Eye on the Prize – An Interview with visionary entrepreneur Elon Musk

Falcon 1 Photo Courtesy of SpaceX

Eighty-eight years since a native Frenchman, New York hotelier, Raymond Orteig, offered a $25,000 prize to spur aviation, and 80 years since Charles Lindbergh claimed it for his historic New York-to-Paris flight in the Spirit of St. Louis, goal-oriented prizes are very much with us again. Of course, the stakes are a lot higher these days. $10 million seems a reasonable carrot. For a bit of a window on the motivating power of a competition pointed towards very specific and lofty goals, we buttonholed Elon Musk, wunderkind co-founder of PayPal and its largest shareholder when it was acquired by eBay in 2002 for $1.5 billion. Since then, Musk has given birth to two fast-rising companies; an aerospace venture called SpaceX, and an electric car company dubbed Tesla Motors, honoring electrical engineering pioneer Nikola Tesla. Somehow, the 36-year-old Musk finds time to serve as a trustee of the X PRIZE Foundation, which, having awarded its first $10 million prize for space flight, is now encouraging quantum leaps in medicine and automotive technology.

Elon Musk

Elon Musk

John Grossman: In Congressional testimony you said this: “Few things stoke the fires of creativity and ingenuity more than competing for a prize in fair and open competition.” Why is this?

Elon Musk: I just think the evidence suggests this is so. Why do people compete for the Super Bowl? Why do they compete for the NBA championship? Why do they compete in the Olympics? Look at the space competition between Russia and United States. If there wasn’t a Russian competitive threat, I don’t think we’d have gone from nothing to being on the moon in eight years.

John: You’ve pointed to a kind of Darwinian aspect of prize competitions.

Elon: It just means that the best person or company wins – the one that’s best able to compete.

John: Like JFK’s goal of a man on the moon, do you think a national imperative can just as easily spark significant and perhaps urgent technological leaps?

Elon: Yeah, but why was there that imperative? It didn’t come from nowhere. It came because we were competing with the Russians. It already was a competition; he just decided the United States was going to try to win.

John: Is that what he did? Put a spotlight on the competition?

Elon: There’s no question about that. It rattled everyone. The competition was very clear, but JFK’s contribution was to say that we’re going to compete and we’re going to win. Compete in a real way, as opposed to a half-assed way.

John: I believe in your Senate testimony you proposed a kind of parallel prize universe to the traditional world of NASA contracts, suggesting a prize valued at one tenth of the contract to anyone achieving all the project goals. Has there been any traction to this notion, anything come of your suggestion?

Elon: Not really. I don’t believe NASA has done anything in that respect, although they have done something called the Commercial Orbital Transportation Services Contract. We won that competition.

John: Which came first, the announcement of that competition, seeking private sector partners to help deliver astronauts to the International Space Station, or your commercial venture SpaceX?

Elon: SpaceX was founded in 2002. The NASA competition was announced a couple years after that and the contract was awarded last year.

John: Apparently you don’t necessarily need the creative jumpstart of a prize. SpaceX preceded the NASA competition, and, indeed, your first two businesses, Zip2 Corp and PayPal weren’t prize-chasing ventures. Tell us about them – how and why you started those two companies.

Elon: Zip2 and PayPal were both Internet ventures. When I was in college there were three things I wanted to pursue – problems that I thought would dramatically affect the future of humanity. One was the Internet, another was clean energy, and the third was space exploration. I did the first two companies because the timing was right to do something for the Internet. Zip2 was an Internet software company I started in 1995. I had finished a business degree from Wharton and was working on a Ph.D. at Stanford in high energy density capacitor physics and materials science, but put that on hold to start Zip2, which I sold for over $300 million.

John: And plowed some of that money into PayPal, which you and others started. We know about PayPal now, but at the time there was nothing like it?

Elon: No, other Internet payment companies had preceded PayPal, but they just didn’t do it right.

John: Could it be that a common thread, efficiency, runs through all of your ventures?

Elon: I certainly believe efficiency is a good thing, but that’s not the common thread. The common thread is that I want to get involved in things that will change the world. That’s why I got involved with the Internet and why I’m involved in space today and why I’ve got an electric car company.

Electrical Car interior & exterior photos courtesy of Tesla Motors

John: Rockets and electric cars – serious hardware ventures – that’s quite a leap from high-tech software and cyberspace service businesses, a leap most entrepreneurs wouldn’t dare fathom. Was that a daunting leap for you? How did you steel yourself for the task and limit the possibility of failure?

Elon: It was daunting, definitely. Before I started SpaceX, I met with a particular group of engineers, current and retired engineers from the industry, over a series of Saturdays to discuss whether it was possible to make a revolutionary improvement. I concluded after a number of those meetings that it was possible and then started SpaceX, so I guess I wanted to make sure I wasn’t being foolish about our goals in space.

John: So it was entrepreneurial due diligence but seemingly of a much higher order, because the words you just used were “revolutionary improvement.” You weren’t seeking incremental change or small improvements, but big leaps – both in space and with your electric car venture. Can you tell us where these two ventures stand at the present?

Elon: At SpaceX, we’ve just completed our second test launch, which we felt was very successful. We’re moving into the operational phase of the Falcon 1 launch vehicle later this year, launching a U.S. military satellite and a satellite for the Malaysian space agency. We have 11 more launches after that, and we expect to sell many more in the near future. So, I think SpaceX is well on its way to becoming the leader in space launch and we’ll be there in no more than four years, maybe three years. We’re nearing completion of development of our Falcon 9 rocket, which is a very large rocket. In fact, Falcon 9 in its largest form, Falcon 9 Heavy, will carry more payload to orbit than any other rocket in the world. The aircraft analog of Falcon 1 is a 747. There is no aircraft analog of Falcon 9 Heavy. It would be the equivalent of three 747s.

John: You’ve gone from zero to well beyond 60 in very few years. What secrets can you point to? What’s really made this possible?

Elon: Well, I think I have some advantages in that I’m a very technical person. My father was a very prominent engineer in South Africa, where I’m from, originally. And I think I inherited some engineering ability, which is many standard deviations from the norm. So, unlike most people who run a company, who tend to be sort of businesspeople – I can do business things, too, which I think are relatively straight forward, actually – I’m also the chief engineer of the company. So there’s no inefficiency in communication between the head technical person and the head businessperson, because they’re the same person. It allows me to make decisions very quickly, and although mistakes are made, for the most part, the decisions are correct. I’m also the primary funder of the company, so that means when capital is needed, I can provide it. That’s also helpful. I don’t have to spend my time raising capital. And spending most of my career in Silicon Valley I think I understand how to run a technology development company very well. I think the Silicon Valley mode of operation is the most powerful in the world. Lastly, I’m very dedicated to the task. Night and day I’m thinking about it.

John: Most people would be, if not overwhelmed, at least fully satisfied with a challenge such as you’ve put before yourself with SpaceX, and yet, you’ve got Tesla Motors, your electric car startup, going on simultaneously?

Elon: Yes, it does stretch me a little bit. I probably devote about 10 percent of my time to Tesla.

John: Where do things stand now? Are you on the cusp of introducing a high performance electric car?

Elon: Yes, we expect to have the first production cars hit the road around the end of summer. Meanwhile, we’re testing many prototypes. Our roadster is a fully DOT-certified car – all the crash tests. In fact, I think we’ll have destroyed two-dozen cars, which is a tragedy, but that’s what it takes. And that’s being really efficient, doing things like reusing the same car for both a front and a back test.

John: How did the idea for Tesla Motors come about?

Elon: I’ve been very interested in electric cars for a long time, from my undergraduate years at the University of Pennsylvania. In fact, the reason I was going to do graduate studies at Stanford was to develop capacitors for use in electric vehicles as an alternative to batteries. There are many reasons for my interest. Even if global warming didn’t exist and we owned all the oil, eventually it would run out and we would need an alternative. So that puts a long-term boundary on things. Then, there are things that make it a much more pressing issue, such as the fact that we’re putting an enormous amount of carbon into the atmosphere, and we’re also dependent upon countries that do not have our best interests in mind. Those are two very bad things. The most pressing one really is the global warming issue. To be more precise, because global warming can be a contentious phrase, the thing we should be concerned about is that an unprecedented CO2 concentration in the atmosphere will do something, and that thing will probably not be good.

And not just the atmosphere; the CO2 content of the oceans is also rising.

It’s changing the acidity or alkalinity of the oceans, and the oceans are slightly alkaline, and if they stop being slightly alkaline it will erode the coral and the bone structure of a lot of the aquatic creatures, because calcium carbonate is eroded by an acid.

John: So what will 100 or so electric cars on the road by the end of 2007 accomplish? Is this something of a symbolic gesture? How does this begin to scale up past this introduction?

Elon: The sports car is really just the beginning. We’ll produce about 1,000 units a year, maybe a little more than that, but it’s really there as the first version of the technology. It’s got better acceleration than any Ferrari currently in production. An electric motor generates roughly twice as much effective torque over time as a gasoline engine does on the same horsepower. As we’re able to optimize the technology, make it cheaper, work better, last longer, we’ll be able to make more cars at a lower price. When it’s first introduced, new technology is expensive and not nearly as good as it will be by version three or four.

John: Can I get one? I hear you’re sold out.

Elon: You could get one, but it would be about a one-year wait. The car sells for $92,000 and there’s a minimum deposit of $30,000.

John: What will your next electric car model look like?

Elon: The next car will be a four-door, five-passenger sedan, fairly large – the size of a 5 Series BMW. It will go 0 to 60 in under six seconds, which is great for a sedan. It will be in the market probably late 2009, earlier 2010. $50,000 starting price. That’s without any tax credits or rebates, and I think there will be some of those available.

John: These are fully electric, not hybrids, and I plug them in the garage?

Elon: You’ll have a little over a 200-mile range. We will warranty the pack for 100,000 miles. The charge time depends on the power source, but we believe over time we can get the charge time to under an hour. Initially, for the roadster, it will be about three-and-a-half hours.

A lot of people think: Why are we doing the sports car, don’t we care about making mass-market vehicles? Frankly, they have the wrong impression. We want to get to mass-market vehicles as soon as humanly possible. It’s just not possible now. It takes years to get this technology right. It’s very, very difficult. No one’s even close to being as advanced as Tesla. So Tesla’s on the absolute cutting edge. And driving that cutting edge fast is very hard. We’re hopeful that within four to five years we’ll have Model 3 out. Model 3 would be a $30,000 to $35,000 car.

John: The sports car, two seats, high price, makes sense because you can’t introduce an electric car cheaply to begin with. It has to be an expensive vehicle, right?

Elon: It’s an inherently expensive thing right now. There’s no way for us currently to make a mass-market, inexpensive car, without spending at least four more years on optimization.

John: Are you at liberty to name some of the folks who’ll be receiving the first couple dozen cars off the assembly line?

Elon: Sure. George Clooney. David Duchovny. Michael Dell. The founders of Google, Larry Page and Sergey Brin.

John: You’re on the board of trustees of the X PRIZEFoundation. Were you aboard for the $10 million Ansari X PRIZE won by the team headed by Burt Rutan and Paul Allen that lead to the successful flight of SpaceShipOne?

Elon: I joined right around that time, I think just after that, but I was closely affiliated with that X PRIZE and actually contributed to it, as one of the people who funded it.

John: These are now the granddaddy of prize competitions. Tell us about some of the other still unclaimed X PRIZES and what’s in the works.

Elon: There’s a Genomics X PRIZE. I’m not sure of the exact details, but it’s for being able to decode a genome very quickly and at low cost. That prize is funded by Craig Venter, who is also an X PRIZE trustee.

John: I think I’ve read that for that contest you must be the first team to sequence 100 genomes in 10 days.

Elon: You know more about it than I do. I’m not a biotech guy.

John: There’s also an Automotive X PRIZE, correct?

Elon: It’s not funded yet, but they’ve released the rules. In basic terms, it’s being able to build a car with a greater than 100 mile per gallon equivalent, meet all U.S. safety standards, and being capable of selling 10,000 units a year if it hits the market. In other words, you’ve got to prove you can actually make it at an affordable price. I’ve been sort of sequestered from that because of my involvement with Tesla. We didn’t want to have conflict there, so I was excluded from the prize discussion.

John: Have you made suggestions for other X PRIZES?

Elon: I’ve made many suggestions, but I think those are still confidential. There are a number of prizes that the foundation is considering, but until they are announced I wouldn’t want to pre-empt the discussion of them.

John: If years from now there was a Musk Prize, what would you like it to reward?

Elon: No one’s ever asked me that before. What would I like most done? The Musk prize would be for a pill that allows you to lose weight effortlessly with no ill effects. That would be great.

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