Tesla is focused on making electric cars more affordable, which is tough. You need high volume to make cars affordable. When we started, other car companies made a lot more cars, so they got much better economies of scale. As we build more cars in higher volume, we make electric cars available to a wider range of people at lower cost.505
The first version of a product has both a new-technology problem and a low-volume problem. You want to make your mistakes at a small scale, work the bugs out of the system, then reach for scale.506
With a new product, the first thing engineers try to do is make it work. After you make it work, then you optimize and optimize and optimize.507
The master plan was:
Build a sports car.
Use that money to build an affordable car.
Use that money to build an even more affordable car.
(While doing above, also provide zero-emission electric power generation options.)508
We had to start off with step one, because it was all I could afford with what I made from PayPal. I thought our chances of success were so low, I didn’t want to risk anyone’s funds but my own in the beginning.509
The list of successful car startups is short. The number of American car companies that haven’t gone bankrupt is a grand total of two: Ford and Tesla. Starting a car company is idiotic, and an electric car company is idiocy squared.510
The idea is to drive to mass market as rapidly as possible, at the pace technology matures.511
As a little startup building a car, there was no way we could afford a giant plant to make hundreds of thousands of cars a year. That’s the kind of volume you need to make cheap cars, and that plant would cost a billion dollars we didn’t have.
Our first car was a sports car, not because we think the world lacks a sports car, but because it was the right entry point for the market. If you have a new technology, the right place to enter is high unit-cost, low unit-volume.512
A low-volume car means a much smaller, simpler factory with most things done by hand. Without economies of scale, anything we built would be expensive whether it was an economy sedan or a sports car. Some people would be prepared to pay a high price for a sports car. No one would pay $100K for an electric Honda Civic, no matter how cool it looked.513
When a new cell phone or a new laptop comes out, they tend to be expensive at first, because they’re figuring out the issues and it takes time to optimize. Over time, with scale, that new technology becomes cheaper and cheaper.514
That is the unique and important thing Tesla accomplished. It is not the design of an electric vehicle, an electric vehicle prototype, or even low-volume production of a car. The hard part is not creating a prototype or going into limited production. There have been hundreds of car startups over the years that got that far.515
The difficult thing—which has not been accomplished by an American car company in one hundred years—is reaching volume production without going bankrupt. That is the actual hard thing. The last American car company to reach volume production without going bankrupt was Chrysler. That was in the 1920s.516