Tesla: The True Untold Story

Tesla, Inc. (TSLA) is often synonymous with its CEO, Elon Musk, whose leadership and controversies have often kept the company in the limelight. Tesla’s sleek designs, once cutting-edge technology, and skyrocketing stock price have made it one of the most valuable and most-watched companies in the world.

Yet beneath the surface lies a more complex and intriguing story—one that begins not with Musk, but with two engineers, Martin Eberhard and Marc Tarpenning, whose work prepared the way for Tesla to become perhaps the most important car company of the past two decades.

Key Takeaways

• Tesla Motors was founded as an electric carmaker by engineers Martin Eberhard and Marc Tarpenning in 2003.
• Elon Musk, co-founder of X.com, which later merged to form PayPal Holdings Inc. (PYPL), was an early investor in Tesla and a board member before taking over as CEO in 2008.
• After a series of internal conflicts, Musk, once chair of the board, pushed out Eberhard, with Tarpenning leaving soon after.
• While Musk has helped lead Tesla to global success, Tesla owes its core vision to the creativity of its original founders.

From E-Readers to EVs: The Founding of Tesla Motors

Martin Eberhard and Marc Tarpenning founded Tesla Motors in July 2003, choosing the company name as a tribute to the inventor and electrical engineer Nikola Tesla. Both had backgrounds as technology entrepreneurs, not automobiles, with Eberhard earning bachelor’s and master’s degrees in electrical engineering from the University of Illinois Urbana-Champaign and Tarpenning completing computer science studies at the University of California, Berkeley. Eberhard became CEO of the new company, while Tarpenning headed up its engineering and financial operations.

Eberhard and Tarpenning met in the 1990s when they co-founded NuvoMedia, a company that produced one of the first successful e-readers, the Rocket eBook. After selling NuvoMedia to Gemstar-TV Guide for $187 million in 2000, the duo began exploring new ideas. Eberhard’s interest in sports cars, combined with a growing concern about climate change and America’s dependence on foreign oil (particularly after 9/11), led them to turn to electric vehicles (EVs.)

“I got interested in the idea of the electric car somewhere in 2002, just because I was looking for my next car,” Eberhard recalled in an interview. The transition from e-readers to EVs wasn’t that far of a leap. Both combined new technologies with established product categories, and both required solving complex problems concerning battery life and power management.

Tesla wouldn’t be the first to attempt to build and market EVs for the masses. General Motors (GM) had produced the EV1 between 1996 and 1999, though they recalled and destroyed most units. Toyota Motor Company (TM) released the RAV4 EV in 1997, and various startups like AC Propulsion (whose tzero sports car would later influence Tesla) had promising prototypes. Other companies during the 2000s, like Fisker Automotive, Think Global, and Coda Automotive, were also working on EV technologies, though most failed.

What set apart Eberhard and Tarpenning’s vision for Tesla was their aim to design a high-performance mainstream electric sports car that would overturn the common view that EVs could only be slow-moving and golf cart-like.

Other co-founders of Tesla originally included J.B. Straubel—the company’s chief technology officer (CTO) until 2019—and Ian Wright, who left Tesla in 2004. Wright later founded the EV powertrain company Wrightspeed.

The Roadster

Eberhard and Tarpenning soon turned to the lithium-ion batteries used in laptops and cell phones as the most viable power source for electric cars. They undertook extensive testing, buying and dismantling thousands of laptop battery cells to evaluate their performance for automotive use.

The first Tesla Roadster was a collaborative effort. The company licensed AC Propulsion’s zero electric powertrain technology and worked with Lotus to modify its Elise chassis to avoid the massive overhead of building an entire car from scratch.

A key distinction between the Roadster and earlier electric cars involved the 6,831 lithium-ion battery cells integrated into its complex energy management system. This powered the Roadster beyond the then-existing ranges for EVs (about 245 miles per charge) while delivering sports car performance (0 to 60 mph in under four seconds).

The engineering challenges were immense. New cooling systems had to be invented to prevent the batteries from overheating, and new software had to be written to manage power distribution-along with first-of-its-kind safety features to protect the car’s occupants and the battery packs during accidents. Each Tesla vehicle has since integrated some version of these foundational technologies.

The Need to Raise Capital: Enter Elon Musk

Eberhard and Tarpenning had funded the business with their own money. Despite generous government subsidies for electric carmakers, by 2004, the founders realized they still needed significant external funding.

The pair approached Musk, who had a growing reputation for backing ambitious, high-tech ventures. Tesla raised $7.5 million in its Series A funding in 2004, with Musk leading the round by investing $6.5 million, thus guaranteeing himself the role of chair of the company’s board. Despite an initial lack of involvement in day-to-day operations, Musk’s notoriety and outsized investment played a crucial role in establishing the fledgling company’s credibility and attracting other investors.

Tesla continued to face mounting financial pressure—automotive manufacturing is capital-intensive enough, but EV manufacturing came with significant technological and regulatory hurdles. Musk provided further capital in additional funding rounds, eventually investing over $70 million.

Internal Struggles and Leadership Changes

The company opened its first manufacturing plant in Fremont, California, a 5.3 million square-foot factory that had previously been co-owned by Toyota and General Motors. It included two paint facilities and 1.5 miles of assembly lines. Meanwhile, Musk began asserting greater control over Tesla’s operations, strategy, and public image. Though initially an advisor and investor, he wanted greater control over product decisions and designs, often overriding management on critical issues.

As Tesla grew, tensions between Eberhard and Musk began to flare about the company’s direction, spending, and management. By 2007, with the Roadster behind schedule and well over budget, those conflicts came to a head.

In August 2007, Tesla’s board of directors—dominated by Musk—decided to demote Eberhard from CEO to president of technology and appointed Michael Marks as interim CEO. Within five months, Eberhard was gone from the organization entirely. Ze’ev Drori took over for Marks, only to be replaced by Musk in October 2008 as the company faced a crisis amid the global financial crisis.

Tarpenning, too, left Tesla in 2008. Within the next decade, Musk would bring the Roadster to market, along with the Model S luxury sedan, Model X SUV, and more affordable, mass-market Model 3.

The Legal Battle and Historical Narrative

In 2009, Eberhard filed suit against Tesla and Musk for breach of contract and slander, respectively. At the heart of the dispute was Eberhard’s claim that Musk was portraying himself as Tesla’s founder, rather than an early investor who later usurped control.

Eberhard settled out of court in September 2009—the terms weren’t made public. Still, one visible outcome was that Tesla would legally recognize five people as company founders: Wright, Eberhard, Tarpenning, Straubel, and, of course, Elon Musk.

Whatever the settlement, the dominant press narratives were about “Elon Musk’s Tesla,” relegating Eberhard and Tarpenning to mere footnotes in the recounting of the company’s history.

Legacy and Recognition

Eberhard and Tarpenning are responsible for many crucial technological and engineering changes that made both Tesla and the wider adoption of EVs possible:

• Pioneered the use of lithium-ion batteries in EVs
• Developed the original business plan for starting with a premium electric sports car before moving to mass-market vehicles
• Created the Tesla brand and its association with exciting cars and sustainability
• Built the initial team that would develop much of the foundational technology

After parting ways with Tesla, Eberhard led Volkswagen AG’s (VWAGY) EV unit for a short while before establishing a company specializing in EV battery systems. At the same time, Tarpenning became a venture investor in several clean technology startups.

The Value of Tesla Today

Some analysts have long puzzled about Tesla’s market valuation. Despite producing far fewer vehicles than established automakers like Toyota, Ford Motor Company (F), or Volkswagen, Tesla’s market capitalization often exceeds that of all major American automakers combined.

This disconnect stems from many viewing Tesla not primarily as a car manufacturer but as a technology company with multiple growth vectors. As a UBS analyst noted in 2025, “We can almost definitively say the market doesn’t treat TSLA like an auto company, but rather an AI company,” with less emphasis placed on quarterly automotive deliveries and more on the company’s potential to monetize its renewable energy, software, and AI capabilities.

This valuation approach has been controversial. Critics argue that Tesla faces intense competition in autonomous driving from both tech companies and traditional automakers, and that its AI advantages are likely overstated, especially since competitors like OpenAI, Anthropic, and Alphabet Inc. (GOOG) dominate the AI space. Supporters, nevertheless, counter that Tesla’s vertical integration—controlling everything from hardware to software—gives it unique advantages in developing and deploying AI applications.

When Was Tesla Motors Founded?

Tesla Motors was established in 2003 as an electric car maker by a pair of American engineers: Marc Tarpenning and Martin Eberhard.

When Did Tesla Start Producing Cars?

Tesla launched in 2003 and released its first car in 2008. Between that time, Tesla focused its operations on research and development and the production of its first product. Its first offering was the Roadster, which has since been discontinued.

How Successful Is Tesla Motors?

Tesla has the largest market capitalization of all automakers at over $790 billion as of April 2025. However, it remains far from the leader in auto sales, and is seeing increasing competition from other EV makers.

The Bottom Line

The story of Tesla is far more nuanced than the “Great Man” narrative that has entered popular culture. While Musk’s leadership has undeniably helped transform Tesla into the industry giant it is today, its origin, vision, and core technologies owe much to its original co-founders, Eberhard and Tarpenning.

Understanding Tesla’s history provides insights not just about the company itself, but about the nature of technological change, the cutthroat world of startups, and the personal dynamics that often shape industries as much as earnings and market share.

Correction—April 25, 2025: This article has been corrected to state that Martin F. Eberhard received his degrees from the University of Illinois Urbana-Champaign.