It’s a startup in an industry where no one really starts up. It’s a car company that started up with not just an electric car, but a high-end electric sportscar . Tesla Motors has been making waves since it was founded back in 2003, but lately talk has been not just of it’s underdog status or the celebrities that have bought it’s flashy Roadster. 

In the summer of 2009, the California company began to dominate auto news as a power to be reckoned with.

How Tesla is losing its outsider status

In May, Daimler invested $50 million for 10 percent of the automaker. In June, the U.S. Department of Energy approved $465 million worth of low-interest loans for the company. And in August, Tesla announced that after just 6 years in business and at a time of economic crisis- particularly for American automakers-, they had made a profit.

Shortly after all this good news, we stopped in at Tesla’s flagship store in Menlo Park, California- where, in a sign of the times, the company has taken up residence on an abandoned auto row. We talked to Diarmuid O’Connell
, Vice President of Business Development, who- with experience in Colin Powell’s State Department- was instrumental in securing the government funding.

A VPs journey from the Bush State Department to an EV startup

“I mean look all of these things are a team effort, but I certainly had the lead. Back in the day when we originally contemplated the program that we were ultimately funded by, which was back in 2006, I was probably the only one at the table that had any government experience, as brief as that was. I spent two years working- a huge opportunity- I worked for Secretary Powell in the State Department, but I”m not a professional in the government and it was a sort of brief period of time. But for all of that I was the one who had been to Washington most recently.

So we got this program started, we advocated for the technology, for the brand, on the merits of what we were doing. It happened to fit a program that was part of the ’05 Energy Bill. A program that was sort of improved, or changed somewhat in the ’07 Energy Bill and ultimately, that was program that we were approved for a loan from.

That loan will help us to do two things. One, to expand our powertrain manufacturing facilities. So these are the powertrains- batteries, motors and power electronics and the system that brings it all together- that we will sell to other auto manufacturers so they can build their own EVs using our technology.

And then it will also give us the ability to create a manufacturing operation for our second car, the model S. It is half the cost, more than half the cost and more than twice the utility. It’s a 5 passenger, plus 2, so a 7 passenger sedan effectively, with a variety of ranges, up to 300 miles of range. So those to programs funded by the government effort.”

faircompanies: There was a little bit of controversy early on that the money was going to someone selling 100,000 dollar sportscars.

“Yeah, well, unfortunately everybody’s activities around this stuff were conflated together. The moneys that we accessed weren’t part of the bailout of GM and Chrysler. That was a balance sheet bailout, quite different from what we’re doing. It had nothing to do with subsequent bankruptcy efforts. And most importantly it has nothing to do with the Roadster program. Nothing,nada, not at all. It doesn’t help us sell the Roadster, improve the Roadster, anything, unrelated.

The requirements for how we use the funds are very stringent. They’re focused on two forward projects. One, the much more affordable sedan, that advances the technology and the whole category. And two, thepowertrain facility which advances again the technology. As well as, and this is important, creates an export opportunity. We’re already selling thesepowertrains to a foreign automaker, Daimler, and that’s a very good story.

So neither bailout nor stimulus. A program that was conceived in 2005 and just happened to be funded around the time that all this other stuff took place.”

I think that’s one of the interesting things that she [Tesla’s Rachel Konrad who gave us a tour of company’s facilities in this video] was talking about. That it’s not just about selling cars, Tesla isn’t, it’s about really advancing the technology.

“Yeah, the mission of this company, pure and simple is to stimulate, create a mass market for EVs. And our part in doing that is one, to create cars that are exciting, that demonstrate the technology, that are ever more affordable and that are produced in ever greater numbers.

And then on the second hand, to sell our powertrains to other manufacturers who are frankly more proficient, at this point, at making cheaper cars. They’ve been doing this for a long time. Just take our powertrain and design one of those cars that you do. Take advantage of all of your economies of scale and god bless, go make EVs.”

Are you working on standards for the industry or are you up to make agreements with other companies to push for an electric standard plug for high voltage…?

“We don’t spend a lot of time theorizing about how we can bring everyone together around standards. We’re focused foremost just on creating standards just by doing what we’re doing. I mean, that’s how it’s all going to happen. That’s how most standards have evolved. Sure there’s been significant negotiation around certain key standards out there. But right now the importance is much more about just getting this technology out there. The market will sort out which systems work out best.

We’ve started with the proposition that whatever we’re doing it has to fit into the existing electrical infrastructure. So this car can plug right into that outlet. So it’s a very simple, talk about standards, we’re just taking the existing ones.

I don’t know if there’s an imperative to create a single standard battery. Frankly think that’s not a good idea because it retards progress and improvements over the course of time. And then on other fronts, certainly there’s a need for information protocols to make vehicles talk to the grid in future iterations, but right now the pressure is on getting stuff out there, creating facts on the ground and the standards will take care of themselves.”

Could you comment on the agreement with Daimler, is Daimler, because they just about a stake in the company, do they collaborate with you in the research and development of the powertrains you guys are doing?

“The most visible aspect of Daimler’s partnership with us is probably the least important. They acquired 9 percent of the company and that’s great, the money is helpful in advancing what we’re doing.

The most important elements are in strategic agreements around current vehicle programs, future vehicle programs, and so forth. So the answer is yes, we are cooperating with them in terms of access to the supply chain, vehicle engineering, vehicles that we’re doing, vehicles that they’re doing, it’s all there.”

The German government announced that by 2010 they want at least a million electric vehicles on the road. Do you want to take advantage of it by selling Teslas directly there or by selling powertrains to Daimler.

“Both, the simple answer is both. We intend to do both.”

You recently moved your headquarters, you’re going to move your headquarters to the Stanford Business Park. Why did you choose Silicon Valley in general to have your operations. Is there something particular about Silicon Valley, the DNA to innovation, that you chose to have your headquarters here. Or why didn’t you choose to have your headquarters in Detroit?

“We started here. We started here and the reason I think we’ve been successful to date is because we’re repurposing the existing talent here that lead to the vast advancements in computer technology and information technology and so forth. Many of these technologies are common and important to the development of electric vehicles. So really it makes sense that this effort started here and going forward, it makes perfect sense to keep it headquartered here.

Obviously, we are becoming more and more of a car company. As we become more and more of a car company we’ll become geographically more diversified. We’re planning to do our Model S manufacturing in Southern California. It’s conceivable that we’ll be even more geographically diversified as we pursue other vehicles going forward.”

Do you want to have a facility in Europe, Asia?

“I exclude nothing. It’s hard to project the next 10 years. If we’re successful and we have ambitions in all of these markets. And the extent to which it’s logical to do business there we will.”

Do you see in the midterm the arrival of a compact car, a compact sportscar, made by Tesla?

“Certainly. Yes. We’re very interested in that and are pursuing it. I mean. We have to focus on what we’re doing right now which is building the Model S which is the current project that has been funded to help others make, like Daimler, to make more compact and less expensiveEVs, but we very much want to get to a less expensive one.

But that relies on a couple of things. One it relies on us continuing to iterate the technology to take cost out of the drivetrain, to build capacity in manufacturing, because it’s all of those things that allow us to achieve lower price points.”

Economies of scale?

“Correct.”

How fast do you see 50% of people driving electrics… how fast do you see this happening?

“Historically, the vehicle fleet has turned over relatively slowly. I think one of the numbers I’ve heard is 15 years and frankly I don’t know if that’s a US number or an international number. There are ways of provoking that number as we’ve just done with Cash For Clunkers and they’ve done in Europe with a similar program. So it relies to a degree on how quickly people turn over their existing vehicles. Then to a degree on how quickly we improve and iterate the technology.

I think that by 2030 the majority of vehicles on the road will be electric vehicles and it may be the vast majority.”