Consumer Reports' rollercoaster rating changes on electric-car maker Tesla's (NASDAQ:TSLA) vehicle reliability continued on Thursday. The consumer reporting agency raised its reliability rating for the company's Model S sedan from average to above average. The rating change follows a change in 2015 when CR lowered the Model S's rating from average to below average. More recently, CR had rated the Model S's reliability as average.
Marking Tesla's first above-average reliability designation for any of its models, the rating bodes well for Tesla's upcoming Model 3, CR said.
Model S reliability: above average
CR's above-average rating for the Model S's reliability is based on a survey of over 1,500 Model S owners. It's a big improvement from the vehicle's below-average rating in 2015. At the time, CR said frequent Model S issues included problems with drivetrains, power and charging equipment, the center console touch display, door handles, sunroof squeaks and rattles, and more.
The Model S's improved reliability is important for Tesla since the Model S currently makes up more than half of its automotive sales. In addition, given Tesla's avoidance of paid advertising, CR's ratings likely carry more weight for Tesla's sales than for other manufacturers who aggressively market the strengths of their flagship vehicles.
Model 3 predicted reliability: average
Along with updating the Model S's reliability rating, CR also decided to make some predictions regarding the Model 3's reliability. Taking into consideration both the Model S's reliability history and CR's worse-than-average rating for the Model X SUV's reliability, CR said it's raising the Model 3's predicted reliability to average.
CR was careful to emphasize that its prediction isn't based on any first-hand experiences or customer surveys with the Model 3, but rather on Tesla's overall reputation. In addition, CR also considered some of the statements from Tesla about how the company has learned lessons from previous vehicle launches and has subsequently opted to keep initial Model 3 configurations very simple.
After the Model X's launch, Tesla was blunt with investors about its mishaps in adding too much technology in the SUV. The company said its slower-than-expected production ramp-up of its Model X was partly due to "Tesla's hubris in adding far too much new technology to the Model X in version 1..." Tesla has repeatedly emphasized that it is ensuring mistakes made with the Model X won't be repeated with the Model 3.
CR says the primary issues with the Model X are its falcon wing doors, self-presenting front doors, large front windshield, and other hardware problems, most of which won't be included in Tesla's Model 3.
Considering CR's take on the Model X and its decision to upgrade the reliability rating for the Model S from average to above average, the rating agency's predicted reliability for the Model 3 seems both fair and conservative.
The significance investors assign to CR's ratings of Tesla's vehicles has been demonstrated in the past. For instance, when CR temporarily lowered the Model S's reliability rating in 2015 to below average, the stock slid as much as 11%. Though investors should take these ratings with a grain of salt, as Tesla owners have also reported the highest customer satisfaction in CR's own surveys. In addition, it will likely be actual -- not predicted -- reliability for Model 3 that will have the biggest impact on customer decisions.