Tim Higgins - Tesla, Elon Musk, and the Bet of the Century

On a breezy night in March 2016 at the Tesla design studio, Elon Musk took the stage in front of a crowd of supporters. Dressed like a James Bond villain, in a black jacket with the collar up, he was on the cusp of achieving a decade-long dream, a goal the famed entrepreneur had spent years building toward: the grand reveal of his Model 3 electric car.

The design studionear the Los Angeles airport and in the same complex as Musks privately held rocket company, SpaceXwas the home of Teslas creative soul. It was a magical place, where Franz von Holzhausen, the automotive designer who contributed to the re-imagined Volkswagen Beetle and Mazdas resurgence, headed a team that put into form the ideas that Musk envisioned. Together they aspired to build revolutionary and dazzling electric cars, eschewing the techie, nerdy look favored by competitors, who had long seen such vehicles as experimental novelties.

Hundreds of customers turned out for the occasion. A Musk party wasnt to be missed; whether it was for Tesla or SpaceX, his events attracted an eclectic mix of Silicon Valley entrepreneurs, Hollywood names, loyal customers, and car enthusiasts. Until now Tesla had been a niche luxury branda fantasy for California environmentalists that had morphed into a whim for the rich, a must-have among those wealthy enough to have garages full of BMWs, Mercedes, and other gas-powered status symbols.

The Model 3, with its pledged starting pricing of $35,000, held the promise of something different. It was the embodiment of Musks ambition to bring a fully electric car to the masses. It was a gamble in the form of a four-door compact car: that Tesla could generate the sales volume and cash to take on the biggest of the big boys in the century-old automotive industry: Ford, Toyota, Volkswagen, Mercedes-Benz, BMW, and, of course, General Motors. The Model 3 would determine if Tesla was a real car company.

Musk, just a year younger than Henry Ford when the Model T was introduced 108 years earlier, stood onstage that night, greeted by the pounding bass of techno music and screams of his fans, to rewrite history. He came to usher in a new era.

It was his mission to change the world and maybe even save it (and presumably get rich while doing so) that had helped him attract a team of executives to put his vision into reality. In the crowd, those key deputieswho had been pulled from the automotive industry, tech, and venture capital (including Musks trusted confidant, his brother, Kimbal)reveled in the excitement.

Onstage, Musk fumbled through charts about rising CO2 pollution as he lamented the damage done to the planet. This is really important for the future of the world, he told the crowd to cheers.

A highly produced video gave the first glances of the Model 3. The car looked like a beacon of the future, outside and in. Sleek curves and lines encased an interior unlike anything on the market, the gauges of a typical car gone, replaced by a single large tablet-like screen in the center of the cockpit. The car zoomed along winding roads down the California coast. Again, the crowd cheered. One attendee screamed: You did it!

Musk commanded the stage, telling his audience that Tesla had already received more than 115,000 deposits of $1,000 eacha $115 million boost in cash to the company. Within weeks, Tesla would claim more than 500,000 reservations. It was a staggering figure: Thirty-two percent more than Toyota Motor Corp. sold that year in the U.S. of its popular family sedan archetype, the Camry. And these were reservationspeople lining up two years before the car would even be produced.

The Tesla team had devised a plan to slowly start making cars, with the goal of having a few thousand ready by the end of 2017, then boosting their capacity week by week, through 2018, until finally reaching the goal of 5,000 cars a week by the middle part of that year.

That volume5,000 cars a week, 260,000 cars a yearwas a widely held benchmark, a defining figure of what it meant to be a viable factory in the stable of a major carmaker. If Elon Musk and Tesla hit it, they could become a new force in the automotive industry.

But even that wasnt enough for Musk. He was already boasting that by 2020 he could get production at the companys single assembly factory outside Silicon Valley to 500,000 vehicles in a single yeartwice as many as most car factories in the U.S.

It is hard to overstate just how crazy this would sound coming from anyone other than Elon Musk.

Automakers typically take five to seven years from the start of designing a new vehicle to delivering it to customers. Its a tedious and complex process, refined over generations of experience. Before a new car hits dealer showrooms, its tested in the desert, the Arctic, and the mountains. Thousands of suppliers contribute to the effort, building parts with astonishing precision for vehicles that will ultimately be pieced together in factory blitzes choreographed to the second.

But for all of his startup gumption, undeniable ambition, and vision, walking off the stage that day, even with pre-orders pouring in, Musk couldnt escape the inexorable financial logic learned over a century by the likes of GM, Ford, and BMW: the process of making cars is a brutal businessand an expensive one.

And Elon Musks books were a disaster. Tesla was burning, on average, $500 million a quarter and had only $1.4 billion free cash on handmeaning Tesla was on track to be out of money by the end of 2016 if something drastic didnt change.

But this was all part of the confidence game he always knew hed have to play if he were ever going to create the worlds most valuable automaker. Belief created the vision; the vision would create a market; the market would create cash; and cash would create cars. He just had to do it on an unimaginable scale, and do it fast enough to stay a cars length ahead of competitors, creditors, customers, and investors betting against the company through a process called short selling that could pay handsomely if Teslas stock plunged in value.