Elon Musk tells the founding story of Tesla

January 27, 2026

“My interest in electric cars goes back 20 years to when I was in college,” Elon explains in this 2010 interview. “In fact, the original reason I came out to Silicon Valley was to go to Stanford to get a PhD in applied physics and material science to develop advanced energy storage technologies for electric vehicles.”

After dropping out of his PhD program to build Zip2 and PayPal in the dot com boom, Elon got another chance to work on electric vehicles:

“The thing that kind of spurred things in 2003 was a launch that I had with Harold Rosen and J. B. Straubel . . . I mentioned that I had originally come out to California to work on electric vehicle technologies, and Harold told me a bit about his past with Rosen Motors. Then J. B. mentioned that there was this company called AC Propulsion that had this very rough prototype of an electric sports car running on lithium ion batteries that was getting really good performance. I said that sounds interesting and thought that the advent of lithium ion was a key enabler for electric cars.”

After the lunch, J. B. arranged for a test drive of the AC Propulsion tzero in 2003, which had performance specs that were similar to the Tesla Roadster, but it was basically a kit car — it didn’t have a roof or safety systems; it wasn’t something you could sell to people; and it was very expensive. Elon tried to convince them to commercialize it:

“I’m willing to fund you if you want to commercialize the tzero,” Elon said.

But the AC Propulsion team wasn’t interested — they liked to tinker and experiment, but they weren’t interested in creating a production-grade electric sports car.

“I kept pushing them on this and eventually said, ‘Look, if you’re not going to do it, then I’m going to do it,’” Elon remembers. “And then they said that if you’re going to do it, there’s some other people we should introduce you to.”

It’s through this introduction that Elon met Martin Eberhard, Marc Tarpenning, and Ian Wright. Then Elon was able to convince J. B. to join, which rounded Tesla’s 5-person founding team.

Their goal was to make mass-market cars, but they decided to start with the $100,000 Tesla Roadster. Elon explains why:

“It’s the only entry strategy that I thought had any chance of success. As a small startup, we don’t have the economies of scale of the big car companies. Plus we’re working with the first generation of technology. And there are two things that are really important for making technology available to the mass market and affordable: economies of scale and optimizing the design. And it usually takes three versions of something to reach mass market potential. So using that basic rule of thumb, the strategy I had was to start off with a high-price, low-volume car — the sports car. There’s only a few types of cars that people are willing to pay a high price for, and a sports car is one of them . . . And then phase two, which we’re seeing now, is the Model S, which is mid-price, and mid-volume. Then phase three is the high-volume, low-price car.”