Consumer Reports is a widely known and well-respected source for reviews on all sorts of consumer products. And if you own Tesla (TSLA) stock, you should be familiar with it, because it has helped push TSLA around a couple of times before.
From cars and appliances to lawn mowers and mattresses, Consumer Reports casts a wide net. Most of its reviews aren’t going to make huge ripples through Wall Street. If the publication pans a Honda (HMC) lawn mower or a General Electric (GE) refrigerator, investors generally won’t care.
But Tesla shareholders tend to pay a little more attention.
To wit, TSLA stock jumped more than 7% on Thursday after the Tesla Model S P85D actually broke the magazine’s rating system due to its awesomeness.
Here’s Consumer Reports explaining how Tesla’s latest, which goes from 0 to 60 in 3.5 seconds and starts at $105,000, wreaked havoc on its rating system:
“We faced a quandary: The Tesla initially scored 103 in the Consumer Reports’ Ratings system, which by definition doesn’t go past 100. The car set a new benchmark, so we had to make changes to our scoring to account for it.”
You can understand why investors might exuberantly bid up TSLA stock on the quite literally absurd 103 rating.
This wasn’t the first time that a Consumer Reports nod wielded a ton of influence over the TSLA stock price. However, it might be a stretch to say that getting into CR’s good graces is an automatic boon for Tesla shareholders.
TSLA: Getting Harder to Budge
Let’s take a look at some of the market-moving reviews of the past:
- May 9, 2013: Consumer Reports gives TSLA stock a major boost, calling the Tesla Model S the best car it has ever tested. Tesla stock shoots 24.4% higher, well above the Nasdaq’s 0.1% loss on the day. (But note: Tesla simultaneously reported its first-ever profit, which undoubtedly had some sway, too.)
Net outperformance: 24.5 percentage points - Feb. 25, 2014: The Tesla Model S is named best in class among 2014 models. TSLA stock rallies 13.9%. The Nasdaq loses 0.1% again.
Net outperformance: 14 percentage points - Feb. 24, 2015: The Tesla Model S is again named best overall. The Nasdaq ticked up 0.1%. TSLA actually lost 1.5%.
Net underperformance: 1.6 percentage points - Aug. 27, 2015: The Tesla S P85D breaks Consumer Reports‘ fragile rating system. TSLA stock is up around 7% on the day. The Nasdaq is up around 2%.
Net outperformance: 5 percentage points
Consumer Reports‘ influence on TSLA is seemingly waning, but with Tesla growing into a battery and power company, it makes sense.
Moving forward, the opinion of Consumer Reports won’t matter nearly as much as it once did for Tesla shareholders. In May, when the site reported that the retractable driver’s-side door handles on the 27-day-old Tesla S P85D stopped working, TSLA stock had almost no reaction. It traded sideways, underperforming the Nasdaq by a modest 60 basis points.
Bottom Line
The days of 24% jumps in Tesla’s stock price because of favorable reviews are likely over. While Thursday’s gains were significant, they also came after massive selling and amid a report that changed the way a long-standing ratings publication rated autos.
In the coming years, TSLA will have to rely increasingly on results — not sentiment — to drive the stock price higher.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
