The Story Behind Tesla’s Success (TSLA)

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

Yet beneath the surface lies a more complex story—one that begins not with Musk, but with two engineers, Martin Eberhard and Marc Tarpenning, whose hard work and determination set the stage for what would become a revolution in electric vehicles and sustainable energy.

Key Takeaways

• Tesla Motors was founded as an electric carmaker by engineers Martin Eberhard and Marc Tarpenning in 2003.
• Elon Musk, co-founder of PayPal, was an early investor in Tesla and board member, before taking over as CEO in 2008.
• After a series of internal conflicts, Musk (as chairman of the board) pushed out Eberhard, with Tarpenning leaving soon after.
• To be sure, Musk has led Tesla to global success across sectors beyond electric vehicles.
• Still, Tesla owes its core vision to the hard work and 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, the company name a tribute to the inventor and tinkerer of electricity Nikola Tesla. Both had backgrounds in technology entrepreneurship, not automobiles, with Eberhard earning a degree in electrical engineering from Stanford University while Tarpenning completed computer science studies at UC Berkeley. Eberhard became CEO of the new company, while Tarpenning led 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 personal interest in sports cars, combined with a growing concern about climate change and America’s dependence on foreign oil (particularly following the events of 9/11), sparked a curiosity about electric vehicles.

“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. But the transition from e-readers to electric vehicles wasn’t as disconnected as it might initially appear. Both combined new technologies with established product categories, and both required solving complex problems related to battery life and power management.

It’s important to note that Tesla was far from the first attempt at building a mainstream electric vehicle company. Throughout the 1990s and early 2000s, several ventures had already tried to bring electric cars to market. General Motors had produced the EV1 between 1996 and 1999, though they famously recalled and destroyed most units. Toyota, too, had released the RAV4 EV in 1997, and various startups like AC Propulsion (whose tzero sports car would later influence Tesla) had developed promising prototypes. “Better Place,” founded in 2007 by Shai Agassi in Israel, were developing an innovative battery-swapping systems for electric cars with significant backing from investors. Other companies during the 2000s, like Fisker Automotive, Think Global, and Coda Automotive, were also working on electric vehicle technologies, though most would struggle and eventually fail.

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 perception at the time that electric vehicles were slow-moving impractical “golf carts”-an electric car that was powerful, beautiful, and with zero emissions. This meant launching with a high-end product to secure market presence before expanding to develop more cost-effective cars for wider consumer segments.

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

The Roadster: A New Vision for Electric Vehicles

Eberhard and Tarpenning achieved their technological breakthrough atter realizing out that the lithium-ion batteries used in laptops and cell phones could be a 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 actually a collaborative effort. They licensed AC Propulsion’s tzero electric powertrain technology, which provided a compact, high-performance drivetrain. They also worked with Lotus to modify their Elise chassis to avoid the massive overhead of building an entire car from scratch.

A key distinction between the Roadster and earlier electric cars was its 6,831 lithium-ion battery cells integrated with a complex energy management system. With this, the Roadster was able to exceed existing ranges for electric vehicles (about 245 miles per charge) while delivering sports car performance (0-60 mph in under 4 seconds).

The engineering challenges were immense. New cooling systems had to be invented to avoid battery overheating, and new software had to be written to manage power distribution-along with first-of-its-kind safety features to protect not only the car’s occupants, but also the battery packs during accidents. All of Tesla’s vehicles later would integrate some version these foundational technologies.

The Need to Raise Capital: Enter Elon Musk

Building a car company from scratch requires an enormous amount of capital. Eberhard and Tarpenning had funded the business with their own money, and despite government subsidies for electric carmakers, by 2004 the founders realized they would need to raise significant external funding. Development costs for the Roadster prototype were escalating rapidly, particularly for the complex battery management system and powertrain components, putting them well beyond what the founders could finance personally.

The pair approached Elon Musk due to his interest in sustainable energy and transportation technologies, along with his substantial wealth and growing reputation for backing ambitious, high-tech ventures and his involvement in the private space exploration startup SpaceX. Indeed, Eberhard and Tarpenning first met Musk back in 2001, when he spoke at a Mars Society talk at Stanford University.

Tesla raised $7.5 million in its Series A funding in 2004, with Elon Musk leading the round by investing a full $6.5 million, and guaranteeing himself the role of chairman of the company’s board. Despite a lack of involvement in day-to-day operations at the time, Musk’s notoriety and outsized investment played a crucial role in establishing the fledgling company’s credibility and attracting other investors.

As Tesla continued to face mounting financial pressure due to the complex nature of automotive manufacturing combined with strict regulatory requirements and unforeseen technical difficulties, Musk kept supporting the company-providing substantial financial backing through additional funding rounds, with his personal investment ultimately reaching over $70 million.

Internal Struggles and Leadership Changes

With this ample capital, the company was able to open its first manufacturing plant in Fremont, CA, a 5.3 million square-feet factory that had been co-owned by Toyota and General Motors, which included two paint facilities and 1.5 miles of assembly lines. At the same time, Musk began to assert greater control over Tesla’s operations, strategy, and public image. Though initially serving primarily as advisor and investor, he gradually involved himself more and more in product decisions, design reviews, and engineering challenges, often overriding management on critical issues.

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

In August 2007, Tesla’s board of directors—dominated by Musk’s influence—made the decision in to demote Eberhard from CEO to President of Technology and appointed Michael Marks as interim CEO on short notice. And by December 2007, Tesla had completely removed Eberhard from the organization. This transition period saw rapid leadership changes. Ze’ev Drori took over after Marks’ short stint, only to be replaced by Musk himself as CEO in October 2008 as the company faced existential crisis amid the global economic downturn.

Tarpenning, too, ultimately left Tesla in 2008. The controversial exit of the two original founders, nevertheless, brought the initial Tesla vision closer to reality by inaugurating the Musk period, who would see through 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

The aftermath of Eberhard’s departure was indeed messy. Eberhard filed a lawsuit against Musk and Tesla, Inc. in 2009-where he accused them of both breach of contract and slander. At the heart of the dispute was Eberhard’s claim that Musk was trying to rewrite history by portraying himself as Tesla’s founding father rather than an early investor who later usurped control.

Court documents reveal the intense arguments and personal enmity between the two men. Eberhard claimed Musk forced him out of Tesla and then tried to erase his role from Tesla’s history. Musk responded by stating his financial backing and subsequent leadership rescued Tesla from imminent collapse.

Eberhard settled out-of-court in September 2009, though the terms were not disclosed to the public. Still, one visible outcome was that Tesla would legally recognize five people as company founders: Ian Wright (who departed the company in 2004) would join Eberhard and Tarpenning as Tesla’s recognized founders along with JB Straubel and, of course, Elon Musk.

Regardless, public opinion moved in Musk’s favor as Tesla appeared to thrive under his charismatic leadership and growing influence in the broader tech space. Media representation alongside popular cultural narratives began to present Tesla entirely as “Elon Musk’s Tesla,” relegating Eberhard and Tarpenning to mere footnotes in Tesla’s story.

Legacy and Recognition

The original two founders’ contributions to Tesla’s story cannot be overstated. Eberhard and Tarpenning not only conceived the vision for a high-performance electric vehicle company but also:

• Pioneered the use of lithium-ion batteries in electric vehicles
• 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 innovation and sustainability
• Built the initial team that would develop much of the foundational technology
• Approached Elon Musk to be an investor

After parting ways with Tesla, Eberhard led Volkswagen’s electric vehicle unit for a short while before establishing a new company specializing on EV battery systems, while Tarpenning became a venture investor in several clean technology startups.

In recent years, there has been a growing awareness of their role at Tesla. Indeed, Tesla would not exist in its current form without Eberhard and Tarpenning laying out its vision and technical direction. Tesla’s unique identity, especially compared to traditional car companies, stems from its original founders even as Musk proved vital to its long-term success.

Today, Tesla remains committed to innovation in manufacturing electric vehicles and developing EV charging infrastructure. While, industry projections suggest electric vehicle sales will represent around 30% of total new car registrations worldwide by 2030, the company is expanding its reach beyond cars, into home solar power generation and battery storage while simultaneously working on artificial intelligence (AI), autonomous driving technology, and robotics.

Tesla’s Full Self-Driving software is one of the most extensive commercial usages of AI in transportation, by training machine learning models with large data sets gathered from Tesla vehicles. The company has also unveiled its humanoid robot project, “Optimus,” designed to eventually handle dangerous, repetitive, or boring workplace tasks. Technological advancements that extend beyond conventional car production have led many investors to see Tesla primarily as a technology and AI enterprise rather than merely an automobile manufacturer.

Note

Tesla’s market valuation has long puzzled some analysts. Despite producing far fewer vehicles than established automakers like Toyota, Ford, 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 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 may be overstated-especially with platers like OpenAI, Anthropic, and Google dominating 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. The company proclaims a new upcoming version of the Roadster is the quickest car in the world.

How Successful Is Tesla Motors?

Tesla Motors 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 electric vehicle makers.

The Bottom Line

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

Understanding Tesla’s history provides insights not just about the company itself, but about the nature of technological disruption, the cutthroat world of entrepreneurship, and the personal dynamics that can shape the most revolutionary technologies. In recognizing the contributions of all those who built Tesla—from its original founders to its current leadership—we gain a more accurate and instructive picture of how innovation really happens.