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Tesla Stock Is Falling Fast After Consumer Reports Rescinds Recommendation

Consumer Reports says the 2015 Model S "is likely to involve a worse-than-average overall problem rate."

Tesla Motors

What happened? Just last month, Tesla was the envy of the car world having scored a perfect 100 rating from Consumer Reports.

On Tuesday, Tesla shares plunged more than ten percent after Consumer Reports rescinded its Model S recommendation, saying the 2015 sedan has significant reliability issues.

Consumer Reports on Tuesday published survey data that indicated Tesla’s 2015 Model S sedan “is likely to involve a worse-than-average overall problem rate.” This means the car is no longer recommended by Consumer Reports, the widely respected product testing and reviews company.

Although the 1,400 owners surveyed showed that 97 percent of current owners would purchase a Tesla again, it also highlighted issues with the Model S’s electric motor, wheel alignment, windshield wipers and more, which the article’s author, Mark Rechtin, said are reliability problems common among luxury cars. Consumer Reports also described a customer service department that appears responsive and generally successful.

“Tesla’s attention to customer service has been effective. Almost every survey respondent made note of Tesla’s rapid response and repair time, despite the lack of a traditional dealer service network,” according to Rechtin. “For its early adopters, Tesla has made a practice of overdelivering on service problems under the factory warranty.”

Rechtin said the real issue with Teslas isn’t that the company can’t keep up with the problems its cars have now. The problem is that it remains unclear how Tesla manages what happens in five years, when Musk plans to sell 10 times as many cars.

“It’s one thing to have a quirky, problematic car that sells 20,000 units per year to wealthy people who probably own at least one backup vehicle,” Rechtin writes. “It’s quite another when Tesla scales up to its 2020 projection of 200,000 U.S. Model 3 buyers, who may not have the luxury of being so forgiving.”

On Twitter, journalists and Tesla watchers pounced on both Tesla’s strategy and Consumer Reports’ recommendation practices:

In a statement given to Re/code, a Tesla spokesperson highlighted the company’s customer service division but declined to comment on the Wall Street slide:

“Consumer Reports also found that customers rate Tesla service and loyalty as the best in the world. Close communication with our customers enables Tesla to receive input, proactively address issues, and quickly fix problems. Over-the-air software updates allow Tesla to diagnose and fix most bugs without the need to come in for service. In instances when hardware needs to be fixed, we strive to make it painless.”

As of publication, Tesla’s is stock is trading at around $213 a pop, roughly 6.5 percent below where it opened this morning.

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