Inside Story Confirms Elon Musk Nearly Sold Tesla Motors to Google in 2013 for $6 Billion

Just weeks after announcing the all-new entry-level Tesla Model S 70D and nine days from announcing an all-new non-automotive product at its Hawthorne Design Studio in LA, Tesla Motors seems to be going from strength to strength.

But as a new book coming out later this spring details, Tesla Motors was in a very different place just two years ago: near to bankruptcy and considering a sale to software giant Google for $6 billion.

Tesla CEO Elon Musk nearly sold his company to Google two years ago for $6 billion.

Tesla CEO Elon Musk nearly sold his company to Google two years ago for $6 billion.

That’s according to Ashlee Vance, author of Elon Musk: Tesla SpaceX and the Quest for a Fantastic Futurea new book due to be published on May 19 by Harpercollins. In an excerpt from the book adapted for Bloomberg by the author, Vance recounts how in early 2013, Tesla Motors [NASDAQ:TSLA] was struggling to turn preorders for its Model S into actual sales and was weeks away from bankruptcy.

By May 2013, the Tesla Model S electric sedan — Tesla’s first true mass-produced vehicle and second electric car after the aforementioned Roadster — had been in production for nearly a year, with production numbers gradually ramping up at Tesla’s Fremont factory.

But, says Vance, early Model S cars were plagued with issues that caused some who had placed a preorder to rethink their buying decision.

“Its safety elements, software and interior room were better than those of most luxury cars, but it didn’t offer the parking sensors and radar-assisted cruise control of rivals like BMW and Mercedes-Benz,” writes Vance. “Glitches with the 2012 Model S door handle irked early buyers, as did some aesthetic choices such as the car’s sun visors, which had unsightly seams.”

Early Model S cars had some significant problems which nearly bankrupted the firm.

Early Model S cars had some significant problems which nearly bankrupted the firm as people failed to convert their preorders into signed deals.

Tesla was in trouble. Early adopters who had championed the company were complaining that their cars weren’t working as they’d expected. Rumors of poor build quality were affecting sales, and Tesla was heading headlong into bankruptcy. Worse still, many of Tesla’s executives had hidden the severity of the challenges facing the company from Musk.

“When [Musk] found out, he pulled staff from every department — engineering, design, finance, HR — into a meeting and order them to call people who’d reserved Teslas and close those sales. ‘If we don’t deliver these cars, we are f—-ed,’ Musk told employees, according to a person at the meeting. ‘So I don’t care what job you were doing. Your new job is delivering cars,'” Vance retells.

Tesla even shuttered the factory for a while, claims Vance, while it struggled to secure sales.

Tesla even shuttered the factory for a while, claims Vance, while it struggled to secure sales.

It wasn’t the first time Musk had found himself and his company close to bankruptcy. Back in 2008, Tesla nearly found itself without cash after trouble with the two-speed transmission on early Roadsters caused massively delayed deliveries and Musk writing personal cheques to keep the company afloat. That time, Tesla was saved by Daimler, which acquired nearly 10 percent of the company to the tune of $50 million.

Two years ago however, Tesla needed a little more than $50 million to save it.

According to the two insiders who provided Vance with the information needed to write the book, Musk did what any CEO facing bankruptcy would do: he looked for a lifeboat for the company.

That lifeboat came in the form of Larry Page, friend of Musk, CEO of Google, hardened Tesla Fan and long-time Tesla investor. Musk proposed to Page that Google acquire Tesla in order to secure its future.

“By that point, so many customers were deferring orders that Musk had quietly shut down Tesla’s factory,” writes Vance. “Considering his straights, Musk drove a hard bargain. He proposed that Google buy Tesla outright — with a healthy premium, the company would have cost about $6 billion at the time — and pony up another $5 billion in capital for factory expansions.”

Today, Tesla is far from the crisis it was in two years ago, and has just launched the Tesla Model S 70D

Today, Tesla is far from the crisis it was in two years ago, and has just launched the Tesla Model S 70D

In order to protect the company however, Musk wanted some pretty hard bargains in addition to the money. He asked for guarantees that Google wouldn’t break up or close the company before it had produced its affordable third-generation plug-in car. Musk also insisted that his friend keep him as Tesla’s chief for another eight years, or until it began producing an affordable electric car. At the time, Page agreed, but some time between his verbal agreement and the legal technicalities which followed in which the finer points were negotiated, a few issues stuck which made the final negotiations a little longer than either side had envisaged.

FInally, while the companies were still negotiating, Musk’s insistence that staff focus on sales started to pay dividends, slowly bringing sales figures up. By the end of that quarter, Tesla had sold enough cars to post $11 million in profit on $562 million in revenue. Its end-of quarter financials — which surprised everyone in the industry — pushed Tesla’s share price skyward, and two weeks later, Tesla had the money it needed to pay off its U.S. DoE loan in full.

Tesla seems to have cheated certain death more than once.

Tesla seems to have cheated certain death more than once.

Yet again, says Vance,  Tesla Motors and Elon Musk had dodged financial ruin. And Tesla no-longer needed Google’s help.

We reached out to Tesla for an official comment on the story, and were told by Khobi Brooklyn, Tesla’s Director of Global Communications that “we’re going to let the Bloomberg story speak for itself, we have nothing to add.”

As we’re often reminding you, building a car is easy, but building a good car is hard.

And it seems the same is true of business: starting a business is easy. Keeping it profitable and growing is hard, even for the best of entrepreneurs.

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  • Espen Hugaas Andersen

    When you’re selling for 6 billion + tying a 5 billion investment to the deal, you’re not close to bankruptcy! Musk must have had some doubts about whether Tesla had enough capital to go it alone, and could have found other buyers willing to go for a similar deal. But then it became apparent that Tesla would be able to sustain itself even in the startup phase.

  • Joe Viocoe

    Sounds like a factual story… made sensational with intense language.

  • Matt Beard

    Actually this sounds like a good move. The company is in danger of collapsing due to difficulty in transitioning and so Musk sets up two alternatives. Firstly he gets the staff doing everything possible to self-fund from sales to pick the company back up. Secondly he sets up an escape route that will allow the company to continue, with him still at the helm, if the first plan doesn’t work. The first plan works so he drops the second.

  • dogphlap dogphlap

    Sounds like total BS to me.nTwo unnamed sources claim this happened but none of the verifiable details match this tale. These sources were either invented to justify a made up history with the purpose of selling a book or the sources do exist but they lied. Tesla was in trouble in 2007/8 not in 2012/13.

  • Surya

    You can’t fault a CEO for having a backup plan if things go wrong.