The shiniest automaker in the business has a few fresh dings to polish over.
Consumer Reports, which has gushed over Tesla’s Model S sedan, issued a new report on several problems encountered with the car during 18 months’ worth of ownership. “Over the last 15,743 miles,” CR reported, “our test car has developed many minor problems that merit some reflection.”
It’s fairly normal for new models to have imperfections, which tend to get worked out in the first year or so of production. Still, the problems CR has experienced with its Model S seem excessive. Among them: retracting door handles that got stuck, an unresponsive release for the front trunk lid, a creaky roof pillar, a broken seat buckle, a splintered power adapter and a control console that went dark, effectively disabling the car.
Most of the problems fell under the car’s warranty, and Tesla (TSLA) fixed them at no charge. Yet it’s unusual for CR to draw attention to an individual vehicle aside from scheduled reviews or annual reliability rankings. In its first rating of a $90,000 Model S, CR gave the car a near-perfect score of 99 out of 100. It also predicted reliability would be average once there was long-term data to analyze. But now, CR says reliability could come in below average, based on whether other owners who respond to surveys report problems similar to those CR encountered. Below-average reliability disqualifies cars from prized placement on CR's recommended list.
Shares on a tear
Tesla is a corporate phenomenon, and not just because of its cars. The stock has been on a stratospheric tear since 2013 and is now around $257 — 15 times its initial offering price of $17 in 2010. During the past year, it has outperformed the S&P 500 index by a factor of 5. The levitating stock has given Tesla a market capitalization of $32 billion, which is nearly one-half of Ford’s (F) — even though Tesla brings in about one-sixtieth as much revenue as its Detroit rival. With a rise of 72% so far this year, some analysts say Tesla stock could still double from where it is now.
Shares were down around 1% in late Tuesday trading.
The supercharged stock, down around 1% in Tuesday trading, clearly doesn’t reflect recent performance. Telsa lost $167 million during the past 12 months, according to S&P Capital IQ. Its U.S. market share is a paltry 0.2%. And it’s far from clear electric vehicles, Tesla’s specialty, will ever have mainstream appeal beyond zero-emission zealots and wealthy collectors with several playthings in their multicar garages. Investors clearly believe Elon Musk, Tesla’s magic-tough CEO, will transform the company into something far more influential than a trendy niche player. But there are still many doubters: Short interest accounts for 26.6% of the stock's float.
Up till now, quality hasn’t been a problem for Tesla. It glided through a government safety review earlier this year, prompted by fires that broke out after a couple of Model S crashes. Tesla made a few fireproofing modifications, and safety regulators closed their case. And Model S owners have generally been delighted with their vehicles.
The Consumer Reports dings suggest Tesla may be suffering some growing pains that can probably be relieved through attentive customer service. It could be good practice for Tesla, which is likely to face tougher scrutiny as it branches out into the broader market and tries to woo customers less infatuated with the novelty of an electric car. Simply scaling up sales can be tricky for some luxury brands, since the personalized service that wealthy customers expect becomes unaffordable as profit margins fall and there are more customers to take care of.
Tesla’s next mission is to expand its footprint and prove it can go mainstream, as investors obviously hope it can. The Model X, a crossover with many components in common with the Model S, debuts late this year at a similar price range of around $70,000 to $95,000. The Model 3, more of a mass-market sedan, is due in 2017, starting at around $35,000. The trick for Tesla will be putting the costly, cutting-edge technology that has become its hallmark into mainstream vehicles — without losing money.
That’s where the gigafactory — a huge battery production plant Musk has planned — comes in. Musk has been cagey about his goals, but this factory, in theory, would build breakthrough batteries with improved range and cost that might become the standard for electric vehicles built by every manufacturer. Tesla could go even further by building breakthrough power-storage units for the electrical grid itself, the kind of revolutionary move that already seems factored into the share price of the automotive upstart.
Other battery manufacturers are chasing the same prize, and some Musk critics feel he’s overdue for a misstep. Musk, of course, has made a habit of proving doubters wrong — and keeping Tesla’s image buffed to a blinding sheen.
Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.