May 14 (Bloomberg) -- Elon Musk was fresh off the sale of PayPal and starting another business, commercial rocket service Space Exploration Technologies Corp., when he met kindred spirit JB Straubel. Their shared belief that consumer electronics advances could be applied to more earthly modes of transport is a cornerstone of Tesla Motors Inc.
Straubel’s first company, Volacom Inc., designed unmanned electric aircraft. He sold the assets to Boeing Co. and was working with it in late 2003 when he attended a Stanford University speech by Musk on his startup SpaceX. Then, over lunch in Los Angeles, the two moved from ideas on aerospace to electric vehicles.
“The whole thing really grew out of an idea of how to leverage commercial advances that were happening in lithium-ion batteries,” Straubel, 37, said in an interview this month. “That was the premise Elon and I discussed over that first lunch: that batteries have come much further than anyone expects, certainly than the auto industry expects.”
While the two have very different personalities -- Straubel is a soft-spoken, publicity-shy engineer, while Musk is famously voluble and frenetic -- they quickly found a shared passion for the idea that lithium-ion battery cells used in consumer electronics could be rigged up to power a car. His work on the company’s powertrain has made him Musk’s semi-secret weapon.
In 2004, Straubel joined Musk and three other men to turn Tesla from a concept into a startup with a goal of bringing a new type of electric car to market. With some of Musk’s proceeds from the $1.3 billion sale of PayPal to EBay Inc., Straubel put a crew together in his garage wiring up thousands of cells.
Since then, while other companies -- from startups to giants -- have struggled with electric batteries, Straubel, as chief technology officer, has kept Teslas running. Last week, the company reported its first quarterly profit.
Tesla rose 14 percent yesterday to a record close of $87.80. It surged 57 percent through yesterday since announcing its profit on May 8. The shares today declined 5.2 percent to $83.24 at the close in New York.
Collaboration between Musk and Straubel that began after their initial meeting has been very close, said Musk, 41.
“We are almost always on the same wavelength -- or one of us will adjust his opinion according to the arguments,” he said by e-mail. “JB is an exceptionally reasonable and smart guy.”
The company named for inventor Nikola Tesla has delivered more than 10,000 Model S sedans and Roadsters since 2008 and stands tall among recent U.S. auto startups, with most failing in attempts to create a rechargeable car business.
‘Scared as Hell’
“We certainly expected and hoped we’d get the company into the black; otherwise we wouldn’t have poured so much heart and soul into it,” said Straubel, whose name is Jeffrey but is known by his first two initials. “There’ve been plenty of times we were scared as hell.”
After years of skepticism about Palo Alto, California-based Tesla’s viability -- starting from the unveiling of its Roadster in July 2006 -- the stock soared after that first profit report. The next day, a Consumer Reports magazine review of the Model S, which starts at $69,900, ranked it with the best vehicles it has ever tested.
If Tesla achieves its 2013 target of 21,000 Model S deliveries, that would surpass combined global volume for Italian luxury marques Ferrari SpA, Automobili Lamborghini SpA and Maserati SpA, which together sold 15,701 cars in 2012.
The success up to this point wouldn’t have happened without Straubel’s patented powertrain that has underpinned Musk’s goal: electric cars that are appealing for more than the battery pack.
While designing the pack and motor weren’t the company’s sole challenge at the outset “it was the problem we had to solve first,” said Straubel, a Wisconsin native who grew up mostly in Madison and Green Bay and earned two engineering degrees from Stanford.
Batteries with large lithium-ion cells were linked to fires in January on Boeing’s 787 Dreamliner, halting flights and production. In 2011, General Motors Co.’s Chevrolet Volt caught fire three weeks after a U.S. crash test. Afterward, GM strengthened the plug-in hybrid car’s battery pack to prevent cells from igniting if damaged in an accident.
Defective batteries in Fisker Automotive Inc.’s plug-in Karma sedan made by A123 Systems Inc. led to a March 2012 recall, after owners and Consumer Reports said the cars were prone to unexpected shutdowns. The battery maker filed bankruptcy in October.
Model S has had no recalls since deliveries began in June 2012, Musk and Straubel said in separate interviews this month.
“We started out very, very conservative on safety, because we had to; there were no guidelines,” Straubel said. “We kind of built a culture of safety paranoia around lithium-ion.”
Tesla’s battery uses thousands of small cells, unlike those in competing plug-in models that are designed using hundreds of larger lithium-ion cells. The company’s approach has been criticized as too expensive and complex.
“It’s a high-cost model and doesn’t easily lend itself to a lower-cost vehicle,” said K. Gopal Duleep, president of HD Systems Inc., a Washington-based consulting firm. “There are things with regard to safety it’s probably good for, but it’s just too high-cost.”
That makes it difficult to move from high-priced cars such as Model S and the Model X crossover due next year to selling more mass-market vehicles priced below $40,000, Duleep said. Musk wants to have a car in that price range within a few years.
In its favor, Tesla’s in-house-designed motor and the power electronics that control how the system works are “state of the art,” Duleep said. That’s Straubel’s work.
His first Tesla pack was a 990-pound (449 kilogram) battery with 6,831-laptop-style lithium cells for the $109,000 Roadster. That allowed the car, based on Group Lotus Plc’s Elise chassis, to travel as far as 245 miles (394 kilometers) per charge and speed from 0 to 60 miles per hour in 3.7 seconds.
From initially using “commodity” cells, Tesla now makes its packs with customized cells that cost 50 percent less than those in the Roadster, Straubel said.
Along with improved durability and performance “the cost point that we’ve been able to build a pack at using this cell size is also really compelling,” he said, without elaborating. “We purposely don’t go out and advertise that super-aggressively.”
As the company seeks further cost reductions, it has avoided pack-related recalls, fires or failures that have affected competitors large and small.
“This is one of our major core competencies,” Straubel said. “It’s not by far the only one, but it’s the one that’s been with us the longest.”
The Model S is Tesla’s first fully developed car, mating its own design, lightweight frame, in-car electronics and navigation system to the company’s battery and motor that give the car as much as 265 miles of range per charge. The powertrain is “an important ingredient, but it’s extremely important to consider the rest of the car,” Musk said in a May 2 interview in Hawthorne, California.
Along with its design, speedy acceleration, quiet ride and interior materials, Model S features Web-based navigation, data and entertainment features designed in-house that Musk and Straubel say set it apart from luxury rivals.
“Hold down voice button & say ‘Play Amish Paradise by Weird Al Yankovic,’” Musk said in May 11 Twitter post. “Model S can play almost any song via Internet.”
Owners “after living in the car for a couple of days don’t think much about the battery pack, and how many cells are in it,” Straubel said. “You think way more about how responsive is the touchscreen? How well is Google Maps rendering?”
Straubel “knows the pulse of this technology,” said Greg Bernas, a chief engineer for Toyota Motor Corp., who worked with him during the development of Toyota’s RAV4 EV that uses a Tesla battery pack and motor.
The electric RAV4 was a high-profile, high-speed project for Bernas and Toyota engineers assigned to bring it to market in less than two years. Toyota President Akio Toyoda and Musk had said in May 2010 the companies would work together, building on Toyota’s plan to buy a $50 million stake in Tesla.
“He understood the importance of issues that arose during the development, and worked very well with our engineering teams to assure quick resolution to meet the development targets,” Bernas said.
Tesla delivered 4,900 units of Model S in the first three months of 2013. That made it North America’s top-seller of rechargeable vehicles, topping GM’s Chevrolet plug-in Volt and Nissan Motor Co.’s battery-powered Leaf.
Tesla’s potential rivals haven’t fared as well and Tesla had its own dire experiences, including a delay in the start of Roadster production in 2007 on quality concerns. In 2008, cost overruns, dwindling funds and recession led the company to cut a quarter of its workforce.
Daimler AG, maker of Mercedes-Benz luxury cars, came along in 2009 with a contract to make battery packs, and invested $50 million. Then Tesla won a $465 million Energy Department loan to build the Model S that helped keep the company going, as did investments from Toyota and Panasonic Corp.
Tesla’s 2010 IPO, the first by a U.S. carmaker in 54 years, raised $226 million, 27 percent more than it originally sought. The company’s market capitalization has swelled to almost $10 billion, a development Straubel didn’t anticipate.
“Five years ago, the consensus certainly was not that we’d get to $55 a share,” he said May 2, before the latest jump. By yesterday, Tesla is worth more than Fiat SpA, the majority owner of Chrysler Group LLC, and almost as much as Mazda Motor Corp.
Tesla’s focus has broadened from its electric powertrain to how well Model S compares with luxury cars from Mercedes-Benz, Bayerische Motoren Werke AG’s BMW and Volkswagen AG’s Audi, Musk and Straubel said.
“Now Tesla has really quite deep experience in vehicle design, in lightweight chassis and infotainment,” Straubel said. “That’s what I’m really proud of.”
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