stuff made by Ford. If you're buying a Ford car in twenty fifteen. You're buying something assembled by Ford, designed by Ford, but they worked with a design shop. They they probably built the engine, they probably built the chassis, they probably built the d the drivetrain, but like everything else is is done by specialty people. And so that paved the way for Tesla to be able to enter the market because they actually there were suppliers for all these things rather than going to one single competitor and saying, let us have access to your parts bin, which is kind of what happened to um the Delorean in this era today. You know, there's so much that has been outsourced because car companies believe it's not our core competency. You know, we're we do marketing, we do design, we do what whatever that uh you kind of chisel away and quote non core pieces little by little, and then you actually do end up

1:57:17 a little bit thinner than you wanted to be in creating your moat and you there's there's opportunity for new entrants to use all these other horizontal businesses that you've created. And so that's been a sort of fifty year evolution over the car industry, um, enabling that disruption. They outsourced all the innovation and that left them in a spot where the model S could be so revolutionary. All right. Greeting.

1:57:40 W as we said in our announcement for the trailer for season three, for recent events we're gonna move to, rather than trying to assign a grade, we're going to paint the picture of what an A plus and what a C would look like. Even though the Tesla IPO happened a long time ago and the Solar City acquisition happened a long time ago, this is very much real time. So I think let's do that here, right? Yeah. Yeah, I say looking forward from Tesla today, sort of uh what puts them in an A plus position versus what uh what other outcomes are possible. Yeah. And I think

1:58:09 Actually, Ben, you basically already painted it in the speculation section. Like Yeah, if if they hit five hundred thousand this year, A plus. Yep. Uh and and somewhere in between, but they still stay alive, like, you know. A minus two. Yeah, there there's there's a there's a B plus A minus thing where they uh don't hit production, but they do well, stock price stays high, they're able to issue more equity, they do that, they raise the capital necessary. Yep.

1:58:37 F is obviously the company goes bankrupt. C is they end up getting acquired, right? By Google or SpaceX or You know, somebody else, somebody comes and bails them out, right? Yeah, you can imagine their stock their market cap drops from fifty four billion to like twenty billion, and then it's not a crazy pickup for

1:58:55 You know, people have talked about Apple over the years, people have talked about Google, like they're all doing car initiatives. Tesla's got A lot of the best car people. Not to mention Uber. Lift.

1:59:05 Google. Um It's so funny. I uh I know we're already so way over long, but I can't help but thinking um Was it The Atlassian episode where Ben you made the comment about how like

1:59:17 You know, at Lassum was like The IPO your parents want you to marry, like it's so boring. You like the you know the James Bond going full speed towards a cliff, pull the e break, it's been like this is that. This is that This is literally a Bond movie. Or an Iron Man movie. Like over the cliff already, reaching back, trying to figure out if there's something to grab onto while the car is spinning down into the river. Oh man. Is it ever. I think that's But they've been here before. I mean They've been here before, yeah. Like I mean, this is this is a whole not just a car chase scene, this is a whole movie of, you know it it one other last thing is in discussing who could buy them, it's striking to me that uh Tesla's market cap as a public company is lower than Uber. Yeah.

2:00:08 Yeah. Like Uber will probably go public between eighty and a hundred and twenty billion dollars, which will be twice the value of Tesla today. Well, it's the power of marketplace business bottles, Ben. Come talk to Wave. All right.

2:00:25 Carvouts. Car outs. Yeah. Yeah. So I have one. It's my new favorite podcast. It's so incredibly well done. It's called Dissect. It's Every single season analyzes an album. And it uses the album as an excuse. to talk about an artist's life. And so the season I'm listening to right now is season two, my b my

2:00:46 Dark Twisted Beautiful Fantasy by Kanye West, and it goes song by song. And the guy who does it is uh music producer and storyteller. And so he he's able to really discover the samples that made up the tracks and sort of recreate some of the beats and pull it out and y you really get a new uh uh appreciation understanding for the craft of of producing and creating music. He really goes into the lyrics. And really just paints an amazing story of if if you like like rap genius, um you will love this because you go in, you get a little snippet of the story, and then he uses it as like, let's let's take five minutes and go back and talk about this moment in the artist's life. And then he finds interview clips with them and he finds, you know, family members they've talked to and It's almost like

2:01:34 acquired for music, but it done the right way for music where you're actually analyzing the sort of trac and musicality itself. you know, having a whole season to dive into an album, you really start to understand the the artist in sort of a really deep personal way. And I'm a huge I'm huge Kanye fan so far listening to this. So it's it's really fun. I'm excited to go into the next season too, which is uh uh Frank Ocean. So

2:01:58 Um highly recommend the dissect podcast. Nice. Actually at a different Carve out that I was gonna talk about, but I wanna spend more time talking about it and we're already over two hours, so I'm gonna

2:02:08 Hold that for next time. But Inspired by podcast for uh you, my new favorite podcast, introduced to us by Friend of the show and um uh head of the acquired fan club, Preet Anand. Big shout out to Preet is Harry Potter and the Sacred Text. It's amazing. It's like uh two Harvard Divinity School graduate students going through the Harry Potter series chapter by chapter. And reading each chapter.

2:02:33 through a spiritual lens and uh it's really, really cool and fun. If you haven't already heard of it. And you're a Harry Potter fan. Check it out. All right listeners. Now is a great time to talk about one of our favorite companies, Statsig.

2:02:48 Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI powered experiences at scale. Yeah. In the crazy speed of today's AI world. Shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly.

2:03:10 The real advantage is how quickly you learn what changes actually created value for customers. And how fast you can use that signal to guide what you ship next. This is where StatsIG comes in. It brings experimentation, feature flags and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved. So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com slash acquired to get started. Listeners, thank you for coming on this journey with us. Feels good to get it off our chests. Really fun to dive into Tesla.

2:03:49 I'm sure we will get email. I'm sure we messed some stuff up. I I think we probably got the plot, but missed some of the details. Come join us in Slack, uh, acquire.fm. We would love to uh keep the conversation going. And if you are not subscribed and you want to hear more, you can subscribe from your favorite podcast client. And if you feel so inclined, we would love a comment on Apple Podcasts. Thanks so much and have a great day. We'll talk to you soon.

2:04:12 Mm-hmm.

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