Tesla Saga continues: When is production car #2 not?

Creating big things is generally the province of visionaries. All too often, big visions go hand in hand with big egos. Big egos are generally like electrons. Anyone who has studied sub-atomic particles knows that similarly charged particles repel each other. You can force them into the same space for a period of time but eventually they push each other apart. Such is often the case with startup companies.

Let's start with a little background. When Tesla Motors was first getting launched a few years back, as part of their initial investment in the company, the first two dozen or so people involved agreed to buy what became known as Founders Series cars. Initially, company founder Martin Eberhard who had the vision that became the Tesla Roadster intended to keep the first production unit for himself. When Paypal founder and seriously rich guy Elon Musk got involved as a major investor in Tesla Motors the situation changed. As Eberhard tells the tale (and I have no reason to doubt him on this) since Musk was putting up the bulk of the cash, he asked to get the first Roadster. After some back and forth Eberhard ultimately relented and took car #2. According to Martin:

During the entire time I was at Tesla, staff discussions about the early production cars rarely referred to the first two cars as "P1" and "P2." They were simply called "Elon's car" and "Martin's car." Everyone at Tesla knew this, and everyone knew how important these cars
and their production sequence meant to both of us.

Continue reading the tale after the jump.

Musk's car which was labeled as production car #1, was built in December and delivered to Musk in February of this year. On March 17, of this year Tesla began "series" production of Roadsters. The car that was started on that day was to be car #2 and delivered to Eberhard. Unfortunately, this is where things start to get hazy so let's step back and look at how all this stuff typically works.

First of all, vehicle ID numbers (VIN) don't necessarily reflect the order in which the cars were completed. The VIN is assigned to a chassis at some point in the process and stays with that car forever. The VIN is usually assigned to a car before the build starts and any number of factors could cause it to be built out of sequence. If special parts for a particular unit are not available, the production of that car could be stalled. Sometimes in mass production cars will be built in batches such as when they are being painted. A batch of red cars might be built followed by a batch of black, etc. The bodies might then be reordered before final assembly. At best, the VIN gives you a general idea of when a vehicle was built and nothing more. Then there is the issue of "saleable" cars.

In the auto industry during development of a car, there will typically be a series of prototypes, pilot and pre-production vehicles built before "Job 1". Those pre-production units are usually built in small numbers in the months leading up to start of production. These vehicles are built from production tooling and considered saleable. Most of the time most of these vehicles are never sold but kept internal for fleet testing and final verification. More often then not there are further changes made between the build of these vehicles and SOP. Sometimes these updated vehicles do get sold to the public. This, of coursem inevitably leads to confusion about which is really the "first" or "second" example? For all practical purposes, it doesn't matter as long as the customer gets the car they want with the equipment they want. When you're building Focuses or Cobalts, usually no one cares because they are unlikely to have any special value in the future.

However, when you are talking about the first Mustang or the first Corvette ZR1 or the first Tesla Roadster, things are different. Collectors tend to give these vehicles some value above and beyond their retail price. Recently there was an argument about the "first" production Ford Mustang. Although the Mustang with serial #1 is in the Henry Ford Museum, the first one sold was one of those pre-production units and was delivered to a customer in Nova Scotia Canada the day before its official debut. In the course of production some units typically get pulled out and are assigned to other purposes and never sold to the public. These cars get used for various purposes such as marketing or development of updated components or systems. Some of these cars become development mules for other production models, such as the Malibus that are being used to develop the Chevy Volt.

All of which brings us back to Tesla Roadster #2. There were at least two dozen engineering and validation prototypes built by Tesla. There were also some number of pre-production units built during the latter half of 2007 and early 2008. In December 2007 a car with VIN #1 was built and declared as production unit #1. In the months leading up to production start up, a number of vehicles were started and built in order to check out the build processes. The ultimate owner of what would be car three agreed to take one of these cars and VIN 3 was assigned to that car. It was originally built with the Magna transmission and used for testing.

When "series" production began on March 17, 2008, the car that started down the line carried VIN #2, the Roadster ultimately destined for Martin Eberhard's garage. For various reasons including but possibly not limited to a custom paint job, that car has not yet left the Lotus factory in England. While #2 awaits completion, at least two other cars have been finished. The pre-production car that got VIN #3 was ultimately retro-fitted with the single-speed gearbox and motor that were destined for the early production cars and has since been delivered to its owner. Car #4 was borrowed as a marketing vehicle and is the unit that has been making the rounds in Europe in recent weeks. Following the Cannes Film Festival this month it will be shipped to the U.S. for delivery to its owner.

Now that we have all of that clear, let's get back to what triggered all of this. Over on Eberhard's Tesla founders blog there is some heated discussion about the fate of Martin's car. In an email exchange with Tesla VP Darryl Siry, he explained that:

There are also some production spec marketing cars that were built that technically pre-date VIN002 as production vehicles.

I called Martin in early March and told him this on the phone, so I don't know why he is portraying this as some form of deception on my part or the company's part.

In the member agreement there is language about the fact that we reserve the right to produce cars out of sequence for various business reasons and to insert non-customer cars (i.e. marketing cars) into the sequence. There is nothing strange about it and it will likely happen every now and then.

For example, we have an early customer who has asked us to delay his delivery until the fall, so we will make his car later on but with the original intended VIN.

From the comments in his blog, Martin had this to say in response to a commenter:

I am very glad that Tesla's quality team is taking care to build my car well. However, claiming this as the reason for slow delivery of my car is simply not telling the truth. The truth is that Tesla built P3 before P2, despite their contractual obligations otherwise. Why would they do that? There was no good reason at all for this... but P3 was bought by a rich and powerful friend of Elons; P2 was not.

Blaming the quality team for this is sort of like blaming the transmission for why I got canned. The real reason for both is the same: Elon's ego.

Understandably, Eberhard is not happy about everything that has transpired between himself and Tesla Motors. He had the vision for what became Tesla and was ultimately pushed out. Clearly from the following passage, his understanding of what he paid for differs from what has transpired.

Yes, I saw that VIN sequence thread from Siry. The trouble is that my agreement with Tesla is for "Tesla Founders Series Production Number 2", not for any particular VIN. This agreement was followed up by later written assurances from Tesla that my position in line was assured. (We sent these letters to customers when we decided to ship the first cars as MY 2008 instead of MY 2007-1/2.) Siry seemed confused about this nuance in his phone call to me last February, when he was trying to explain why I was not getting the car they contracted to build for me.

Of course I know who got VIN 3/production 2, and he is a good person whom I admire greatly. This has nothing to do with him, except perhaps Elon's wanting to suck up to him while simultaneously slapping me one more time.

Eberhard ultimately provided me with some documents which he claims support his view of things including letters that were sent out to earlier buyers in January and April of 2007. The letters were sent to all those buyers by Eberhard in his role as CEO including one to himself as a buyer. The letters, particularly the April letter make it pretty clear where in the build sequence that buyers car is supposed to be. In the letter Eberhard received, it says in no uncertain terms:

In an email I received from Martin Eberhard last night he had this to say about Siry's recent comments:

Darryl is really stretching to interpret "Production Number 2" as anything except the second car produced. He tried earlier to dance around this issue with his blog comments about Tesla's right to produce VIN numbers out of sequence, and he tried to make that case to me on the phone on February 8th. He was actually surprised to learn that my agreement is for Production Number 2, as opposed to VIN2, and now he is dancing around this issue.

Is Martin right or is Tesla right? From a legal perspective, I have no idea. I'm an engineer not a lawyer and in any case as I said don't have access to all the details. All I can do here is use my experience to provide some perspective to explain the process of how vehicles are built. Undoubtedly, Martin's understanding was that he would receive the second production car built. From a purely legal standpoint, what Tesla is doing may well be kosher is certainly consistent with standard auto industry practice. From a moral and ethical standpoint I'm inclined to side with Martin on this one. It seems that everyone involved understood that Martin wanted the "second" production car. From my very first conversations with Siry and Eberhard over a year ago this was my understanding. After everything that has transpired, it seems like the right thing to do would have been to hold on to cars 3 and 4 until after Martin's car had at least left the factory. Martin Eberhard and Tesla will have to settle that amongst themselves and their respective lawyers. There are a lot nuances here.

One thing must be kept in mind. Cars might be machines, but they are created by people. People with emotions and egos. As such conflicts will inevitably happen. It as an unfortunate reality.

[Sources: Tesla Founders Blog, Tesla Motors, Tesla Motors Club]

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