College students often have big dreams. They want to stop wars. Solve global warming. Find a cure for cancer. Then life happens: careers, families, mortgage payments. Dreams of changing the world fade like an old college sweatshirt.
But not for Elon Musk.
Not 15 years after he left Penn, the 39-year-old engineer and entrepreneur is tantalizingly close to realizing the most daring dreams of his youth. While studying at Wharton in the mid 1990s, Musk, W’97, C’97, decided that he would focus his energies on three major challenges: Developing the Internet into an economic powerhouse, making the fundamental change to clean energy and exploring space more deeply than it had ever been before. And it didn’t take him long to do so.
Shortly after leaving Wharton, Musk co-founded two companies, software maker Zip2 and PayPal, and helped both become giants of the early Internet. After reaping millions from those companies’ sale—eBay paid $1.5 billion for PayPal in 2002—the South African native turned his attention to energy and space, launching the space transport business Space Exploration Technologies, or SpaceX, in 2002 and the electric car company Tesla Motors in 2003. Both companies have been making news of late.
This year, Tesla became first car company to go public in the United States in more than half a century. The company is readying production of a five-person, $50,000 sedan at a formerly closed General Motors-Toyota plant in Fremont, CA, is drawing up plans for a mass-market electric vehicle that would sell for around $30,000, and recently signed hugely important strategic partnerships with both Daimler and Toyota.
Meanwhile, SpaceX—which in 2008 became the first private firm to successfully launch a liquid-fueled rocket—saw its groundbreaking Falcon 9 rocket reach orbit this summer. The company is also moving forward with development of Dragon, a new spacecraft designed to carry humans. SpaceX has a multibillion-dollar contract with NASA, which is looking to the company to deliver supplies and astronauts to the International Space Station, and recently won a $492 million contract with Iridium Communications to launch the company’s satellites.
Musk is the driving force behind both firms, serving as CEO for both Tesla and Space X, and chief engineer for SpaceX. Remarkably, he also finds time to serve as chairman of the board for SolarCity, a Foster City, CA clean energy company. Given his enormous success—and his ambitious vision—it’s hardly a surprise that the Los Angeles resident has become something of a pop icon. Earlier this year, while a guest on “The Colbert Report,” Musk was asked by host Stephen Colbert if he was, in fact, Batman. And director John Favreau, maker of the super-successful Iron Man movies, says that Musk served as the model for superhero Tony Stark. As Favreau told Time magazine: “Elon is a paragon of enthusiasm, good humor and curiosity—a Renaissance man in an era that needs them.” During an expansive interview with Wharton Magazine late this summer, Musk hit on all of these subjects and more. He explained why he believes Americans are ready for the electric car and why President Obama’s space program will get us closer to the stars. He talked about the value of a business degree and the perils and rewards of fame. He also discussed a memorable breakfast with the great Akio Toyoda, and explained why he named Tesla after a brilliant inventor who, as it turns out, died penniless.
WHARTON: With all that’s happening with Tesla and SpaceX lately, your involvement with PayPal sometimes is overlooked. From your point of view, how important has PayPal been to the development of the Internet economy?
MUSK: PayPal has been really helpful in allowing transactions between non-merchants. If someone is just selling a few things from time to time, it’s difficult to get a merchant’s account with MasterCard or Visa or the banks. PayPal smoothed out that process and provided an instant means of getting payment. It was a huge difference from the old way of mailing a check or sending money orders. So, yes, I think it made a significant difference in the development of the Internet. I don’t know if I would say it was critical. It was certainly one of the pillars of the Internet, if you will.
WHARTON: After Zip2 and PayPal were sold, you became very wealthy. You could have done anything. You could have retired. So why did you decide to start new ventures that would put your fortune at risk?
MUSK: My interest in space and in electric vehicles goes back quite awhile, to when I was in college, at Wharton. From the standpoint of living a life that would really matter, there were three areas I thought I’d like to work in if I could because I thought they would really change the future of humanity—the Internet, sustainable energy, both production and consumption, and space exploration, in particular the extension of life to multiple planets. I did a couple of Internet companies. That gave me the capital to really try to do something in electric vehicles, solar power and space.
WHARTON: Tesla was founded in 2003, with the Roadster as its signature product. How many have you sold? And what are they like to drive? I am guessing some ‘car people’ might be skeptical about the performance of a fully electric car.
MUSK: We now have produced almost 1,400 of the Roadsters, and they’re in, I think, 29 or 30 countries. They’re incredibly fun to drive. It’s really difficult to appreciate without a test drive, and I would encourage people who think they might have an interest in buying a Roadster to just take a test drive. It’s the most fun car to drive that I’ve ever owned, and I’ve owned some pretty great cars. People would really enjoy feeling the acceleration and handling of the vehicle.
WHARTON: How does the Roadster fit in with your business plan for Tesla Motors?
MUSK: In starting Tesla, we didn’t have the capital to do anything that required economies of scale. So even if we wanted to make a low-cost vehicle, it just wasn’t possible. We didn’t have the billion-dollar factory needed to do that, and we really didn’t have the level of refinement in the technology. Those are really the two things that are critical in mass market adoption of new technologies—getting to economies of scale and iterating on the design, and optimizing the design for cost and capability. Usually with new technologies, I think you need about three major iterations, and that’s why our approach has been based on that premise. You start off with a low volume, high-priced car in the Roadster, and we’ve got a mid-priced, mid-volume car with the Model S, and then we go to the low-priced, high-volume car with our third generation.
WHARTON: How is the planning going for the Model S? When will production start?
MUSK: We are making great progress with the Model S. We’re on track to start production in mid-2012. It’s looking pretty good. We’ve completed the body and chassis design, and the tooling is in fabrication for that now. We’ve purchased the stamping equipment—the big stamping machines that are needed to create the body. We’re bringing our paint shop online. We’re getting everything ready to manufacture 20,000 units a year.
WHARTON: And they’ll be produced at the former GM and Toyota facility in Fremont?
WHARTON: You mentioned the third-generation vehicle. How will it be priced and when do you expect to begin production?
MUSK: The Model S will start around $50,000 and there will be 20,000 units a year. Our high-volume vehicle further down the road would be perhaps on the order of $30,000 and maybe a couple hundred thousand vehicles a year. I’m hopeful we’ll be in production in five years.
WHARTON: In May of this year, Toyota and Tesla announced a strategic alliance in which the two companies will share expertise. Toyota also invested in Tesla and will help with the purchase of the plant in Fremont, which will produce some Toyota vehicles. How did the relationship with Toyota come about?
MUSK: One day in March of this year, I got a call from the office of Akio Toyoda [Toyota’s CEO and grandson of the company’s founder] saying that he’d like to meet with me, with no particular agenda. I said, “Well, great, let’s meet at my house for breakfast. It’s more of a private setting.” We had a great meeting. We really hit it off at a personal level. He loved the Tesla Roadster. He thought our car was great. He wanted to figure out a way to have a closer relationship with Tesla. We came up with three obvious things: investment, helping us purchasing the plant and technology development.
WHARTON: How important are the alliances Tesla has with Toyota and also with Daimler, which has invested in Tesla? Are they critical to the success of Tesla? Is it likely that Tesla eventually is going to be sold to a larger car company?
MUSK: [The partnerships] are definitely helpful. I think we probably could have made it without either Daimler or Toyota, but of course it would have increased the risk and the cost. Starting up a car company requires quite a bit of resources. I don’t anticipate any sale in the short- to medium-term. In the long-term, it’s hard to say. We are not steering the company towards an acquisition. We’re building the company to be one of the major car companies of the 21st century. That’s how we’re operating. It’s possible there could be an acquisition sometime in the future, as there is for any company.
WHARTON: The major established car companies are starting to come out with all-electric vehicles. Do you see them as competition, and are you concerned about these new vehicles posing a threat to Tesla?
MUSK: I’m very glad to see that the major car companies are entering the electric vehicle field. It was certainly my hope and my expectation. The fundamental good that I wanted to achieve with Tesla was to accelerate the advent of electric vehicles faster than it might otherwise occur. Transitioning to a sustainable mode of transport has always been inevitable. If you’ve got an unsustainable mode of transport, you had better deal with it sooner or later. But what we’ve been able to do with Tesla is serve as an example, to show that you can make the technology work.
WHARTON: We’ve been hearing about electric cars for years, even decades, but there still aren’t many on the road. Do you think the public is finally ready for electric vehicles?
MUSK: I think it is, yes. We’re certainly seeing good demand for our Roadster. We are seeing a lot of advanced orders for our Model S sedan. From what I’m hearing, there’s a lot of interest in the Nissan Leaf. We are at a huge inflexion point in the whole automotive industry, the transport industry itself. It’s an exciting moment because I think we’re at a time that is comparable to the transition from horses to cars. This is the biggest thing to happen to the automotive industry since the moving production line.
WHARTON: What have been the most difficult challenges you’ve encountered in starting and growing Tesla?
MUSK: We’ve faced a number of different challenges. We had a lot of management challenges for some time. We had to do kind of a reset on the company and replace most of the management team. Associated with that, we also made some wrong decisions in sourcing critical components for the vehicle to companies that were either unable to do the job or were incredibly expensive. So we had to essentially restart the company in 2007. Getting through that was a big challenge and, of course, getting through the terrible economic situation, which caused the bankruptcies of General Motors and Chrysler. We were trying to survive—despite being a small company selling only a high-end sports car. It was a very arduous period.
WHARTON: Turning now to SpaceX, what was the significance of the launch of the Falcon 9 this June?
MUSK: It was very significant. We’re at a big inflection point also in the space arena. This is the first time that NASA has decided to outsource to the commercial sector the design and operation of rockets. Obviously I think it was the right move. It’s the only thing that’s going to allow us to make huge progress in space exploration. The government-run programs have been incredibly expensive and slow. The success of Falcon 9 is obviously a huge milestone, as was the prior success of Falcon 1. Falcon 1 was the first privately developed quick-fueled rocket to achieve orbit, which is significant in itself. And Falcon 9 was the first privately developed orbit class system that is capable of carrying people. So, thank goodness, it worked.
WHARTON: How important in a business sense is the contract with Iridium to launch communications satellites?
MUSK: It is a great validation of SpaceX because this was a decision by a private company. The contract could have gone to the Russians or the Europeans, the Chinese, the Indians, anyone. But they concluded that SpaceX was the right choice. We had the most competitive vehicle even though those other systems received considerable government subsidies. It’s also the biggest commercial launch contract ever. It shows it’s not just NASA that is supportive of SpaceX.
WHARTON: What do you think of President Obama’s plan to end the space shuttle program and to rely more on commercial enterprises in space exploration? It would appear to fit right in with your business plan.
MUSK: Yes, going to commercial extraterrestrial transport is absolutely the right move. I think it really says something that the Obama Administration is pushing for this. If it were a Republican administration, there might be skeptics. But as it’s a Democratic administration in favor of the commercial route, you’d have to know that it is the obvious choice.
WHARTON: Space travel has traditionally been a function of government. Now there are private firms are involved. How do you see the balance between government and business in space exploration?
MUSK: Well, our experience has been that it has worked well having NASA essentially as an anchor customer. It allows us to have a level of production volume. It provides us with revenue we can count on, and it gives us increased scale. Certainly NASA has been helpful in an advisory capacity. I think it has been a great public-private partnership.
WHARTON: There are other private companies trying to break into commercial space travel, including start-ups founded by Internet entrepreneurs, as well as big defense contractors. How do you assess the competition?
MUSK: I tend not to focus too much on the competition. My advice for any company is just to focus on making a great product and executing as best you can. One does have to attempt to ward off potential bad behavior by competitors if they try to tilt the playing field. We certainly have seen that in the space business. When you are fighting big defense contractors, and they don’t think they can win in a fair contest, they will attempt to make the contest unfair by exerting huge amounts of influence on key politicians.
WHARTON: How is SolarCity faring now?
MUSK: SolarCity provides photovoltaic solar power to homes and businesses. It’s actually the biggest full-service solar provider in the country right now. They don’t make the panels themselves, but they do everything else. It’s kind of like what Dell or Hewlett-Packard is to PCs. They don’t make the CPU or the hard drive but they design the overall system and they put it together and implement it and handle the customer interface. SolarCity is about enabling low-cost solar power.
WHARTON: What is your role in the company?
MUSK: I’m the chairman and the largest shareholder in the company.
WHARTON: You’re not involved in the day-to-day operation?
WHARTON: How do you find the time and energy to be the CEO of two large companies and help to oversee a third?
MUSK: This is my biggest challenge. I am incredibly time constrained. I have taken great pains with SpaceX, Tesla and SolarCity to get more help. I continue to add more people to the management team to help address this issue and make life a little less about work.
WHARTON: In a recent interview you said you preferred hiring people with technical backgrounds to those with business backgrounds. When you were at Penn you studied both. How do you assess the importance of each?
MUSK: I think it really depends on what somebody wants to do. In my case, since I knew I wanted to be involved in technology development, it was important to have a technical background in addition to a business background. I already knew quite a bit about computer programming. So I decided I needed to understand the fundamentals of the physical world, which was physics. I studied business to learn how you put together a company to go about solving technology problems.
WHARTON: You seem to have become something of a celebrity, appearing on network television. Some gossip columns and blogs have written about your divorce. How do you feel about your celebrity, and has it been a good thing for your companies?
MUSK: It is a strange situation I find myself in, which I didn’t expect. It definitely has its pluses and minuses. It is somewhat distracting in that the press will write about my personal affairs even though in many cases they don’t have any bearing on the business. But it can affect, in a weird way, how people perceive the business. So, I don’t know. I have mixed feelings about the whole thing. I do feel it’s important to promote the ideas of space exploration, electric vehicles and solar power. In order to do that I have to go out and talk to a lot of people. I guess the fallout from that is you start to become known for things that are not related to those topics.
WHARTON: Could you tell us why you named your company after Nikola Tesla, the inventor of alternating current systems?
MUSK: Tesla was a great scientist and engineer who deserves much more public awareness. The motor in our car is an AC induction motor, which is something Tesla invented.
WHARTON: I read that even after all of his accomplishments, Nikola Tesla died penniless in a New York City hotel room.
MUSK: [Laughter] Well, naming it Tesla was really about granting recognition to a great scientist and engineer. I thought it would be better than naming it Musk Motors. I’ve never named any company after me.