July 08, 2018

How Elon Musk saved SpaceX and Tesla at the same time [Video]

Tesla and SpaceX are not just two companies led by Elon Musk — they are two visions — a sustainable future here on Earth while expanding the human race to other planets. Both companies aiming for these audacious, larger-than-life goals had to face far tougher times than they're facing today.

Above: Elon Musk is CEO of both Tesla and SpaceX (Image: Business Casual)

Elon Musk is undoubtedly one of the most ambitious CEOs in a generation. Musk could have easily just retired on an island after receiving $165 million following PayPal's acquisition by eBay in 2002. Instead, he opted to invest all of the PayPal proceeds into Tesla and SpaceX. But it wasn't easy. The two mission-oriented companies were saved from the brink of total failure due to the resilience and agility of Musk.

SpaceX

Space Exploration Technologies Corp. (SpaceX) needed rockets in order to create a financially viable business model by delivering commercial payloads to satellites in the orbit. As a first step, Elon Musk flew to Russia in order to get low cost intercontinental ballistic missiles but returned unsuccessful. On the way back from Russia, Musk realized that by applying a vertical integration production methodology, SpaceX would be able to drastically reduce the raw materials costs.

In-house manufacturing of 85% of the launch hardware enabled SpaceX to produce their first rocket, the Falcon 1, at a significantly lower cost than they would have spent on buying a similar product. Musk also recruited some of the best engineers from other companies like Boeing and Lockheed Martin to create a world-class team.

Musk also went on a rigorous self-learning spree in the fields of Rocket Science and space technologies to build his personal knowledge and lead his young team at SpaceX.

Above: Falcon 1 Launch. By SpaceX (SpaceX) [GFDL or CC-BY-SA-3.0], via Wikimedia Commons

Musk's aggressive deadlines resulted in the creation and first launch of SpaceX's 'Falcon 1' rocket — unfortunately the first flight of the Falcon 1 (March 24th, 2006) only lasted 41 seconds before exploding. Nevertheless, this event didn't lower the hopes of Musk and the SpaceX team.

Only a year later, the second flight of the Falcon 1 also failed and the third in August 2008 had met the same fate as the previous two for different technical reasons.

The fourth flight of the Falcon 1 was the last SpaceX could afford — if this one was not going to be a success, SpaceX would surely have gone bankrupt. Before the flight, it appeared like all the glitches had been fixed and Musk (and SpaceX) were blessed with a successful flight.

The next morning, Musk received a call from NASA and SpaceX was awarded a $1.5 billion commercial space flight contract — more than enough to save the company from bankruptcy.

To date, SpaceX has conducted more than 100 launches that acount for over $12 billion in contract revenue.

Tesla

Tesla (formerly known as Tesla Motors) is the second oldest publicly listed American automaker after Ford. Creation and management of a large scale automotive company is an enormous challenge where competing companies often have more than 100 years of industry experience.

Elon Musk (an early investor), JB Straubel (now Tesla's CTO), Martin Eberhard (Tesla's first CEO), Marc Tarpenning and Ian Wright founded Tesla Motors back in 2003 with a dream of providing sustainable transportation to the masses but things definitely got off to a rocky start.

Above: Elon Musk standing in-front of SpaceX with a Tesla Model S (Image: Business Casual)

Three of the five Tesla founders (except Elon Musk and JB Straubel) had to leave the company due to management differences — Musk later took responsibility as CEO of Tesla Motors in 2006.

Although Tesla Motors had 100 pre-orders of the first long range electric sports car, the 'Tesla Roadster' — the company was experiencing serious financial troubles as they weren't able to start Roadster production before March 2008.

The first-ever dedicated electric vehicle manufacturer was quickly running out of cash and in dire need of outside funding to survive the 2008 global economic crisis.

Elon Musk decided, as a last resort, to approach Daimler in pursuit of getting a contract that could help save the company. In September 2008, Musk took a flight to Stuttgart, Germany and met with Daimler executives only to return with a promise that the execs would visit Tesla's factory in Fremont in November.

Musk and the Tesla team had a small window of opportunity for survival and had six weeks to impress the Daimler executives. Musk's idea was to turn Daimler's Smart car into an EV before the Daimler team arrived — however, Smart cars were not made for the U.S. at the time. So JB Straubel had to source the vehicle from Mexico to make it happen.

With 5 and a 1/2 weeks of hard work around the clock, Elon Musk and the Tesla team were able to fit the Smart car with a battery pack and motors. Then, Daimler's team received a demonstration of the first ever Smart Electric Drive EV that was pulled together in less than six weeks by Musk and his resilient team at Tesla. Sure enough, this turned out to impress Prof. Dr. Herbert Kohler and his team from Daimler.

Above: Smart Electric Drive EV at the 2009 Geneva Motor Show. By David Villarreal Fernández (Smart Electric Drive Uploaded by TheCuriousGnome) [CC BY-SA 2.0], via Wikimedia Commons

This effort secured a last-minute contract with Daimler and gave Tesla some credibility along with a $50 million investment in the company that saved it from financial ruin.

In reference to Tesla's near-death experience, Musk explained at Tesla's 2016 Shareholder Meeting: “If we [hadn’t] done that, Tesla would have died because the Daimler partnership gave us credibility, that a major OEM was willing to work with us, and they also paid us for the (Smart ED2) development program which is really helpful from a revenue standpoint... Without that investment, Tesla would have been game over.”