Methods of Prosperity newsletter is intended to share ideas and build relationships. To become a billionaire, one must first be conditioned to think like a billionaire. To that agenda, this newsletter studies remarkable people in history who demonstrated what to do (and what not to do). Your feedback is welcome. For more information about the author, please visit seanallenfenn.com/faq.
Last week on Methods of Prosperity:
PayPal sold to eBay, providing Elon with $100 million to put into SpaceX. During this time, Elon and Justine lost their first child. Elon’s determination intensified. SpaceX built the first low-cost rocket built from scratch, failing to launch 3 times. In 2003, Elon partnered with JB Straubel to build electric cars.
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The following is Methods of Prosperity newsletter number 34. It was originally deployed February 8, 2024. As of October 17, 2024, original subscribers have received up to issue number 70: Phil Knight (continued).
Part 34.
Elon Musk
Near Failure of SpaceX & Tesla (continued).
TL;DR
Martin Eberhard and Marc Tarpenning founded Tesla Motors in 2003. They needed to raise $7,000,000 for a prototype of the Roadster from a leading investor. That investor would be Elon Musk. He’d already started working on a similar project with JB Straubel. The EP1 Roadster helped attract $40 million for Tesla Motors’ Series C round in May 2006. By 2007, the Roadster hadn’t shipped to customers yet. At the same time, Elon was trying to get SpaceX off the ground (pun intended). The third Falcon 1 launch failed in September 2008. If the fourth launch failed, that could be the end of SpaceX. In 2008, the economy worsened from the subprime lending fallout. Elon was afraid either SpaceX or Tesla was going to run out of funding.
Key lessons:
• Advertising is unnecessary if your product speaks for itself.
• You will probably run out of money at some point.
• Solve really big problems.
• Sell to rich people first.
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There was no money to spare to attempt another launch. If the fourth attempt failed, SpaceX wouldn’t survive. Elon Musk invested $100 million into SpaceX. His new electric vehicle startup, Tesla Motors, consumed all his extra resources.
In 2003, electric vehicles interested Elon Musk. JB Straubel had been making significant progress developing lithium ion batteries. The guys at AC Propulsion used them in their fiberglass body kit car on a steel frame, that went from 0 to 60 mph in 4.9 seconds. It was a proof-of-concept called the tzero. Elon wanted to bring it into commercial production.
Around the same time, a couple of other guys had the same idea of making a lithium ion battery powered car. Martin Eberhard and Marc Tarpenning are tech entrepreneurs who sold their Rocket eBook. It was an early commercial handheld e-reader. Gemstar–TV Guide International acquired it for $187 million in March 2000. Martin Eberhard visited AC Motors around 2001, inspired by their electric cars. They appeared to be going out of business. He bailed them out with $500,000 to build one of their cars for him with lithium ion.
A car which was gaining a lot of traction was the Toyota Prius. Electric and hybrid cars became a new kind of status symbol. Drivers found it to be perfect signaling to seem concerned about the environment. It replaced the Lexus, BMW, and Cadillac. Eberhard and Tarpenning started working on a new electric car. SUV’s didn’t pencil out as electric vehicles. Not from Tarpenning’s initial financial projections, but a high end sports car did. The US luxury auto market had to be the target. On July 1, 2003, Martin Eberhard and Marc Tarpenning incorporated Tesla Motors.
When was the last time you watched a TV commercial for Tesla?
Notice that marketing to the rich is your best bet. Marketers call it “aspirational marketing.” That is, targeting rich buyers for your initial products. It’s the opposite of marketing low priced, high volume products. Selling high ticket items to a few rich people could be better for things like fine art. Associate the brand with luxury, exclusivity, and high social status. This attracts affluent consumers. Tesla doesn’t focus on traditional advertising. Word-of-mouth marketing and social media is more effective. This creates a powerful brand that resonates with consumers.
Prior to Henry Ford’s Model T in 1908, all automobiles were custom manufactured. This resulted in high prices and limited availability. Refer to Methods of Prosperity no. 19. Since Ford’s assembly line, most modern car manufactures don’t operate that way anymore. BMW doesn’t make their own windshields, upholstery, or rear-view mirrors. Most big car manufactures do only three things in-house. Most often that’s combustion engine research, final assembly, and sometimes, marketing. It’s common practice to outsource advertising. How many commercials do you see with singing hamsters or don’t miss out sales events?
In January 2004, Martin Eberhard and Marc Tarpenning needed funding. To get attention from VC’s, they borrowed a tzero from AC Propulsion and raced it against a Ferrari. The tzero accelerated faster. Compass Technology Partners and SDL Ventures invested. Tesla Motors still needed to raise $7,000,000 for a prototype from a leading investor. Who do you think Eberhard and Tarpenning had in mind?
Understand that these guys all wanted to change the world. Since the Pennsylvania oil rush began in 1859, America has depended on fossil fuels. Remember when Cornelius Vanderbilt made a deal with John D. Rockefeller? Together they would build out America’s fossil fuel infrastructure. Electricity was in competition with oil. Refer to Methods of Prosperity no. 10.
In 1884, a European inventor named Thomas Parker built a practical electric car. German entrepreneur and inventor Andreas Flocken produced an electric vehicle in 1888. In 1906, Baker Motor Vehicle Company made 800 electric cars. That made Baker the largest electric vehicle maker in the world at the time. In 1907, Thomas Edison worked with Henry Ford to make a prototype electric car. It never went into production. Edison did improve the range of the early alkaline batteries. Baker produced the last of their electric cars in 1916. By the 1920’s Anderson Electric Car Company made the Detroit Electric. It was the most popular electric car.
With his investment of $6.5 million, Musk’s significant involvement in the company began. This was in 2004, when he led the initial round of funding. Tesla Motors hired Straubel in May of 2004. They hired a team of engineers and started building the Roadster. Tesla marketed the Roadster to appeal to the aspirations of wealthy individuals. They used a Lotus frame for the Roadster prototype. The body would be carbon fiber. They scheduled it to ship in early 2006. They produced a black, Engineering Prototype 1 (EP1) version of the Roadster in May 2006.
The EP1 Roadster helped attract $40 million for Tesla Motors’ Series C round in May 2006. In the press release announcing Tesla’s funding round, Elon Musk was not listed as founder. The investor list included big names. Sergey Brin, Larry Paige, JP Morgan, Compass Technology Partners, and Valor Equity Partners.
By 2007, the Roadster hadn’t shipped to customers yet. It wasn’t working. Tesla had to start over. SpaceX was still trying to build Falcon 1. SpaceX was burning $100,000 per day. Elon Musk was in financial trouble and had to sell off his silver F1 McLaren. His marriage to Justine was in trouble. On June 16, 2008 he filed for divorce. Not only did Justine get the house, Elon gave her $2 million in cash (minus legal fees). She won $80K per month in alimony, child support for 17 years, and a Tesla Roadster. Elon tied up much of his net worth in Tesla and SpaceX. Both would need cash infusions soon, to cover payroll, and it was unclear where that money would come from. The world’s financial markets had crashed, and regular VC funding was on hold.
After Falcon 1 failed to launch for the third attempt, another set of engineers worked on the Falcon 9. It would replace the Falcon 5, and could replace the legacy NASA space shuttle. To get to Mars, SpaceX started working on the Big F’ing Rocket (BFR). Which evolved into Starship and its booster, Super Heavy. This is the biggest rocket ever built in history.
On July 30, 2008, Falcon 9 had a successful test firing in Texas. All 9 of its engines fired up, and it produced 850,000 lbs of thrust. Three days later, the third Falcon 1 launch failed. If the fourth launch failed, that could be the end of SpaceX.
The team transported the body of the rocket to “Kwaj” (Omelek Island launch site) by barge. This fourth mission had potential to be the final mission. Elon had it transported by military cargo plane from Los Angeles to Hawaii, and then on to Kwaj. No one realized that the pressurized flight could crush the rocket like a water bottle. It arrived damaged. Two weeks later, the team repaired the rocket in its hangar. In the late afternoon of September 28, 2008, Falcon 1 reached orbit.
SpaceX was still building Falcon 9. They would immediately start building Dragon 1. Which would ship 23 cargo missions to the ISS between 2010 and 2020 before retiring. They wouldn’t receive payment from the Malaysian government for a satellite in orbit. Not until 2009, and SpaceX struggled to make payroll until then.
In 2008, the economy worsened. Lehman Brothers Inc. collapsed. The subprime lending fallout impacted the economy. Elon was afraid either SpaceX or Tesla was going to run out of funding. He had run out of money himself.
To be continued…
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– Sean Allen Fenn
PS: Do you know about my livestream podcast? It’s called Hidden Secrets Revealed Live (HSRL), and I record it live on 𝕏 every Wednesday.
