Tesla’s Consumer Reports’ Reliability: Upside Ahead?

Yesterday, Consumer Reports’ survey put Tesla Model S and Model 3 back on the recommended list based on their improved reliability. We’ll discuss this in detail later. Lets’s first look at the survey’s overall results.

Consumer Reports’ Reliability Survey results

Consumer Reports announced its Annual Auto Reliability Survey results yesterday. The survey is based on reviews from owners of more than 400,000 vehicles. It covers more than 300 models. The survey ranks Lexus, Mazda (MZDAY), and Toyota (TM) as the most reliable brands.

On the contrary, Honda Motors’ (HMC) Acura, Fiat Chrysler’s (FCAU) Alfa Romeo, and General Motors’ (GM) Cadillac ranked at the bottom of the survey results. Also, Volkswagen (VLKAF), Acura, and Audi (AUDVF) saw the most severe falls in the reliability survey.

TSLA gains four spots in the survey

Another piece of interesting news from the survey is that it is again recommending Tesla (TSLA) Model S and Model 3. The latest recommendation from CR (Consumer Reports) is due to these models’ improved reliability. CR’s senior director of auto testing Jake Fisher said, “The Tesla Model 3 struggled last year as the company made frequent design changes and ramped up production to meet demand.”

He added, “But as the production stabilized, we have seen improvements to the reliability.”Previously, the survey found problems with Model 3’s paint, body panels, and windows. Tesla climbed four spots from 27 last year to 23 this year, out of a total of 30 brands.”

Tesla Model 3 and Model S back on the recommended list

Last time, the survey said that Tesla Model 3 scored top marks in the owner satisfaction survey but reliability was its weak spot. For Model S, problems with the suspension, especially with the 2017 model year was the major issue.

In response to these issues, Tesla spokesperson said that they have made “significant improvements” to Model 3 based on the issues raised by Model 3 owners. The spokesperson added, “The vast majority of these issues have already been corrected through design and manufacturing improvements, and we are already seeing a significant improvement in our field data.”

Tesla Model X is still unreliable

The volatility in CR’s rankings reflects the frequent changes made by Tesla to its vehicles throughout the year. Unlike most other automakers, which make changes all at once at the assembly line, Tesla makes frequent changes. Fisher says, “It can take time for any manufacturer to work out reliability problems with new parts, and it’s even harder if they’re introduced frequently.”

However, the survey still ranks Tesla Model X as its least reliable model and doesn’t recommend it. According to the survey, the owners of Model X reported problems such as noises, leaks, and problems with their falcon-wing doors.

Bloomberg Survey results for Tesla Model 3

The improvement reported in the survey for Model 3 is similar to the Bloomberg survey’s conclusion. Bloomberg surveyed 5,000 Model 3 owners. According to the results, owners reported that Tesla is making progress on fixing issues with poor paint and build quality. Moreover, new owners reported 44% fewer defects between the third quarter of 2018 and the third quarter of 2019. With this, the reported issues with Model 3 reached the lowest point in the 21-month period.

Also, Fisher told CNN that owners don’t usually buy Tesla for its reliability but because it offers something exciting. He added, “The Teslas are delivering on that front.” The reversal in ratings for Model S and Model 3 is good news for Tesla.

TSLA stock price performance after positive news

Yesterday, Tesla’s stock gained almost 1% after the improved rating news. Since announcing its Q3 results, Tesla’s stock has been on an uptrend. TSLA has gained 37% since October 23, its Q3 2019 results release date. This reversed its YTD (year-to-date) losses to a gain of 5%. However, Tesla’s share price is still lagging the S&P 500 (SPY) and the Dow Jones Industrial Average Index (DIA), which have gained 23% and 19%, respectively.

Also, there are other positive developments for Tesla recently. On November 12, Elon Musk announced that the company chose Germany as the location for its European Gigafactory. Morgan Stanley’s (MS) analyst thinks that Tesla’s China Gigafactory can boost Tesla’s margins to the low- to mid-30% range, which would be similar to Porsche’s margins. Also, Tesla made impressive progress in the China Gigafactory. Already, the company unveiled its first made-in-China Model 3 sedan.

TSLA’s stock gains already squeezed the shorts, who were betting on profitability concerns for the company. With the recent spate of positive developments, this stock momentum could continue. This would further bother the shorts.