Tesla’s inventory fell nearly 22% from its 52-week high of about $1795 the week ended July 24.
On July 23, I mentioned 4 reasons to buy the shares. That day, a reader, Ben Gordon, informed me that I had missed one, what I call the Tesla paradox: Tesla car owners are so excited about them that they are willing, within certain limits, to live with their serious quality issues.
How? David Sargent, vice president of global automotive at J.D. Power Associates, told me in an interview on July 24 that Tesla’s quality disorders are worse than any other manufacturer in his recent survey.
Gordon will buy Tesla? And why are Tesla’s collateral expenses decreasing as a percentage of revenue?
I asked Tesla for a comment and will update it if I get a response.
Tesla’s paradox
Despite the worst quality in the industry, other people love their Tesla vehicles. This is the unexpected perspective of J.D. Power’s recent research.
How? The production quality of Tesla cars is low according to JD Power’s annual initial quality test released on June 24. According to the Wall Street Journal, the survey found that “Tesla cars, when they first made their first impression in the survey, had 250 disorders consistent with one hundred cars compared to an industry average this year of 166 disorders.”
This is the worst functionality in the industry. As David Sargent, JD Power’s vice president of global automotive in an interview on July 24, told me, “Tesla’s score of 250 is the highest of all the studio’s manufacturers. Why poor quality? It’s not the fact that electric vehicle. That’s the basics. Outside the vehicle [there are disorders with] end doors, adjustment panels, wind noise and paint quality. Inside, it is the inner end that is not absolutely attached, the cursed and squeaky are more visual in an electric vehicle because it is silent.”
Are these quality problems important? The answer is enough to placate visitors’ enthusiasm, according to the momently component of J.D. Power’s automotive design, execution and performance study.
According to the Wall Street Journal, “In the survey that measures the appeal of automobiles, Tesla scored 896 numbers out of 1,000 numbers, more than any other brand. The score of the moment was for Porsche Volkswagen AG, with 881, which ranked first high end brand and Dodge, with 872, to move up to the most sensible rankings of the mass market ».
Tesla’s emotional appeal comes from the fact that it’s “fun” to drive. As Sargent explains, “They gave us our knowledge of visitors’ attitudes toward Tesla by asking them what they think of 46 attributes like external stylus, performance, price, internal convenience and entertainment system. Tesla drivers say it’s incredibly fun to drive – it rushes so fast, it’s instant power. It is held because its average gravity is low. And they love the all-in-one board, the taste and quality of the cabin. »
Mind-blowing problems with a Tesla S of a unit
A frustrated Tesla owner, Gordon, emailed me mail pages with his Tesla dealership about his Model S, which he bought in 2013.
Your delight with Tesla is too frustrating to bear. In recent years, it has suffered “more than 30 service issues” with the Tesla, ranging from battery power outages to windows that don’t close, door handles that don’t work, faulty display. There are a long series of emails documenting everything for Tesla’s service, which ignored it. “
Here are two of the worst ones that’s ever jumped on me:
Gordon still can’t turn off the “true believer” component of Tesla’s mind. As you wrote last August, “Can you fix this problem, or even more, update it today?” Possibly I couldn’t get to the paintings without an update. And I actually need to be a satisfied visitor and a Tesla champion. »
Your local “service team” wasn’t much help. “The Florida service team continued to argue with me, failed the factor despite all my documentation and service history, and moved on to a discussion about ‘customer payment’ over issues that obviously predate the warranty expiration,” he told me. . Training
Should Tesla solve its problems?
Tesla is not doing everything it can to respond to such court cases. As the Journal writes, “Tesla has already ignored quality court cases pointing to its own internal knowledge and has stated that it takes visitor feedback seriously and is quick in trouble.”
J.D. Power has a charitable view of Tesla’s quality issues. “We first saw poor effects in corporations like Kia when they first arrived in the U.S. In the 1980s. Now Kia is near the top. In general, corporations that are new to industry or the U.S. market. find it difficult to respond to our survey. Tesla has been running there for 8 years, Toyota has been doing it for a hundred years. Tesla’s effects are not unexpected: if [the company is committed] to quality, it will,” Sargent said. he tells me.
Tesla opts for industry quality for immediate growth. “In theory, it’s less complicated to solve those problems. Tesla has temporarily accelerated production and is complicated for quality while doing so. They’re not going to slow down for quality. A classic automaker would not allow those [types of quality problems] to walk out the door,” Sargent concluded.
Tesla’s Warranty Accounting In Question
J.D. Shuts down the things that quality issues deserve to appear on Tesla coins in the form of warranty charges. As Sargent said, “Tesla has a three-year warranty during which the manufacturer is on site for repairs. This deserves to appear in the source of income as a secure expense and have made effective in advance.”
Automakers record warranty costs using accrual accounting, which means that they decrease the revenues reported by projected fixed prices before maintenance occurs. “The estimate of collateral prices in advance gives investors a broader concept of the underlying profitability of automotive operations,” according to Barron’s.
Tesla’s warranty rates as a percentage of profits have fallen over the following year. The figure is 2.9% at the time of the 2019 quarter, 2.7% in the third quarter of 2019, when Tesla made a wonderful profit, according to Barron’s, and 2.4% in the first quarter of 2020, according to its quarterly release for the first quarter. 2020.
These declines have attracted skeptics’ attention to Tesla’s accounting.
Will Gordon’s next one be a Tesla?
No, he won’t. As he wrote to me on July 25: “My next car will not be a Tesla. Manufacturing defects are a problem. Bad service is another. The inability to resolve recurrent disorders is a very bad sign.”
Gordon is not satisfied with this result. As he said, “The saddest thing is that I was one of the first to adopt. I bought it in 2013, when Tesla sold only 22,000 cars worldwide, out of a total of 85 million. It was a small business at the time, with a market percentage of 0.0026%.” »
He bought his Tesla for many reasons. “I liked the concept of electric cars, I supported the environmental benefit, I sought to buy Americans, I thought it was important to strengthen U.S. national security. By reducing dependence on foreign oil, and I was inspired by Tesla’s design. lovely car that seemed well designed. A pioneer user will have to be a bit of a believer.
Your emotions for Tesla bode well for the company’s future. “So when Tesla destroys its true believers and tries to convince them that poor production and service are the norm, this is well reflected in the company. And that indicates greater dangers to come,” Gordon concluded.
I left American corporations in 1994 and established a risk capital and control consulting firm (http://petercohan.com). I followed the movements of 1981 when I was
I left American corporations in 1994 and established a risk capital and control consulting firm (http://petercohan.com). I started tracking movements in 1981 when I was at MIT High School and first analyzed generational movements as a guest at CNBC in 1998. I became a Forbes contributor in April 2011. My fourteenth e-book, published in February 2019, is “Scaling Your Start- Up: Mastering the Four Steps, from the idea of $10 billion.” I gave the impression 8 times in the 2016 documentary “We The People: The Market Basket Effect”. (http://www.themarketbasketeffect.com/). I also teach corporate strategy and entrepreneurship at Babson College in Wellesley, Massachusetts (http://www.babson.edu/Academics/faculty/profiles/Pages/Cohan-Peter.aspx)