Tesla: Company History and the Story Behind Its Success

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Tesla was founded in July 2003 by two engineers, Martin Eberhard and Marc Tarpenning, not by Elon Musk. Musk entered in 2004 as the lead investor and chairman of the board, took over as CEO in October 2008, and later won the legal right to be called a co-founder. The company’s success rests on both halves of that story. The founders set the plan: prove with a lithium-ion sports car that electric vehicles could be fast and desirable, then use that credibility to move down-market. Musk supplied capital, control and a public profile that carried the plan through the Roadster, the Model S and, eventually, the mass-market Model 3.

Who founded Tesla

Eberhard and Tarpenning came from the technology industry, not the auto industry. Eberhard studied electrical engineering at the University of Illinois Urbana-Champaign, and Tarpenning studied computer science at the University of California, Berkeley. In the 1990s they co-founded NuvoMedia, maker of the Rocket eBook, one of the first commercially successful e-readers, and sold it to Gemstar-TV Guide in 2000 for $187 million.

Eberhard has said his interest in electric cars began around 2002, when he was shopping for a new car of his own. He liked sports cars, but he was also concerned about climate change and about U.S. dependence on foreign oil, a concern sharpened by the September 11 attacks. Electric power answered both. When the pair incorporated Tesla Motors in July 2003, Eberhard became CEO and Tarpenning ran engineering and finance.

The company name honors Nikola Tesla, the Serbian-American inventor whose work on alternating current and the induction motor underpins modern electric drive systems.

The electric car landscape Tesla entered

Tesla was not the first company to try selling electric vehicles to the public. General Motors built the EV1 from 1996 to 1999, then recalled and destroyed most of the cars. Toyota released the RAV4 EV in 1997. A small California firm, AC Propulsion, had built a prototype electric sports car called the tzero, which would directly influence Tesla’s first product. During the 2000s, startups such as Fisker Automotive, Think Global and Coda Automotive also pursued electric cars, and most of them failed.

What separated Tesla’s plan was its target. Earlier EVs were mostly small, slow and practical, which reinforced a public image of electric cars as glorified golf carts. Eberhard and Tarpenning wanted to start with a high-performance car that buyers would want regardless of how it was powered.

The founders’ business plan had a sequence. Start with an expensive, low-volume sports car to prove the technology and build the brand, use the revenue and attention to fund a more affordable car, then use that to fund a mass-market model. Tesla followed roughly that path for the next 15 years.

The Roadster: Tesla’s first car

The founders’ key technical bet was the lithium-ion cell, the same type used in laptops and mobile phones. Rather than designing a large custom battery, they tested whether thousands of small commodity cells could be combined safely into an automotive pack, buying and taking apart large numbers of laptop cells to measure how they performed.

To avoid the cost of engineering an entire car from scratch, Tesla built the Roadster on existing foundations:

• It licensed electric powertrain technology from AC Propulsion, the maker of the tzero.
• It worked with Lotus to adapt the chassis of the Lotus Elise.

The Roadster’s battery pack contained 6,831 lithium-ion cells managed by an energy management system. That gave it a range of about 245 miles per charge, well beyond the electric cars of the time, along with a 0 to 60 mph time of under four seconds.

Getting there required engineering work that had not been done at this scale. Tesla had to develop cooling systems to keep the cells from overheating, write software to manage power across the pack, and design safety features to protect occupants and the battery in a crash.

The Roadster also turned out to be harder to build than planned. Modifying the Lotus design involved far more changes than expected, and Musk later described the strategy of converting the Elise as a mistake. Delays and cost overruns on the Roadster became the main source of conflict inside the company.

How Elon Musk got involved

Eberhard and Tarpenning initially funded Tesla themselves. Even with government subsidies available to electric carmakers, they concluded by 2004 that they needed substantial outside capital. They approached Musk, who had made money from X.com and PayPal and was building a reputation for backing ambitious technology ventures, including SpaceX, which he had founded in 2002.

Tesla raised $7.5 million in its 2004 Series A round. Musk put in $6.5 million of that, which secured him the chairmanship of the board. He was not involved in daily operations at first, but his name and the size of his stake gave the young company credibility and helped attract other investors.

The money did not last long. Car manufacturing is capital-intensive, and electric cars added technical and regulatory hurdles on top. Musk invested in further funding rounds, eventually putting in more than $70 million of his own money. Each round increased his influence over the company’s direction.

In other words, Musk did not buy Tesla in the sense of acquiring an existing company. He bought a large stake in an early-stage startup through venture funding rounds, became its largest shareholder and chairman, and then took over as CEO.

From investor to CEO: the leadership changes

As Tesla grew, Musk moved from adviser to an active voice on product decisions and design, often overruling management. Tensions with Eberhard over spending, strategy and management grew as the Roadster fell behind schedule and over budget.

The conflict came to a head in 2007:

1. August 2007: The board, in which Musk held the dominant position, demoted Eberhard from CEO to president of technology and named Michael Marks interim CEO.
2. Within five months: Eberhard was out of the company entirely.
3. Late 2007: Ze’ev Drori replaced Marks as CEO.
4. 2008: Tarpenning left Tesla.
5. October 2008: Musk replaced Drori and became CEO himself.

Musk took the top job at the worst possible moment. The global financial crisis was underway, credit markets had frozen, and Tesla was burning through cash while trying to ramp Roadster production. A funding round closed in December 2008 kept the company alive. Musk has been CEO ever since.

The founder lawsuit and the five official founders

In 2009 Eberhard sued Tesla and Musk, alleging breach of contract and slander. Central to the case was Eberhard’s claim that Musk was presenting himself as Tesla’s founder when he had been an early investor who later took control.

The case settled out of court in September 2009, and the terms were not made public. The visible result was that Tesla agreed to recognize five people as founders:

• Martin Eberhard
• Marc Tarpenning
• Elon Musk
• J.B. Straubel, the company’s chief technology officer until 2019
• Ian Wright, an early engineer who left in 2004 and later founded the EV powertrain company Wrightspeed

So Musk did not start the company, which existed before he invested, but he is by legal agreement one of its five recognized co-founders. In later press coverage the company became widely known as “Elon Musk’s Tesla,” and Eberhard and Tarpenning were often reduced to footnotes.

How Tesla went from startup to mass-market carmaker

The Roadster went on sale in 2008, five years after the founding, following a period spent almost entirely on research and development. It has since been discontinued. Tesla then followed the founders’ sequence with Musk in charge:

• 2010: Tesla went public on the Nasdaq under the ticker TSLA. The same year it acquired a factory in Fremont, California, previously run by NUMMI, a joint venture of General Motors and Toyota. The 5.3 million square-foot plant came with two paint facilities and about 1.5 miles of assembly lines.
• 2012: The Model S luxury sedan began deliveries. It was the first car Tesla designed from the ground up and built in its own factory.
• 2015: The Model X SUV followed.
• 2017: The company changed its name from Tesla Motors to Tesla, Inc., reflecting a business that by then included solar products and energy storage after its 2016 acquisition of SolarCity. Deliveries of the more affordable Model 3 began the same year.
• 2020: The Model Y crossover launched, and Tesla joined the S&P 500 in December.

Many observers mark the Model 3 as the point Tesla became a mainstream brand. The Roadster and Model S had won over enthusiasts and wealthy buyers, but the Model 3 was the first Tesla priced for a broad market. Musk has said its difficult production ramp brought the company close to failing again, but it turned Tesla into a volume manufacturer.

What drove Tesla’s success

A battery approach that scaled. The founders’ decision to build packs from many small lithium-ion cells, managed by software and cooled by custom thermal systems, became the technical base for every later model.

A premium-first business plan. Starting at the top of the market let Tesla charge prices high enough to cover low production volumes, while building a brand associated with performance rather than compromise.

A brand built on more than the car. From the start, Tesla linked its cars with both excitement and sustainability. The founders created that identity, and Musk’s public profile amplified it.

Capital and persistence. Musk’s repeated investments, and his ability to attract other investors and later public shareholders, kept Tesla funded through periods when the company could easily have failed, as many of its EV-startup peers did.

Vertical integration. Tesla designs much of its own hardware and software and sells cars directly rather than through dealerships. Supporters argue this control helps it improve products faster than traditional automakers.

Why Tesla is valued like a technology company

Tesla’s market value has long puzzled analysts. It produces far fewer vehicles than established automakers such as Toyota, Ford or Volkswagen, yet its market capitalization has often exceeded that of the major U.S. automakers combined.

The explanation is that many investors do not price Tesla mainly as a car company. They focus less on quarterly vehicle deliveries and more on its potential to earn money from software, renewable energy, autonomous driving and artificial intelligence. A UBS analyst put it plainly in 2025, saying the market treats TSLA more like an AI company than an auto company.

That view is contested. Critics point out that Tesla faces strong competition in autonomous driving from both technology firms and traditional automakers, and that companies such as OpenAI, Anthropic and Alphabet lead in AI more broadly. Tesla also faces a growing field of electric carmakers, from legacy manufacturers to newer firms like Rivian. Supporters respond that Tesla’s control over its hardware, software and fleet data gives it advantages in building and deploying AI products that others cannot easily copy.

What the original founders did next

After leaving, Eberhard briefly led Volkswagen’s electric vehicle unit and later started a company focused on EV battery systems. Tarpenning became a venture investor in clean technology startups. Neither became anywhere near as wealthy from Tesla as Musk, whose large and growing stake was the main way the company’s later success translated into personal fortune.

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The Bottom Line

Anyone tracing Tesla's origins or following TSLA stock should separate the company's founding from Musk's role in building it. Eberhard and Tarpenning created the premium-first plan and the battery approach, while Musk's capital and leadership carried that plan through to the Model 3 and volume production. Today the company's market value rests largely on expectations for software, energy and AI, a view that critics dispute.