So here's the good news for Tesla (TSLA -3.10%) investors this week: Reporting earnings for its infamously difficult second fiscal quarter 2022, Tesla managed to dodge a lot of bullets. Despite struggling to keep its Chinese gigafactory open in the midst of a COVID outbreak, the electric car giant grew global sales 43% year over year and earned a bigger profit than most folks on Wall Street expected.
But now here's the bad news: Behind the numbers lies a troubling story for Tesla.
Tesla's PR problem
Tesla rose to prominence as an electric carmaker on the back of a 2015 report from Consumer Reports that rated the company's Model S electric luxury sedan a perfect 100. Actually, the car scored a 103, forcing CR to revise its scoring system to fix the broken curve. Since then -- well, the news has been less good.
It took less than a year for CR to begin souring on Tesla. By 2016, the magazine had pulled a complete U-turn, ranking Tesla among the "least reliable" carmakers on Earth. And it's not just CR that thinks so.
In J.D. Power's latest report on automotive initial quality, released last month, the consumer insights specialist ranked Tesla toward the bottom of the pack of brand-name automakers -- seventh from last place, to be precise. Scoring 226 reported problems per 100 vehicles sold, Tesla did at least gain five points over J.D. Power's 2021 report. Still, the company ranked below such consistent laggards as Land Rover and Jeep -- and placed on par with Mitsubishi.
And then there's GM
That wasn't the biggest reveal of the report, however. The real headline is that Tesla is doing a poor job of maintaining car quality -- but that rival car giant General Motors (GM 0.80%) is doing a great job.
Consider: Out of the top 10 best-ranked automotive brands covered in the report, four of them belong to GM. Cadillac placed seventh, GMC came in sixth, Chevrolet was No. 3 -- and Buick was No. 1. (Rounding out the list, Stellantis' Dodge brand placed second, and Ford squeezed into 10th place. Korea's Genesis and Kia brands made the top five, Toyota's Lexus was sixth, and BMW was ninth.)
And that's not all. GM's Chevrolet Corvette claimed top honors and J.D. Power's car with the single highest initial quality rating. The company also won plaudits for its Chevrolet Malibu, Equinox, Silverado, Silverado HD, and Tahoe, for the Buick Encore GX, and for the Cadillac Escalade and XT6. In total, nine separate GM-produced models topped their market segments. GM even took home J.D. Power's Platinum Award for the car factory with the fewest number of reported problems -- GM's San Luis-Potosi plant in Mexico.
Summing it all up, Car & Driver described the J.D. Power report as "a near-sweep of the study's major honors" for GM, and they weren't overstating the case one bit.
What it means for investors
Admittedly, this was just one report on car models produced in just one year, and these kinds of ratings can get shuffled around in a hurry. (To illustrate, as recently as 2021, just one General Motors brand even made it into the top 10 at all, Chevrolet). Whether GM will gain any appreciable advantage over Tesla, from this report, in the battle for share in the emerging, all-important electric cars market remains to be seen.
That being said, consider: According to J.D. Power, automakers in general had a rough year in 2022, with initial production quality by and large suffering from supply chain issues, high prices for automotive parts, and "personnel dislocations" as well. Yet I still think it says something (good) about GM that it navigated this difficult environment better than most of its rivals, and better than Tesla in particular.
Conversely, I think it speaks poorly of Tesla that the issues plaguing it in the report stemmed less from supply chain issues and more from simple poor quality control. According to a CNBC analysis of the report, Tesla's score got dragged down primarily from complaints about "panel alignment and poor paint quality" -- basic fit-and-finish things that any car company must do well if it hopes to retain customer loyalty over the long term.
Long story short: Yes, the news was largely good for Tesla this week. It got unfairly affected by China's COVID containment policies, yet managed to escape the quarter largely unscathed. Long term, however, Tesla still has its work cut out for it if it wants to build and maintain a reputation for quality -- and that's good news for GM as it charges into the electric cars race.