Tesla Inc. (TSLA, Financial) has been pulling out all the stops to up its delivery numbers as the third quarter comes to a close. The urgency is understandable since CEO Elon Musk has promised that the upstart electric vehicle maker will post a profit for the quarter. That has been the dominant narrative throughout the third quarter, especially after Musk’s brief effort to take the company private fell apart in spectacular fashion. Most analysts, even bullish ones, are dubious of the prospect of profit in the third quarter, but Musk has so far stuck to his guns.
Tesla is clearly frantic to move as many vehicles as possible, offering a range of sweeteners and deals to buyers (a very public departure from the company’s long-standing claim that it never offers discounts) as well as turning to enthusiastic volunteers to help get new owners into cars and out the door before the page turns on the quarter.
Tesla watchers are not strangers to the company’s end-of-quarter rushes. Indeed, it is the norm. But as the number of Tesla cars on the road increases, so too are concerns about quality. New Model 3 sedans are being reported with defects at an alarming rate, and service centers and third-party repair shops have been stretched to the breaking point.
In today’s research note, we take a look at the mounting quality issues facing Tesla. It does not bode well for the company, which is already facing extreme financial stress. With a stock priced for perfection, this looks like a taut wire ready to snap.
Quality horror stories
Teslas are premium cars. Even the Model 3, which was originally billed as a mass-market vehicle, starts at $50,000 and can run higher than $70,000 with upgrades. At this point, analysts are starting to wonder if the long-awaited mass-market $35,000 version will ever be available. Meanwhile, Tesla’s other two models, the Model S and Model X, claim even higher price points, with an average sale price across the two coming to more than $100,000.
One would expect that such high-priced cars would be of superlative quality. Yet there has been an avalanche of quality issues, with many disgruntled and upset buyers taking to Twitter to complain to Musk and the company directly. Twitter user “Justin” has been a diligent recorder of these complaints. His “Tesla Chronicles” now runs to hundreds of pages and thousands of tweets from buyers will quality issues ranging from panel gaps to battery and software failures to paint defects.
Many Tesla owners, new and old, continue to marvel at the cars and the company they believe to be leading humanity toward a more sustainable future. But even the rose-tinted glasses through which they view the company and their cars have not blinded them to glaring quality issues. True believers often sound almost apologetic when complaining about problems with their new luxury cars, but they are still complaining. And the level of disappointment and anger is unquestionably mounting.
Stuck in the shop
Beyond the build quality issues, “Justin” has also chronicled the shockingly long wait times Tesla owners face for even simple repair work. Jobs that ought to take a week can stretch out to months. Several new Tesla owners are now stuck making car payments for vehicles they have driven for a matter of days, or even hours, before having to be sent off to service centers for repairs.
Musk has never been one to take blame for problems at his companies, so it is unsurprising that he has tried to push responsibility for repair issues onto third-party repair shops and service partners. On Sept. 16, in response to an avalanche of complaints, he announced that Tesla would soon be getting around what he claimed were overly slow third-party providers by bringing collision repairs in-house.
Several repair shops contracted with Tesla were livid at the CEO’s bizarre pronouncement, with several taking to social media and the news to counter that delays have been the result of Tesla’s own extremely slow logistics and lack of spare parts to send to the shops. The problem is clearly a dearth of parts, not a failing of the repair shops. But Musk is doing his utmost to transfer blame. It does not appear to be working, with both the media and many Tesla owners questioning his apportionment of blame to shops that have no trouble working with most any other make of car.
All of these quality issues feed into the problem of reliability. According to the latest reliability data from TrueDelta, the Model 3 ranks at the bottom of the pile. Indeed, it is dead last in reliability. And it is not even close. The Model S is also notorious for reliability issues. As they age, those problems are getting worse. Add to that the growing fleet of dubious Model 3s and Tesla will soon be facing an expensive problem, in both monetary and reputational damage.
Verdict
Tesla’s brand has been built on being amazing, futuristic electric vehicles that are fast and fun to drive. But as quality issues mount, that brand will be tarnished. Most early adopters are enthusiastic about Tesla and its mission. Many consider it a privilege to pay a fortune to own a Tesla. But as more people who do not share that sense of deep belief buy these cars, the complaints will get increasingly strident.
Tesla’s stock price reflects an unparalleled level of brand value, as well as a growth trajectory that should see the company making as many vehicles a year as any of the large legacy automakers. But if these quality issues persist, or increase as they have in recent months, then the Tesla brand – and growth story – could be irreparably tarnished.
Disclosure: Short TSLA via long-dated put options.
