TSLA Stock Drops 9% on “Below Average” Reliability Rating



Consumer Reports has shocked the automotive world by rating Tesla Model S reliability “Worse Than Average.” That rating means the Model S no longer has a “Recommended” rating from Consumer Reports. To be Recommended, a vehicle has to “meet stringent testing, reliability, and safety standards, including having average or better predicted reliability,” according to the organization.

How is this possible? Just a few months ago, Consumer Reports gushed all over the Tesla Model S P85D, calling it the best car it had ever tested. It was so good in fact, CR had to revise its testing standards to fully explain its overall deliciousness.

What happened, according to the Los Angeles Times, is that 1,400 Model S owners gave Consumer Reports an earful this year about an “array of detailed and complicated maladies.” The “main problems,” says CR, involve the drivetrain, power equipment, charging equipment, giant iPad-like center console, and squeaks, rattles and leaks from the body and sunroof. Specific areas that scored worse on the 2015 model, compared with last year’s model were its climate control, steering, and suspension systems.


TSLA Takes a Beating

The news sent shares of Tesla Motors (TSLA) down sharply on the New York Stock Exchange on Tuesday. They fell more than 10% during the trading day before rebounding slightly to finish off 7% at $213.03 per share.

In a statement after the Consumer Reports announcement, Tesla spokesman Ricardo Reyes said the company keeps in close communication with its customers to “proactively address issues and quickly fix problems.” He noted that over-the-air software updates allow Tesla to diagnose and fix most bugs without the need to come in for service, a feature that no other premium automaker has, at least not yet. “In instances when hardware needs to be fixed, we strive to make it painless,” Reyes said. “Consumer Reports also found that customers rate Tesla service as the best in the world.”

That part is correct. According to TechCrunch, Consumer Reports had this to say as part of its overall announcement on Model S reliability. “Despite the problems, our data show that Tesla owner satisfaction is still very high: Ninety-seven percent of owners said they would definitely buy their car again. It appears that Tesla has been responsive to replacing faulty motors, differentials, brakes, and infotainment systems, all with a minimum of fuss to owners … For its early adopters, Tesla has made a practice of overdelivering on service problems under the factory warranty.”

What does all this mean for Tesla? Is the TSLA price drop just a blip or is it a sign of big trouble ahead? For one thing, it may indicate that Tesla owners will be on the hook for lots of expensive repairs once the factory warranty ends. While the Tesla powertrain and battery are warrantied for 8 years and unlimited miles, the cars are loaded with complex and finicky systems like electric door handles and air suspension components that can cost big dollars to repair.

Tesla owners can opt to prepay for routine service for as much as 8 years, but that service only includes basic operations like replacing windshield wipers, wheel alignments and tire rotation. As the years and miles go by, Tesla owners could find themselves spending more money than expected to keep their cars in good repair, especially since they need to have any work done at a Tesla service center and pay Tesla service prices.

The issue for consumers is, if Tesla can’t make its spiffy electric door handles work, how in the world is it going to keep all those falcon wing doors on the Model X functioning perfectly for years on end? And what about the Model 3? Will Mr. and Mrs. Mainstream want to plunk down their hard earned cash on a car that is perceived as being unreliable?

TechCrunch reached out to Max Zanan, a longtime New York based automotive retail expert, who says, “Purchasing decisions aren’t guided by Consumer Reports; they’re guided by feel of the car, marketing, and word of mouth.” To prove his point, he uses Buick as an example. Even though it is the car brand rated highest in reliability by CR, “If you go to any Buick dealership on earth, you can buy a car on the spot because people aren’t interested in boring cars like Buick,” he says. Ouch!!!

Zanan also points to Kia and Hyundai. “In the ’90s, Kia and Hyundai had poor reliability ratings, too,” he says. “With time, they improved their processes and are now able to build very reliable cars with which consumers are very happy.”

He may know a lot about cars but he doesn’t know beans about Tesla, which has deliberately chosen to break with tradition. Instead of flooding the market with cheap cars and waiting 30 years, which is the path trodden by Toyota, Honda, Subaru, Nissan, Hyundai and Kia, to name just a few, Tesla is starting at the top of the market and working its way down to affordable cars. Its reputation for reliability is hugely important, despite Mr. Zanan’s cavalier opinion to the contrary. And it doesn’t have 30 years to wait. At the rate it is burning through money, it has 18 to 24 months to prove its strategy is the right one. Otherwise, it will founder and go the way of other premium car makers in America like Duesenberg, Packard and Tucker.

Maybe the Consumer Reports announcement is just a hiccup and Elon Musk will continue to blow sunshine up our skirts until Tesla becomes bigger than Apple. Or maybe cracks in the foundation beneath the mighty Tesla juggernaut are beginning to show for the first time. “We shall see,” said the Zen master.


Sources: Consumer Reports, via Jalopnik.

Steve Hanley

Closely following the transition from internal combustion to electricity. Whether it's cars, trucks, ships, or airplanes, sustainability is the key. Please follow me on Google + and Twitter.