How does the old saying go? When it rains, it pours? Well, Tesla (NASDAQ:TSLA) CEO Elon Musk is experiencing a storm right now. After Tesla stock already lost ground in the wake of a few too many red flags, there’s now news that Consumer Reports is dropping its recommendation of the Tesla Model 3 due to reliability and quality concerns.
The news knocked another 4% off the value of Tesla stock, bringing the ten-week rout to a little more than 20%.
Musk responded, of course, explaining the company has already addressed the chief concerns brought up by Consumer Reports based on surveys that ended in September. And, perhaps the typical Model 3 rolling off the line now is indeed a better machine than the ones manufactured just a few months ago.
The truth of the matter means much less than investors’ (and consumers’) perception of the company though, which is a headache Musk largely created for himself.
What Consumer Reports Said
“While Teslas perform well in Consumer Reports’ road tests and have excellent owner satisfaction, their reliability has not been consistent, according to our members, which has resulted in changes to their recommended status.”
The refreshed stance on the Model 3 went on to say, however:
“In most cases, reliability issues will undermine satisfaction,” Fisher adds. “But when a vehicle has an enthusiastic following, like with Tesla, owners may overlook some issues.”
It’s almost a vindication. And, Musk made a good point when he reminded the world that the National Highway Traffic Safety Administration (NHTSA) has given all the company’s electric vehicles its highest of safety ratings.
The accolades do little to reassure current and prospective owners of Tesla stock.
In short, Tesla remains a company that’s spinning out of control, struggling to find any semblance of stability.
Tesla Stock’s Road Is Lined With Red Flags
The latest ancillary evidence? Shortly before Consumer Reports retracted its enthusiasm for the Model 3, the company’s in-house lead attorney Dane Butswinkas — the same Dane Butswinkas that represented Musk following the “taking Tesla private” tweet the SEC didn’t particularly like — has resigned after only two months on the job.
That’s still not the shortest-lived stint among executives though. In September, Tesla Chief Accounting Officer Dave Morton stepped down after only one month on the job.
There’s more, though it’s potentially more of a reprisal of past trouble. On Tuesday, new tweets from Musk surfaced that loosely suggested a production outlook for the current year. As part of his settlement with the SEC, Musk’s tweets were supposed to be approved by someone inside the company other than Musk, and are supposed to steer clear of anything that might directly affect the value of Tesla stock.
Musk may be slipping back into his old ego-driven ways, perhaps leading to renewed legal trouble in the process.
And that’s not all.
Just a few days before Musk’s ill-advised tweets pointing to production rates, the company hinted it would offer leasing options for the Model 3 before the end of the year. CFRA analyst Garrett Nelson believes the prospect of leasing, which had largely been ruled out until now, is an indications of waning demand driven by the expiration of tax credits on the purchase of electric vehicles.
Nelson added “Looking past the near term, we expect TSLA to face significantly increased EV competition starting with the 2021 model year,” perhaps referring to ramped-up (and some new) electric vehicle production from the likes of Ford (NYSE:F), Nio (NYSE:NIO) and others.
Just a few days before that, Musk suggested Tesla will be able to manufacture a fully-self-driving car before the end of the year… a prediction so outlandish, according to AutoNation (NYSE:AN) CEO Mike Jackson, that it’s “almost unethical.”
Around the same time, word began to spread that returns of purchase deposits and refunds on returned cars were taking months to receive, perhaps pointing to liquidity challenges, but at the very least indicating inattentive service.
And all of this happened in a week. A week.
Bottom Line for Tesla Stock
It would be comforting to think the past week was a highly unusual one for Tesla, and Musk. And to be fair, it certainly wasn’t the norm.
On the other hand, it’s not as if anyone could fairly say the tsunami of alarming news and events was unheard of. We’ve seen this kind of frenzy up-end the stock before.
In total, unfortunately, it’s a sign that chaos is still the norm for Tesla. While “flying by the seat of your pants” may work for startups and small businesses, it doesn’t work for $50 billion companies trying to reshape an entire industry with an armada of competition ready to stage a direct attack. Musk, and now Tesla, are far too old to not have the operation fine-tuned into a well-oiled and effective EV-making machine.
If it hasn’t happened yet…why should investors believe Tesla will ever get its act together?