Tesla Motors was incorporated in Delaware on July 1, 2003 by Martin Eberhard and Marc Tarpenning to pursue serial production of AC Propulsion's tzero prototype electric sports car. With a limited amount of personal funding, they rented Tesla's first office in Menlo Park, California and began developing a skeletal business plan to commercialize the electric sports car. They added Ian Wright to the team and in January 2004 started looking for funding to develop a production electric sports car. They arranged with AC Propulsion to borrow their TZero prototype to demonstrate to potential investors the performance possible with an electric car.
Independently, entrepreneur Elon Musk had been developing a business strategy to commercialize electric vehicles on a far broader scale, starting with a premium sports car aimed at "early adopters" and then moving as rapidly as possible into more mainstream vehicles, including sedans and compacts. After his first meeting with Eberhard and Tarpenning, Musk took an active role within the company and oversaw Roadster product design; in fact, Eberhard acknowledged that Musk was the person who insisted from the beginning on a carbon fiber body, and he led design of components ranging from the power electronics module to the headlamps and other styling cues. In addition to his daily operational roles, Musk also became the lead investor, funding the vast majority of the Series A capital investment round of US$7.5 million with personal funds. Musk also became Tesla's Chairman of the Board, recruited JB Straubel to become chief technology officer and greatly expanded Tesla's long-term strategic sales goals to mainstream vehicles to be developed after a sports car. Musk received the Global Green 2006 product design award for his design of the Tesla Roadster, presented by Mikhail Gorbachev, and he received the 2007 Index Design award for his design of the Tesla Roadster.
Musk's Series A round included Compass Technology Partners and SDL Ventures, as well as many private investors. Musk later led Tesla Motors' Series B, US$13 million, investment round which added Valor Equity Partners to the funding team. Musk co-led the third, US$40 million round in May 2006 along with Technology Partners. Tesla's third round included investment from prominent entrepreneurs including Google co-founders Sergey Brin & Larry Page, former eBay President Jeff Skoll, Hyatt heir Nick Pritzker and added the VC firms Draper Fisher Jurvetson, Capricorn Management and The Bay Area Equity Fund managed by JPMorgan Chase. The fourth round in May 2007 added another US$45 million and brought the total investments to over US$105 million through private financing.
In December 2007, Ze'ev Drori became the CEO and President of Tesla Motors. In January 2008, Tesla Motors fired several key personnel who had been involved from the inception after a performance review by the new CEO. According to Musk, Tesla was forced to reduce the company workforce by about 10 percent to lower its burn rate, which was out of control in 2007.
The fifth round in February 2008 added another US$40 million. Musk had contributed US$70 million of his own money to the company by this time. In October 2008, Musk succeeded Ze'ev Drori as CEO. Drori became Vice Chairman. He left the company in December. By January 2009, Tesla had raised US$187 million and delivered 147 cars.
On May 19, 2009, Germany's Daimler AG, maker of Mercedes, acquired an equity stake of less than 10 percent of Tesla for a reported US$50 million. In July 2009, Daimler announced that Abu Dhabi's Aabar Investments bought 40 percent of Daimler's interest in Tesla.
In June 2009 Tesla was approved to receive US$465 million in interest-bearing loans from the United States Department of Energy. The funding, part of an US$8 billion program for advanced vehicle technologies (Advanced Technology Vehicles Manufacturing Loan Program), supports engineering and production of the Model S sedan, as well as the development of powertrain technology that Tesla plans to sell to other automakers. The low-interest loans are not related to the "bailout" funds that GM and Chrysler have received, nor are they related to the 2009 economic stimulus package. The Department of Energy loan program was created in 2007 during the George Bush administration in order to get more fuel-efficient vehicle options to U.S. consumers and to decrease the country's dependence on foreign oil.
The company announced in early August 2009 that it had achieved overall corporate profitability for the month of July 2009. The company said it earned approximately US$1 million on revenue of US$20 million. Profitability arose primarily from improved gross margin on the 2010 Roadster, the second iteration of Tesla’s award-winning sports car. Tesla, which like all automakers records revenue when products are delivered, shipped a record 109 vehicles in July and reported a surge in new Roadster purchases.
In September 2009, Tesla announced an US$82.5 million round to accelerate Tesla's retail expansion in advance of the Model S. Daimler participated in the round to maintain equity ownership from its initial investment. A new investor was Fjord Capital Partners, under the leadership of founders Michael Obermayer (a former senior partner and director of McKinsey & Company, Inc), Arild Nerdrum and Xavier de La Rochefoucauld. Fjord is a specialized European private equity manager investing into the clean energy sector globally. Fjord invests growth capital in renewable and low-carbon companies and projects.
Tesla Motors signed a production contract on 11 July 2005 with Group Lotus to produce "gliders" for Tesla. Tesla Motors originally signed a production contract with Group Lotus good through March 2011, but the two automakers revealed they have extended the deal to keep the electric Roadster in production through December 2011 with a minimum number of 2,400 units, when production is unlikely to continue mostly because of tooling changes orchestrated by one of its suppliers.
On 29 January 2010, Tesla Motors filed Form S-1 with the U.S. Securities and Exchange Commission, as a preliminary prospectus indicating its intention to file an initial public offering underwritten by Goldman Sachs, Morgan Stanley, J. P. Morgan and Deutsche Bank Securities. In a standard S-1 update filed March 26, Tesla added fourth-quarter 2009 data to the initial filing. According to the update, Tesla sold 937 Tesla Roadsters to customers in 18 countries and generated US$126.8 million in revenue as of Dec. 31, 2009. On May 21, 2010, Tesla announced a "strategic partnership" with Toyota, which agreed to purchase US$50 million in Tesla common stock issued in a private placement to close immediately after Tesla's planned IPO. Executives at both companies said that they would cooperate on "the development of electric vehicles, parts, and production system and engineering support." Less than two months later, Toyota and Tesla confirmed that their first platform collaboration would be to build an electric version of the RAV4 EV.
In June 2010, it was reported that Tesla sold a total of US$12.2 million zero emission vehicle credits to other automakers, including Honda, up to March 31, 2010. On June 29, 2010 Tesla Motors launched its initial public offering on NASDAQ under the symbol TSLA. The IPO raised US$226 million for the company. It was the first American car maker to go public since the Ford Motor Company had its IPO in 1956.