By 1887, Tesla opened the doors to his own company -- the Tesla Electric Company. It was at this time that he created his most successful invention ever, the alternating current (AC) motor, which eventually put Edison out of business.
AC motors proved to be far superior to motors based on DC technology. Although all households that had electricity in the early-to-mid 1880s were using DC electricity (through Edison General Electric) because it was the only thing available, AC motors were more powerful, could send currents at longer distances, and the technology was 1,000 times cheaper than DC electricity.
Today, the only type of DC electricity you will find is within batteries. Imagine powering every appliance in your home using battery power. The thought is preposterous. Not only would you spend countless hours changing batteries, but it would also greatly increase your monthly expenditure for electricity. Now you see why Tesla’s motor system ultimately destroyed Edison and why it is still in use today. Of Tesla’s 300 patents, the AC motor remains his most successful innovation.
As you can imagine, Edison was not pleased to find that his former employee invented a way to harvest electricity that could soon put him out of business, and so he waged war.
The Battle: Edison vs. Tesla
When word got out about Tesla’s new innovation, George Westinghouse, the founder of Westinghouse Electric & Manufacturing Co., approached him. Westinghouse made Tesla an offer he couldn’t refuse, to the tune of a few million dollars. Westinghouse offered Tesla a $60,000 bonus (worth $1.4 million today), an annual salary of $576,000, 150 shares of company stock, and a $2.50 royalty per horsepower generated by his technology. Tesla signed the contract and joined Westinghouse, where he would earn the equivalent of millions of dollars per year from royalties alone.
When Edison heard about the contract, he decided to try to put Westinghouse out of business by bashing AC electricity. He launched a series of smear campaigns in which he claimed the technology was dangerous. The cutthroat businessman carried out a number of public electrocutions on animals to scare the public into believing that they would be electrocuted if they sourced their energy from Westinghouse (oddly enough, this campaign ultimately led to the invention and patent of the electric chair).
Good ol' Tesla wasn’t concerned. Westinghouse retaliated and Tesla proved the safety of the new technology by passing 1 million volts of AC electricity through his body during a PR campaign of his own. The public was set at ease, and AC electricity would later become a great hairdresser during the 1980s.
Edison, however, would not give up so easily. The war between Edison and Westinghouse lasted roughly 20 years, and although Westinghouse ultimately prevailed, the company was $10 million in debt and facing bankruptcy at the end of it. Desperate to save the company, George Westinghouse approached Tesla and asked if he would temporarily accept lower royalties to allow the company time to get back on its feet. To his shock and relief, Tesla retrieved the contract and ripped it up on the spot.
When Tesla ripped up the contract, he forfeited his royalties from his invention of AC electricity forever. Many argue that Tesla should have opted for a temporary decrease in pay from his royalties, until Westinghouse rebuilt. Despite the fact that Tesla ultimately died penniless and completely out of his mind, there are no official accounts of him regretting that decision (although we do wonder).