Five People Founded Tesla, But Only Elon Musk Became Extremely Rich
The untold story of Tesla’s unlucky co-founders and how they missed the billionaire bus
Ian Wright: $7 million
Marc Tarpenning: $200 million
Martin Eberhard: $500 million
JB Straubel: $1.3 billion
Elon Musk: $269 billion
These 5 men are attributed as the co-founders of Tesla, the world’s most valuable automotive company. Elon Musk, however, was the only co-founder who became extremely rich from Tesla, while the others either left the company or sold their shares early.
Why is Elon Musk the only Tesla co-founder who became super rich? And why did Tesla’s other co-founders leave the company?
In this article, I’ll answer those questions as we take a deep dive into the history of Tesla Inc.
Tesla’s Early Days
Tesla was originally founded on July 1, 2003, by Martin Eberhard and Marc Tarpenning.
Their dream was to create a modern automotive company with a focus on technologically advanced batteries, computer software, and electric motors, which were uncommon at the time.
Martin served as the CEO of Tesla Motors (now Tesla Inc.), while Marc served as the CFO. The company was named after the late Serbian-American inventor Nikola Tesla.
The first product the duo planned to launch was the Tesla Roadster, a high-performance electric sports car to rival gasoline-powered cars in terms of speed and efficiency, however, they faced a major challenge, finances.
Martin and Marc were engineers who had an innovative idea but were by no means capable of self-funding a project so ambitious, as starting an automotive company required a huge amount of capital.
Therefore, they decided to raise the capital needed from investors. By February 2004, Martin and Marc had successfully completed their Series A (first round of funding).
The duo raised $7.5 million for their startup, Tesla Motors, however, $6.5 million of this came from a single investor, Elon Musk, making him the chairman of Tesla’s board of directors.
At the time, Elon Musk had recently sold his fintech company, PayPal, to eBay for $1.5 billion, from which he received $175.8 million as PayPal’s largest shareholder, making him a well-off entrepreneur, with millions of dollars to invest.
Elon, already a fan of electric vehicles, saw potential in Martin and Marc’s vision to revolutionize global transportation through Tesla’s vehicles. This explains why he made such a large investment into a startup with no products or staff.
Furthermore, Elon’s passion for the project propelled him to take a more active role in Tesla, providing technical guidance on the design of the Tesla Roadster.
With this influx of capital, the engineering duo, Martin and Marc, began expanding the Tesla team. In February 2004, they hired Ian Wright, a fellow engineer, to help design and test a prototype of the Tesla Roadster.
In April of the same year, the duo hired JB Straubel as the chief technology officer, to develop the battery system of the Tesla Roadster.
These five men are credited as the founders of Tesla. They had different backgrounds and skills, but shared a common vision, creating an electric car company that would revolutionize global transportation.
More Money, More Power
Martin and Marc had a dream for the future, but for this dream to become a reality, the duo needed money and lots of it.
Fortunately for them, raising money was Elon Musk’s specialty. Elon was not only rich, but he was also an investment magnet, attracting investors to whatever projects he was associated with.
In February 2005, Elon led Tesla’s Series B funding round, through which the company raised $13 million from investors such as Valor Equity Partners.
Subsequently, in May 2006, Elon co-led Tesla’s third round of investments raising an additional $40 million from VC firms and investors such as Google’s co-founders Sergey Brin and Larry Page, and former eBay President Jeff Skoll.
Elon led yet another funding round in May 2008, bringing the total investments in Tesla to over $100 million.
Interestingly, with each round of investment mentioned above, Elon Musk contributed millions of dollars, increasing his stake in Tesla. Martin and Marc, on the other hand, could not afford to make similar investments, therefore they had to dilute their shares.
Martin and Marc sold a large portion of their shares in Tesla to Elon Musk and other investors, to finance the Tesla Roadster’s product development, a mistake the duo would come to regret.
By January 2009, Tesla had raised $187 million, with $70 million coming in from Elon Musk alone, providing the Tesla team with the funding required to produce the Tesla Roadsters. With all this, however, business operations still weren’t going smoothly at Tesla.
After facing technical and logistical difficulties, the Tesla Roadster’s production cost was much higher than expected. The main cause for this was Martin Eberhard’s inadequacies as CEO. Martin had set up an inefficient supply chain that spanned across 3 continents, leading to a slow and costly production cycle.
Firstly, the Roadster’s parts were sourced from England, France, Detroit, and Taiwan. Those parts were then transported to England for assembling and testing. After, the assembled vehicles were shipped to North America, where they were delivered to customers.
This system made the cost of producing each car more expensive than its purchase price, causing Tesla to lose money on each car sold.
Understandably, Tesla’s investors, including Elon Musk, were uncomfortable with Martin’s style of running the company. According to Elon, Martin assured investors that production costs would reduce to $65,000 after the first 100 units were made.
Note: At the time, each Roadster was sold for about $100,000, therefore Martin implied Tesla would start making a profit on each car sold.
In August 2007, Elon ordered a full cost breakdown of the Tesla Roadster. With this, Elon discovered Martin had been misleading investors as each car cost Tesla about $140,000 to produce. Furious at this discovery, Elon organized a shareholder coup to fire Martin Eberhard as CEO of Tesla, while Martin was on a business trip outside the country.
By January 2008, feeling betrayed by Elon’s actions, Martin and Marc decided to leave Tesla altogether, selling most of their shares. Martin then sued Elon Musk and Tesla for defamation, breach of contract, and wrongful termination, but later settled the case out of court.
In October of 2008, Elon was appointed CEO of Tesla, a complement to his position as the chairman of the Tesla board of directors, and with this power, Elon arranged favorable stock compensations for himself. For example, from a stock compensation plan arranged in 2018, Elon Musk got paid about $56 billion worth of Tesla stock in 2022.
Elon Played His Cards Right
Tesla is one of the most successful and innovative companies in the world, but its history is full of ups and downs.
Elon Musk is the only Tesla co-founder that became extremely rich from the company because he invested more, risked more, and worked more than anyone else involved in the company. He is not only the face of Tesla, but also the driving force behind its success.
Also, at every step of the way, Elon maximized his different positions at Tesla to get the most benefits possible. As an investor, he put in nearly his entire net worth, up to the point of debt, to become Tesla’s largest shareholder. Then, as the CEO and chairman, he collected minimum wage, up until 2020, when he began “working for free” to maximize his stock compensations, going all in on Tesla shares.
Ian Wright left Tesla in May 2005, selling all of his shares, just one year after joining the company, to start his own company, Wrightspeed, which develops electric powertrains for trucks and buses.
Martin Eberhard and Marc Tarpenning, left in 2008, selling most of their shares, over issues working with Elon.
JB Straubel stayed at Tesla until July 2019, when he stepped down as CTO and became an advisor. It is estimated that his stake in Tesla is only about 0.12%, worth $1.1 billion, meaning he also sold off most of his Tesla shares.
Elon Musk, however, is the only co-founder who remains at Tesla. He is currently Tesla’s largest shareholder, owning about 13.04% of the company.
Note: As of September 2023, Elon Musk is the richest person in the world with a net worth of about $269 billion. Most of his wealth, however, comes from his ventures outside of Tesla. He also owns SpaceX, X (fka Twitter), The Boring Company, etc.
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