Tesla Motors is one of the most exciting companies out there, promising a future of clean and affordable transportation. Under the laudable leadership of Elon Musk, the company has become one of the biggest names in the auto and tech industries.
This is reflected in rising sales. Last year, Tesla sold 31,655 Model S sedans-a figure it has already beaten this year. So successful has the car maker been that shares were at $228.10 and a new model–the Model X SUV–was released just last month.
In the midst of the achievement, however, things have taken a slight turn for the worse: Consumer Reports, the influential US magazine that reviews products and services according to in-depth surveys and research, dropped its recommendation of the Model S. As a result, Tesla shares fell $15 and 6.61 percent to $213.03.
This was a major shock around the industry, especially after Consumer Reports gave the Model S P85D the highest rating among any vehicle they’ve ever tested earlier this year.
There were a number of reasons why Consumer Reports made the decision. But it all boils down the reliability. Owners experienced issues with a number of vehicle features, including the sunroof, drive train, and center console. One of the biggest issues was charging the car, with the electric motor having to be replaced in some cases.
Tesla appears to be having a hard time providing full functionality as it has added more features. The company may have an ever harder time keeping quality in check as it accelerates its production. The Model X has just gone on sale, and manufacture of the Model S continues in the face of the recommendation loss.
How Bad is it for Tesla?
What does this mean for Tesla? How much is this going to affect their business?
It’s definitely a blow to their reputation, especially among investors. As reflected by the drop in share value, many have lost faith in Tesla for the moment. Prospective investors may stay away, cutting into company capital.
With regard to consumer relations, it may not be as bad as you would think. Despite the fact that Consumer Reports withheld a reliability recommendation, Tesla has managed to maintain a high level of customer satisfaction. In fact, 97 percent of those surveyed said they would buy the car again, even with the bugs it has.
It helps that Tesla has known about these failings and been swift to address them. The company keeps close communication with car owners and even has a sophisticated software that allows updates to eliminate bugs without drivers having to take the car to the shop. The effort to have good consumer relations has paid off–Tesla’s current customer base is extremely loyal.
Now the trick is to apply the lessons learned to the production of future vehicles. This situation isn’t a death knell for Tesla by any means, but it is a strong warning that major error is possible in the future if the company doesn’t learn from its mistakes. If Tesla can create better quality controls as it speeds up production, it can recover from this slip-up and see its share value glide back up.