Is Tesla’s Service Quality Promise Faltering?

Nextmove was supposed to buy 100 Tesla (TSLA) Model 3 cars. However, the company called off its order due to Tesla’s service quality issues.

Mohit Oberoi, CFA - Author

Aug. 19 2019, Updated 11:57 a.m. ET

uploads///Tesla Nextmove

Last week, Nextmove, a German car rental company, called off its order for Tesla Model 3. Previously, Nextmove took the delivery of 15 Model 3 cars. However, the company walked away from buying the remaining 85 cars. Recently, Tesla has been in the limelight for service-related issues.

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Tesla’s service issues

Nextmove was supposed to buy 100 Tesla (TSLA) Model 3 cars. However, the company called off its order due to service quality issues. Bloomberg reported that Nextmove’s managing director, Steven Moeller, called Tesla Model 3 “a fantastic car.” However, Moeller faulted Tesla’s service quality and said “the organization behind it doesn’t match that. It’s really sobering.”

Moeller and Nextmove had issues with Tesla in the past. Bloomberg said that Moeller spent “two years waiting for the carmaker to replace a seat in a Model X that was delivered in July 2017 with a hole in it.” Moeller gave Bloomberg News his correspondence with Tesla.

Who’s responsible?

Most reports claim that Nextmove canceled the order for the remaining 85 Tesla Model 3 cars. However, Bloomberg added that according to Nextmove, Tesla actually canceled the order. Meanwhile, Reuters reported that Tesla said, “We believe the customer’s decision not to take delivery of its remaining Model 3 orders wasn’t entirely due to quality issues, but was largely influenced by their frustration with an unrelated dispute from earlier in the year.”

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Tesla’s service quality promise

While most Tesla car buyers swear by the company’s quality, some have faced service issues. Tesla has set lofty service quality standards for itself. Tesla said, “Over-the-air updates help to improve your Tesla over time, while remote diagnostics and the support of our Mobile Service technicians reduce your need to ever visit a Service Center. In the rare case that your car requires a shop visit, service will be quick and seamless—and likely be complete before you finish your coffee.”

Addressing the issue

The Nextmove issue shows that it could take a while to address a Tesla service issue. Nextmove said that it waited two years for a car seat replacement. The timeframe goes way beyond the established norms, let alone Tesla’s “sip a coffee” timeline. Previously, there were reports about a car part shortage for Tesla. According to Tesla’s software updates, earlier this month, a buyer sued the company for limiting the older Model S battery capacity with an update.

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Expanding fleet

Tesla’s car sales have been growing rapidly even though automotive sales stalled globally. The company’s car deliveries have been setting new records from a low base. In the second quarter, Tesla’s car deliveries rose 134% year-over-year. The company plans to deliver between 360,000 and 400,000 cars this year. So far, Tesla’s on-road car fleet is low. At the same time, the fleet is relatively newer. So, Tesla cars might not face the same service issues as established automakers. Electric cars usually require less maintenance compared to ICE (internal combustion engines). According to the Department of Energy, “In general, AEVs (all-electric vehicles) require less maintenance than conventional vehicles because there are usually fewer fluids (like oil and transmission fluid) to change and far fewer moving parts.” Tesla frequently mocks ICE cars as being outdated.

International operations

In our view, Tesla might also need to ramp up its service operations overseas particularly in China and Europe. These countries are Tesla’s biggest markets outside the US. Tesla has also been expanding to new international markets. Recently, the company added South Korea to the growing list of countries where it delivers its cars. Along with ramping up international operations, Tesla might also need to scale up its service infrastructure. While Tesla fans might see it as a technology company, it’s pretty much an automotive company. Like any other automotive manufacturer, Tesla also needs a strong post-sales service infrastructure.


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