Elon Musk, Tesla Motors CEO at 36th Annual ENCORE Award Event (Transcript)

We now call it Stanford Ignite. This is a program that at Stanford was aimed at graduate students at Stanford not in the business schools so it’s students in engineering and medicine, and life sciences, and so on who might be starting a company or be working for companies that were innovating. And we’d give them a general management education with an entrepreneurial and innovation spin.

And this year we started to take that program globally. So we offered a version of it in Bangalore, India this summer, and are in the midst of teaching one in Paris right now in a partnership with called Polytechnique. And that program too, makes heavy use of technology. Most of the classes are actually, our faculty being from the Knight Management Center to those locations.

The final thing I want to reference is again, many of you are familiar with SIIDE which is the Stanford Institute for Innovatiion in Developing Economies, an institute that we launched here at the business school about two years ago, and it had a landmark event this summer when we opened our first Innovation Center in Accra, Ghana where we have in the first cohort 29 local entrepreneurs who we are working with to help them to scale their businesses and it’s a regional hub and a regional program with participants from five neighboring countries.

So, lot’s going on at the GSB while we’re helping to make entrepreneurial awards. We’re trying to do our bit to simulate the entrepreneurial ecosystem and in that vein, let me just say that in everything we do, we rely very very heavily on this community. You come into our classes to help teach and mentor our students and help us in a whole variety of ways and we’re extremely grateful and delighted to have you all with us this evening, thank you very much.

Geoff Yang

I’m Geoff Yang. And I have the privilege of chairing the Stanford ENCORE Award Committee. So, you may ask, you know, how do we pick a particular company to win the award.

And I’ll tell you, we look at four things. You know, the first is companies that embody the entrepreneurial spirit. We look for companies that are doing something big, bold, and important. We look for companies where the founder has or continues to play a very important role in the company’s success. And we look at companies that have interesting stories, or whose founders are interesting personalities.

So you might say, well how’d you get Tesla, then? 4It isn’t quite.

So the story of Tesla, you know, you look how it stacks up. And you say well Tesla was started by two engineers, Martin Eberhard and Marc Tarpenning who believed that electric vehicles could change the world.

Okay, check.

Tesla has succeeded in an industry where start-ups aren’t supposed to succeed by incorporating novel design approaches to little things like concept design, and battery design, and body design, and drivetrain design, and manufacturing design, supply chain management, mass production.

Tesla is attempting to disrupt an industry in which its competitors have massive scale and long histories.

Okay check.

Elon Musk, this is a company series, a lead investor and now chairman, continues as its CEO and product architect, check.

And finally an interesting story, well, Tesla was practically gone out of business, my understanding, is a couple times and is now runaway success with a market cap of over $23 billion. Its CEO was the inspiration for the character of Tony Stark in the Iron Man series according to its director. Check, check kind of an interesting personality. You know, you get the picture.

Tesla was the first U.S. auto company to go public since Ford Auto Company in 1956. And despite having approximately 1% of the revenues of GM and Ford and BMW, its market cap is roughly a third to a half of these venerable brands.

It’s my pleasure to introduce Elon Musk. Elon was a native of South Africa and studied at Queens University, University of Pennsylvania and ultimately Stanford to pursue a PhD in physics.

He started Zip2, a software provider, which was sold to Compaq. He co-founded X.com which was later renamed to something called PayPal which was acquired by eBay. He founded his third company SpaceX in 2002 and continues as its CEO and CTO which I hope he’ll tell us a little bit about.

He’s also the founder and chairman of SolarCity and then in his spare time earlier this year he announced a proposal to form a new form of transportation he’s working on called Hyperloop. But most importantly for the purposes of tonight’s program he’s CEO of Tesla Motors.

Tonight Telsa — I mean sorry, tonight Elon will be interviewed by my friend and fellow Stanford ENCORE award committee colleague, Steve Jurvetson, Managing Director of Draper Fisher Jurvetson.

Please join me in welcoming Steve Jurvetson and Elon Musk.

Steve Jurvetson – Managing Director, Draper Fisher Jurvetson

Someone will yell if we got this wrong. I think they told us five times I sit here, he sits there and that just became – which one I do now.

So before we start, we’re going to try to keep this a little casual and interesting as well as trying to get into the mind of Musk a little tonight. It’s a marvelous place to delve. You all will have a chance to ask some questions later. So, you can start thinking about that now, I’ll start with a few.

But, as a warm-up. And I think this might be something Elon might like to see. About a year and a half ago, before Model-S shipped, I remember him saying, with sort of a gleam in his eye that he relishes the day that he’ll be driving around somewhere around in Silicon Valley and see a Model-S on the road that’s not like an employee car that’s in testing, but like a real customer, like, that he doesn’t know.

And so as a quick survey of hands, how many people here today saw a Tesla driving around Silicon Valley. And I don’t mean the one out there, that means you’ve seen multiple Teslas, right? I saw ten, I counted today, just now I have a short commute, so that dream has become a reality, but what Tesla has done has been a marvel to watch.

So I think a lot of folks here, business students, students, friends of the firm, are really curious on how this all works. And so if we could, start with some design questions and then some organizational and people kinds of questions. But starting with design, as you think about the big problems in the world that you are addressing, do you start with a particular product in mind like there could be this Model S, there could be this Falcon 9 and then think how do I get there? Or do you start with saying there’s something broken in the world and I’m going to fix it. And I’m going to commit to do it even if I don’t know how to get there.

Elon Musk- CEO, Tesla Motors

Sure. In the case of Tesla SpaceX and SolarCity, and X.com – PayPal, Zip2 before that, it all stemmed from when I was in college, trying to think what would most expected future in very likely to be a positive way. So the three areas where I was quite sure would be positive were sustainable energy, internet, and making life multiplanetary. And then there were a couple other areas where there’s maybe a question mark, like the A.I. and writing genetics.

Steve Jurvetson: Which was the last one?

Elon Musk: Yeah, rewriting genetics. You know its potentially negative consequences, hopefully positive. Something could go wrong.

Steve Jurvetson: So you have these orders – like was they top three and a couple contenders, or were they always kind of jumbling around?

Elon Musk: No, I just thought that, if you look ahead, and say what’s really going to have an important effect on future of humanity as a whole, those were the five areas that I could come up with standing in the shower, basically, you know.

Steve Jurvetson: So there’ this moment of epiphany that you held for a while because you didn’t pursue those right away, right, this was an early vision that you then got opportunities to execute on.

Elon Musk: Yeah.

Steve Jurvetson: So when you — maybe if we pick an example like Tesla going towards the Model S or SpaceX going towards the Falcon 9, do you commit the team yourself, your resources to that endeavor, now a little farther along, when you have the end point in mind? Or just let’s say the cost of goods analysis for the rocket or the cash EV should be better than internal combustion engines, just in general I’ll commit. I’ll believe that should be done.

Elon Musk: Yeah, I mean I didn’t really get into any of these with the expectation of success or at least…Yeah, I started out thinking okay, when I do something in the electrical vehicle space, and that’s why I originally came to Stanford was to work on advanced energy storage technologies and take ultra capacitors. So that was continuing on research that I’d done as an intern in Silicon Valley the summer prior. So that’s why I originally came out in ’95. And then during that summer I wrote some internet software and I thought okay, I can either work on electric vehicle technology, or, I could sort of work on internet stuff, try to do something with internet. I thought the internet would be something that would dramatically affect the future of humanity be like, like acquiring a nervous system.

And whereas previously, communication would have to occur almost by osmosis, you know, from one person to another or slowly through telephone or mail or something like that. But now, if you have a nervous system, any part of the – so human collective can know about any other part instantly and previously you’d have to be at the sort of Library of Congress even to have the Library of Congress’ sort of information. But with everything digitized and accessed anywhere you could be in a jungle in South America and if you had just internet link somehow, you could — you’d have access to all of humanity’s information. So it would actually effectively create a super organism and fundamentally change the nature of humanity itself.

So I was kind of – I just want to be kind of part of that, set the path.

Steve Jurvetson: AI that what you might see?

Elon Musk:It’s actually not exactly AI, it’s some sort of human machine collective intelligence, so different from AI, although AI may not turn out to be exactly what hopefully not – it’s not exactly what’s like described in Terminator or something, you know.

Steve Jurvetson:Quick pause for those who haven’t been to SpaceX. The data center has got to be the coolest thing you’ve ever seen. It’s SkyNet on the door, Cyberdyne systems branding and what have you. The most badass set of lights coming from all the little blinking servers. So these are the own it.

Elon Musk: Yeah. Our FEA and CFD cluster is called Cyberdyne Systems.

Steve Jurvetson: We’ll get back to influences later on, but I want to try to see if I understand what you were saying about this — you see the long arc of – and what’s important to humanity, not little problems, but huge problems that could be solved. A lot of us go around and we see something frustrating like traffic on the 405. And we just take it as well, crap, the governments screwed, right? You have this incredible, sort of scope of ambition, right, planetary scope, interplanetary scope, right? A little more than just changing the world. Let’s change some other worlds too, right, and this is big stuff. Was that always in your mind or did that, that you become more emboldened over time that this is available. We can do these things.

Elon Musk: It definitely emboldened over time. When I started the first internet company, Zip2, with my brother and another person, Gregg Curry, it wasn’t really with the thought of being wealthy. I’ve got nothing against being wealthy, but, —

Steve Jurvetson: We’ll get back to that later, too.

Elon Musk: But it’s just, it was just from the standpoint of being wanting to be a part of the internet. And I figured if we could make enough money to just get by, it will be – that’ll be okay. And when we started off, we actually only had, like, one computer, and so it’ll be our web server during the day, and I code at night. And we just got a small office in Palo Alto back when rent was not insane. And it cost us like $450 a month. It was cheaper than an apartment, so we actually just slept in the office and then showered at the YMCA. So we’d walk over there and shower and that was actually, I think that was when I first met you by the way.

And so, I don’t know how many people – probably not many people know this, but we actually pitched Steve in like January ‘96 on the Zip2 business plan. And actually I thought, Steve was actually one of the most up to speed on, what actually was in our business plan. Most people we met did not actually read our business plan. In fact, a lot of people – lot of venture capitalists we had at that time, didn’t even know what the internet was. They never used it – they didn’t think it would amount to anything.

Steve Jurvetson: I’m not sure if they still do.

Elon Musk: Yeah, I’m sort of like sort of like well-known people in Sand Hill, I was like wow, okay. But at the time nobody made any money on the internet, so I guess that’s — there wasn’t any clear evidence that there was a business. And yeah —

Steve Jurvetson: Those were fun times, I remember Kimball and you coming in. Very young looking guys. I think I was on my first four months on the job too.

Elon Musk: Yeah, yeah, exactly, so.

Steve Jurvetson: So, let’s switch gear for a second. I’ve also had the great honor to work with Steve Jobs briefly. But enough and as a business school student to study him with as much scrutiny as I could during that period. And there’s some obvious parallels. And so let’s start with the most obvious. But, just must be like elephant in the room. Is the secret to your success to be the CEO of two companies at the same time?

Elon Musk: No, I think it’s –

Steve Jurvetson:Because look at the correlation.

Elon Musk: Yeah.

Steve Jurvetson: Struggling companies, everything’s in the crap can in December 2008, so let’s take on a new CEO gig, and same for Steve coming back to Apple.

Elon Musk: No, definitely it was not my intention to be CEO of two companies. I mean there are certain things that I kind of wanted to – that I thought were important to happen, and I thought it was important that there was an electric vehicle happened, that there was success in the electric vehicle arena. Because the encumbered companies were convinced that it was not possible to create an electric car that looked good, had a good range of performance and so forth. And that even if you did make such a car it would not sell. Because people had this love of gasoline.

And so we had to show that it was possible to create a compelling electric car. Long range, good looking, those things, that was the Tesla Roadster. And if you created –if you made such a thing, people would buy it. And so that’s what we tried to do with Tesla.

By the way I should say, like one minor sort of correction on the introduction. I’m not Co-founder of SolarCity, but I am a Co-founder of Tesla. It’s okay.

Steve Jurvetson: That’s a good point. And product architect — many of its key features.

Elon Musk: Yeah.

Steve Jurvetson:

Very much like Jobs. Both handled some of the detail as well as the long arc of what’s important for the company.

The quick though about being Co-CEOs, is more than just a joke in that I wonder if in ways that are hard to predict and you wouldn’t set out for this amount of work, it seems insane. But inevitably, both companies cannot expect more than half your time at most. It sort of naturally forces a delegation upon you and an expectation that you have to rise up for partial awareness at best, right?

Elon Musk: Yes.

Steve Jurvetson: And I just wonder if that helps drive prioritization and really focusing on what’s important a bit more than you otherwise might have to.

Elon Musk: That probably does, yeah, I think I probably do — yeah, I mean accept the three hours that the things that I do, at each company and constantly think about what is the most useful thing that I, that I could do. But even with that it still actually does take an enormous amount of time and for a while there I was just doing constant 100 hour weeks. And that’s definitely weary. And now I’m kind of in the 80 to 90 which is more manageable. But you know that if you divide that by two, it’s only like, you know like 45 hours per company which is not much with lot of things going on.

Steve Jurvetson: You’re like a slacker, I mean.

Elon Musk: Yeah.

Steve Jurvetson: So it is interesting also how you have a love for certain aspects of the product, so at SpaceX, the whole concept and the vision of going to Mars, and back into features and stuff. It’s a wonderful thing to see. I think what obviously should strike folks in the room as remarkable is the diversity of industries that you’ve tackled, right, from commercial banking to industrial complex to the automotive industry, these are heavily regulated industries, the general investors leave from and start-ups routinely failing and they haven’t seen much change with good reason over a decade. So there might not be an obvious pattern in which industry you tend to strive in but I wonder if there’s a pattern perhaps in process like do you approach each of these perhaps the way a software architect might, to think of a different way to bring innovation, a different way to reset from first principles perhaps instead of iterating from the past, a breakthrough. And is there a reason you end up in these otherwise really tough industries? I mean, I don’t know if that’s ever occurred to you that you don’t — even with SolarCity going up against regulated utilities, these are places that you’d normally find entrepreneurs?

Elon Musk: Yeah, like I said, it was not from the standpoint of like what’s the best risk adjusted rate of return or what I think if things could be successful, just like I think these things need to happen, try to make them happen, and so then when we started SpaceX, with Tesla, I thought the probability of success was less than 50%. They were probably up there, but less than, 50%.

In the case of SolarCity, I thought the probability of success was probably greater than 50%, but it wasn’t clear what magnitude of success would be, you know, it could just be small. And but it was — I mean I just thought these were things that needed to get done. And even if the money’s lost, okay, it’s a little worth trying.

Steve Jurvetson: So a conviction, but it didn’t mean certainty. Right? You knew that all vehicles would be electric in your heart, ultimately, you will succeed.

Elon Musk: I mean I think there’s a fundamental good that Tesla can accomplish is acceleration of the inevitable, which is electric transportation. But I think there’s a lot of value to accelerating, even though I think it’s somewhat inevitable, there’s value to accelerating it to minimize the environmental and economic damage that would otherwise occur.

So it’s better if we transition to sustainable transport 10 years or what may be 20 years sooner than might otherwise be the case. And I think the Tesla’s effect has been much greater than the cars made — that’s been made internally because when we announced that Tesla Roadster, then above lots – it was Chrysler and GM at the time. So, our press released and said, if a small company in California can do it, then, and so can GM. They took it to his engineers who told him that, that you couldn’t build electric car. And told them that they need to get going. That’s what got the ball rolling. And that in turn got Nissan to believe and so, it’s kind of got things going.

And ultimately it’s like it’s what we induce other companies to do that will have a greater impact on the cars we make ourselves.

Steve Jurvetson: You know, it’s an interesting point I’m going to come back to later this idea that Tesla’s founding mission, as Elon has articulated from the very beginning through most recent reports to the public is to catalyze an industry shift that Tesla will be some part of, but to help others in that shift as well, which is remarkable from.

Elon Musk: And so we supply power-rains to Toyota and to Mercedes and that type of thing.

Steve Jurvetson: To help what could give to your biggest competitors one day.

Elon Musk: Yeah. Absolutely.

Steve Jurvetson: That could accelerate that. Before we get to that sort of purpose driven mission, I do want to ask, or at least maybe make sure the audience realizes how cool this car is, and so – something you wanted – have to do this.

In case you haven’t been as much of a fan as the two of us it’s a bit unprecedented the reviews it’s received. Consumer Reports saying it’s the best car they’ve ever tested. Road & Track saying it’s the most important car in America’s history. And the safety testing showed it’s the most safe car ever manufactured by far including Benz and SUVs. And so it’s pretty remarkable to have packed performance, desirability, safety, and all these parameters.

So, is it luck or is there something particularly unique about the EV design space that let it be possible to build the best car?

Elon Musk: Well I like to think it plays some role here. But I think electric vehicles have a fundamental [octet-stream] advantage. If one designs an electric vehicle from the ground up, and takes advantage of what’s possible. Like if you were just to convert a gasoline car, you would not achieve these advantages. But if it’s properly done you can actually package the battery pack in a flow pan and achieve a low center of mass and have a very compact motor and a gearbox so that the actual useable space in the car is significantly greater than a gasoline car of the same external dimensions.

And then if you do a few other things, we try and necessarily specifically related to an electric car like using aluminum body and chassis is helpful because you can absorb more energy per unit mass essentially in a crash.

Part of it is related to electric vehicle octet-stream and part of it is related to other technical decisions that we made in the design of the Model S. And so, yeah, that’s what leads to sort of having a high safety is – I mean I don’t want to go into too much details because it might take up too much time, but —

Steve Jurvetson: Did you know some of those things at the get-go or did they unveil themselves as you went along? I’m just curious…how the vision materializes — either the product dimensions, like it will have all these great features, like at the get-go did they all gel? And the second thing, I am am also curious when did you first know that all vehicles would be electric? Like, was that early?

Elon Musk: That was probably 22 years ago, something like that.

Steve Jurvetson: Before you met Tesla?

Elon Musk: Before there was Tesla. Before there was — way before there was Tesla. Oh yeah. Well like I said, when I originally came out — I mean when I was studying physics and that’s probably when I thought it was the case. Or maybe, no sooner than that. Probably when I was in my sophomore year in college.

Steve Jurvetson: Did you have certainty in your heart?

Elon Musk: Yeah, absolutely. It’s super obvious.

Steve Jurvetson: Now, yes, now it is.

Elon Musk: I think it was super obvious then, but –

Steve Jurvetson: Yeah, this is what blows my mind, because even like three years ago, most people probably didn’t agree with this point of view. And if I could be confident of any prediction I could make is that within 10 years, all people will be of this point of view? But we want to make the transition yet, but we realize that this is a ridiculous debate to be having.

Elon Musk: Yeah.

Steve Jurvetson: You were along voice of sorts back then, probably amongst your cohort and friends, and you know, social interactions –

Elon Musk: Yeah actually I used to talk to, like dates about electric cars.

Steve Jurvetson: How did that go?

Elon Musk: It wasn’t, wasn’t helpful.

Steve Jurvetson: It got better?

Elon Musk: Yes, so actually I ran into – go out every weekly, in Canada, Christie Nicholson, she is now a writer for Scientific American. And she mentioned, yeah, — when we went on date, asked, do you ever think about electric cars, and she said, no. I don’t. So yeah, that’s a while back. I mean, it’s pretty, I mean almost everything is electric that we have in our daily lives —

Steve Jurvetson: Well, from the physics of it, the heat loss of an internal combustion engine. Pretty amazing, it’s pretty amazing.

So  want to share a little story that leads to a question along a different angle. I don’t think you’ve heard this before. But I find it fascinating.

I was at a lunch at a Google event, and out of the blue, with no expectation that this would be a topic, and Larry Page turned to me, knowing a little bit about our connection and said, you know… How much money do I have and he mentioned a number, I thought that was cute that he was trying to recall that. He goes, you know if I were to get hit by a bus today, I should leave all of it to Elon Musk.

Elon Musk: Really?

Steve Jurvetson: Yeah.

Elon Musk: He said that?

Steve Jurvetson: Yeah. And so I’m like paper, pen. Please get this down on. Yes, so he likes zingers.

Elon Musk: I love that actually. He’s a good friend of mine.

Steve Jurvetson: Context is important.

Elon Musk: I met Larry before he got venture funding. So that’s like 90 back in the days.

Steve Jurvetson: Wow. Well he’s a remarkable guy. Obviously also an underachiever and you know, has a company that wants to do good in the world. And I think he looks at you with a bit of envy because what he then proceeded to say was, you know, I could give my money to a non-profit and a lot less would get done than a corporation that’s pursuing things that are directly aligned with things I care about. Like, getting off of oil and colonizing other planets. He believes in those missions and thinks that a corporation with endowed with the right to do that as its business purpose is the best vehicle out there and he wishes he could do more of that in his own life. He compared poignantly, I think, to some other software companies in the Pacific Northwest who might have executives who do evil for their first part of their career then do good for the second half. And then the sad story of others who never got to the second half of their life. Like Steve Jobs. I mean not in a joking way I mean seriously and, it was a very deep moment.

So it raises the question of a purpose driven business. So you’ve heard already that Tesla is not just trying to make money, that is the not the priority if you read the most shareholder letter.

Elon Musk: Yeah, in fact, I started off the shareholder letter saying the profits are not our primary goal. And then I got a little bit of — some of the board members who question that statement. And I was like, well it’s true, you know.

Steve Jurvetson: You mean like, for now or like just like while we are growing. But no, it’s just not the priority which I think in a business school is really a good point to dwell on for a moment.

Elon Musk: Yeah, it’s not that I think they’re unimportant or anything. It’s just not the primary goal.

Steve Jurvetson: Sure.

Elon Musk: And actually I’ve told that to people on IPO as well. And so it’s not like new information, or at least you know, if people who watch that or the information. And yeah actually amazing the stock went up after that.

Steve Jurvetson: I think there’s a profound reason. I mean, you see the benefits of being focused on something that’s a higher calling as your primary motivation. Your employees love it, the customers love it, others love it, and you feel better about your job.

The interesting thing, irony perhaps, is that at least within our portfolio, the companies that have that kind of a founding principle actually make more profit and grow their revenue more quickly than the ones that don’t. And now there’s this little sample set, but the handful that had taken this bold of the step, to say no, no, no, that we will not make that our number one priority actually do a great job. And it occurred to me, and I don’t know if this was conscious in your head at some point. That if you weren’t profitable, the auto industry wouldn’t follow you. In other words, this whole mission of catalyzing a shift to new electric vehicle isn’t going to work if the business model’s worse than the current business model. And so it’s the obvious byproduct of what you’re focusing on. They’re not obvious, but it occurs to me that it’s a byproduct. It wasn’t obvious at first at all. But and I’m curious that that thought occurred to you, that oh yeah, the profits will come, or eh.

Elon Musk: Well, we have to generate enough cash flow to fund future developments, which requires having a good gross margin. And so I guess one could just say okay, well we’re going to stop developing new product and then you’d be really profitable. So at any given point, you could sort of say we’ll, we could be profitable at this point in a significant way but we’ve got these great things that we want to develop for the future and they’re a good investment. And that’s what we’re doing.

Steve Jurvetson: And similarly, at SpaceX the founding vision was to colonize Mars.

Elon Musk: Yeah.

Steve Jurvetson: Indirectly. Again, interestingly catalyzing others to move.

Elon Musk: Yeah.

Steve Jurvetson: And then you realize hey, I’ve got to actually lead this charge.

Elon Musk: Yeah, well, I mean when SpaceX, originally I started off just thinking, well, how do I, increase NASA’s budget? Actually, that was my goal. So, it was like, 2001 I was just, just talking to a friend of mine, and the guy asked me, he asked me what I was going to do after PayPal, and I thought well, you know, I was wondering like, I’d like to get involved in space, but I just didn’t think there’s anything I could do as an individual. But I was curious as to when we, NASA would be sending a team to Mars, because that was always going to be the thing to do after the moon.

I figured that, that there’d be some plan and I’d just go to the website and I could read, you know, the schedule and then — Oh yeah, it’s like okay,2017, good, okay, but actually there wasn’t anything on the website and at least I thought like, can I not find it, like what’s going on in here. And is it a secret, I don’t know. So, but it turned out that that NASA had done a study on what it would cost to send, to do a manned Mars mission and this was under Bush the first and Bush, he asked for a 90 day study shortly after taking office. And NASA came back with a $500 billion price tag. And he said, okay maybe not.

That’s when $500 billion was serious money for the government. So then that got totally shelved, and it was like you were not allowed to talk about any kind of crewed mission to Mars at NASA and anyway, so but I thought well, if I can do something that would galvanize public interest, and then that public interest would translate to, additional appropriations for NASA, increase their budget, then maybe they could do it. So actually, what I sort of thinking – I would do is send out a small greenhouse to the surface of Mars with seeds and dehydrated gel and then up, upon landing, hydrate the gel and grow the plants, and the public has responded to precedence and superlatives. So this would be the furthest that life’s ever traveled. The first life on Mars, and you’re going to have this great shot of green plants on a red background and I thought okay maybe that would get –

Steve Jurvetson: The money shot.

Elon Musk: That would be the money shot, yeah. I’m never quite sure whether that’s a sort of a word you can use or not. Yeah, I don’t know its origins until somebody pointed it out to me, but —

Steve Jurvetson: Okay, moving back to that greenhouse on Mars. Yes, the photo is out there, and it is —

Elon Musk: Yeah, see the photo is out there.

Steve Jurvetson: Yes, loved it.

Elon Musk: It was a great photo. And okay, if we make this happen, it will be cool and NASA will get the money and they could sort of send a team to Mars and it would be great. So I tried to figure out how to do this with the proceeds that I had from PayPal. And I was able to figure out how to get the cost of the spacecraft down and the communications and, and the little greenhouse and everything. But the one thing I couldn’t compress was the cost to launch. Because here’re only a few options and the US options are way too expensive, and so I ended up going to Russia three times to try to buy the biggest ICBM in the Russian nuclear fleet.

Steve Jurvetson: That’s where I’d start, yeah.

Elon Musk: Yeah.

Steve Jurvetson: Go big or go home.

Elon Musk: That was I mean, okay, it was — there was some strange trips that’s for sure. But you know, there’s like virtually, like you can buy any — it’s a very capitalist society, in some ways. So I actually did negotiate a deal to buy two of the ICBMs minus the nukes. But I came to the conclusion after the third trip that it wouldn’t really matter. Like, I actually came to the conclusion that my initial premise was wrong. Because I actually think there’s tremendous amount of will in the American population particularly to explore, United States maybe more than any other country is a distillation of the human spirit of exploration. And it’s really fundamental to psyche so, if people think there’s a way, I think we’d actually get a lot of support. But, it can’t be just banging your head against the wall. You got to believe that this can be done without breaking the federal budget.

So, that’s when I said okay, well, is there some way to affect the cost of space transport? And is going and — so I got together with a group of people over a series of Saturdays just to — just trying out – if there’s something super — fundamentally super expensive about rockets? Or, can the cost be substantially improved? And, we had a bunch of those kind of brainstorming sessions and I couldn’t see any fundamental obstacles to improving the cost of rockets, so, that’s when I started SpaceX.

Steve Jurvetson: It’s like I’ll just build them myself.

Elon Musk: Yeah. But I’d said, at that point I would say the probability of success was definitely less than 30%. I thought it would most likely not succeed. But it was worth a try.

Steve Jurvetson: But it’s fascinating — the parallels are so many between these companies, again, probability is low. Certainty that it needs to be done, certainty that it could be done by physics and first principles that success is an option, right? It’s one of the possibilities.

And interestingly starting with a Roadster and a Falcon 1 as a proof point to a larger design. You know as I look at the falcon 9, and, it looks like the product of a software engineer. Modular reuse, like let’s build one engine and step and repeat. And building all kinds of elegance into the system design to obstruct away, almost from the hardware into the software, into the design, the beauty of the system. And I wonder if that’s why incumbents don’t see that sort of re-engineering of the car or the rocket or the what have you. The Hyperloop is this, they don’t approach it in that kind of blank sheet of paper. How would you do this if you didn’t have to create jobs across districts? Or you didn’t have some other ulterior motive. Interesting.

Looking at the time, I want to give a — I’m going to ask one last question, but to get a heads up on if there’s mics to start getting them ready for the audience. Because I don’t want to monopolize people’s time here. Actually there’s so many questions I want to ask. But what I’ll start with – and here for at least some of the quirky one about influences.

So we’ve heard about the Iron Man reference and your childhood interest in comic books and Hitchhiker’s Guide to the Galaxy and [Azmove] but there’s all kinds of things woven into like Cyberdyne systems at SpaceX that we heard and then some Easter eggs. So, some of us noticed that the story goes to 11, on the Tesla. This is a Spinal type reference for those who know — this one goes to 11 and we just, just one more.

Elon Musk: It’s louder than loud.

Steve Jurvetson: That’s right.

Elon Musk: Exactly.

Steve Jurvetson: That’s right. But no one seems to have noticed the product line-ups. You got the Model-S. You got the Model-X. You’ve just trademarked the Model-E. No one’s been in that. And the Model Y.

Elon Musk: Yeah.

Steve Jurvetson: Now, what’s behind this?

Elon Musk: I know, exactly. Well this, I guess there’s not a lot of humor in trademark, the trademark law, you know? Because obviously we just trademarked “sexy”. So and then we’re having this discussion with the, like Ford, because they — the Ford’s council, they also didn’t get it. Like, because they’re sort of slightly opposing us using Model E. And then they saw that we registered Model Y. And they said, oh, you’re planning to use Model Y instead of Model E. Like no, it was just a joke.

Steve Jurvetson: Right, we don’t do that.

Elon Musk: We’re like, what is this about? Come on.

Steve Jurvetson: Fantastic. Well do we, I’ll keep going if we don’t, but do we have microphones for folks if they want to ask questions? Okay, let’s do a quick see if anyone. Oh my gosh, yes. We have some, why don’t we that? Let’s take a couple of questions from the audience. And I’ll let you guys figure out how to do the allocations.

Question-and-answer Session

Audience Male: Thank you very much. I have heard you talk about supersonic aircraft. You guys have done some beautiful work at Space-X on VTOL. Clearly Tesla is focused on electric. Have you thought about the synergies of electric and VTOL and aircraft for solving the 405 challenge?

Elon Musk: For solving the 405, well I mean, I do think there’s a –

Audience Male: VTOL, Vertical Take Off and Landing.

Elon Musk: Yeah, right, sorry. Vertical take-off and landing is VTOL. And yeah, I do think there’s a really, like I think the optimal sort of air transport solution is a VTOL, electric, supersonic plane. And it actually works together quite well for a bunch of reasons. In particular, the higher you go, the better the electric. The more efficient the electric aircraft is. Whereas if you have a combustion aircraft as you get higher it gets, it tends to get worse. Because you have kind of a fixed aperture and air scoop. The engine is — the hull and the front of the engine is a thick size and so you have to pick a particular cruising altitude and so you’ve got to figure out how do you get the right amount of air at sea level all the way through really high altitude and then you’ve got this issue of supersonic combustion. That you see having to slow the air down and it ends up being not, not that efficient. But an electric aircraft would just get better and better as it got higher.

And the electric motors have a higher part of weight ratio than a combustion engine. So you can actually have the power to do the vertical take-off and landing part with a fairly small motor compared to combustion. And then you could get rid of the elevator and rudder. So you don’t need the rear control services if you gimballed in, if you gimbal the motor.

Steve Jurvetson: So it starts to look a pod-craft, like in Oblivion or something.

Elon Musk: Right. It’s yeah. It’s not something, not quite –the real trick of it is like how do you make it really long range, and at least as safe as existing aircraft? Those are really the only 2 questions on that front I think. But they’re tricky. They’re certainly tricky.

Steve Jurvetson: Don’t underestimate those two questions.

Great, let’s go to the next one or whoever has a mic however we’re doing the allocation fairly and efficiently. Can we give him a hand? Okay no, we have someone, great.

Female Audience: Hi, Yan Kua GSB94. Hi Steve, long time no see. One question, are you — is Tesla going to expand worldwide? And I think GSB is going to host China 2.0 tomorrow, and do you have any plans to go into the biggest car market today? But I know you were a little concerned through another friend of mine, I actually asked you indirectly a few years ago, that you were concerned about the secret and the parroting in the Chinese market. Are you still concerned about that or you have a strategy?

Elon Musk: Yeah, so, Tesla’s definitely going to ship worldwide. In fact, the Tesla Roadster is in 31 countries right now and we expect to ship the Model S to China starting next year, as well as to Japan and Hong Kong and Singapore and, Australia. So, really it’s going to be quite widely distributed next year. And certainly China is an extremely important market. In fact, for premium Sedans, China’s bought half of the world market for premium Sedans.

Steve Jurvetson: And growing.

Elon Musk: Yeah. Take some of that Mercedes S Class. But last year 54% of Mercedes S class were sold in China. So pretty important market. And so we’re going to definitely do a major push in China. And actually some of the most enthusiastic potential customers we’ve seen are people from China. So we actually want to make sure that the car actually has features which are specific to the Chinese market and, make sure that it’s not just, taking an American product and just sort of sending it to China without any changes. So we want to make sure it’s tailored to the market. And Japan as well. I don’t want to — not many American cars sell in Japan but I think that would be –

Steve Jurvetson: With symbolism.

Elon Musk: Yeah, I mean like I think we should take the Japanese market seriously, and I think if we do things right, we should have reasonable sales there. So, yeah, so that’s going to be next year. I mean as far as copying stuff, I think that’s certainly a risk. I think China’s actually getting a lot better these days and I think the new government is taking intellectual property a lot more seriously. So I’m actually starting to feel more and more confident about the technology actually not being copied in China, or at least you know, it’s getting much better. And I don’t think it’s going to be too much of an issue until we want to establish local production. And that’s where we need to make sure that we do it right, and it’s not an incentive for the factory team that we established there to sort of go across the road and create a competing factory. 9But that concern is a few years away.

Steve Jurvetson: Do we have another one? Oh, yeah. Up here. The students are largely upstairs.

Male Audience: Hi Elon. This is [Gabrielle Parak], MBA student. First of all, thank you. This is very inspiring to hear an experience about actually changing the world using an organizational — the organizations that you created. Hopefully, will inspire another Iron Man movie as well. And I was wondering if you can tell us more about your experience about, like, you know, how to balance the trade-off between your profits and, following purpose that goes further than just make money. You know, you are trying to change the world. You know, or for the humanity rather than just make profits in the short term.

Elon Musk: What was the question. I’m not sure if I got?

Steve Jurvetson: How do you balance?

Elon Musk: Well, Yeah well I mean first of all I should say with all of the companies but I think particularly SpaceX and Tesla although they’re in a good position today they went through some super tough times. And in fact, for SpaceX, I reserved a capital to do — to have three launch failures, or to withstand two launch failures, and have the third one be a success, or three strikes. And actually we had three launch failures, we were just able to scrape enough money together for a fourth flight that succeeded in 2008, and also in 2008, as Steve knows, we got the Tesla financing round done on the last hour of the last day. It was like 6 pm, December 24, 2008. If we hadn’t gotten it done then, the company would have gone bankrupt a few days after Christmas. So, this – vary narrow.

Steve Jurvetson: What he’s not mentioning is, the only reason that happened is he wrote a check for the remainder of his wealth to save the company during payroll and Christmas, the Goldman had just failed the private offering and the financial collapse was amongst us. There was no deal we loaned, there was no Daimler deal, the car had a negative gross margin, and it was not pretty – oh when you had your largest shareholder is completely pissed off, and going AWOL.

Elon Musk: Yeah.

Steve Jurvetson: It was ugly.

Elon Musk: It was a stressful period.

Steve Jurvetson: And that was just at work.

Elon Musk: Yeah. So for awhile there really wasn’t a question of profit or non-profit. It was like, we need to live. How do we live? That was the main challenge. And now I mean, now we’re at this stage where we can say okay, we can shift the dial between — we could make, let’s say at this point a medium amount of profit or a small amount. So, we’ve sort of chosen to make a small amount, because we can reinvest the cash flow into future products. So, right now we’re reinvesting the cash flow into developing the Model X which is an SUV, and into increasing the production capacity of the factory, and doing a little bit of advance planning on the third-generation vehicle that’ll be a mass market sort of affordable compelling electric car. So, that’s really I guess what’s meant by, in this case, not, concerning — we’re not trying to maximize profit at this point, because it would constrain the business, the growth of the business and constrain the overall objective of transitioning the world towards electric cars.

So, I got nothing against profit in general, but it’s not — I mean I actually don’t think it’s the smart move. If one were to take net present value of future cash flows, I think maximizing profit at this stage is actually not the smart move.

Steve Jurvetson: And it’s interesting, because earlier I said we would get back to it. You mentioned that, your goal was not to start a company that has the chance of making the most money for you the quickest.

Elon Musk: Yeah.

Steve Jurvetson: And that the wealth personally is almost a byproduct of these activities of passion. And by analogy like in the investment field, in venture capital, you could look for the thing that will make the most money the quickest, right? Like a new ad network for social media. But who cares? I mean, it really just doesn’t help the world in any meaningful, and there are much, over the longer, if you take a longer term perspective, there are things you could do that don’t answer the short term question of what’s going to make me the most money this year, or this five year period, but over 20 years. Folks know, ironically, he may make the most money, right, of any entrepreneur, or these companies might be more profitable than their cohort that doesn’t follow the same purpose driven, kind of, almost messianic zeal.

So, though the balance question most implies a dichotomy that may not be opposed, but may be aligned if you orchestrate it right.

Elon Musk: Yeah, maybe of a short term versus a long term approach.

Steve Jurvetson: Great, we have a hand up here?

Female Audience: Up here. This will be the last question.

Steve Jurvetson: Oh, is this the last question? Okay.

Male Audience: Yes, from your current car marketing strategy you could say that your cars are directed towards the luxury car marketplace, so, that’s a fairly well-defined market. Do you have any plans for expanding it to the general marketplace to say, make a car for the masses, which might be, may be in the $25,000 to $35,000 range?

Elon Musk: Yeah, absolutely. In fact, first blog piece I wrote for Tesla was the Tesla master plan, which is to start off with an expensive, low volume vehicle, then go to a mid priced, mid volume, and then sort of low price, high volume. So we’re kind of in phase two. And with our third generation vehicle, we expect to be somewhere in the $30,000-$35,000 range for the car. Which when you take into the account the savings from the use of electricity instead of gasoline, is more like comparing it in the U.S. to about a $28,000 car, or in Europe to a $22,000 car.

Steve Jurvetson: And the maintenance is much less, the fuel costs are much lower?

Elon Musk: Yeah, absolutely.

Steve Jurvetson: Well great. I want to thank you very much for this. And transition to the closing segment of our evening. Thank you.

Elon Musk: All right.

 

Steve Jurvetson: Well Elon, congratulations on behalf of the Stanford Graduate School of Business and the Stanford, Alumni Association, Business School Alumni Association. Dean Saloner would like to present you with this year’s Entrepreneurial Company of the Year.

Elon Musk: Thanks, thank you very much

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