Tesla Motors' (TSLA) Model S amassed an impressive number of awards in 2013, the car's first full year of production. Accolades included Motor Trend Car of the Year (by unanimous vote) and a five-star safety rating across all categories tested by the National Highway Traffic Safety Association, among others. A year of mostly positive press, combined with a stock that soared about 350%, has had a meaningful impact on consumers, apparently. The brand soared from 11 in last year's Consumer Reports brand perception survey to fifth this year.
Putting out fires
Three high-speed accidents in a two-month period last year that caused Model S battery fires showed how sensitive Tesla's stock price was to any threat to its public perception. The stock fell from levels around $190 to the $130s after the third fire and an NHTSA investigation was initiated.
Notably, despite rising Model S sales and millions more miles driven since the third fire, no additional reports of Tesla battery fires have surfaced. The affect on the negative sentiment toward Tesla stock has appeared to be positive; negative headlines have largely dissipated, and the stock has recovered to levels close to its all-time high. Likewise, the recovery of the stock price in the absence of more fires is also evidence that public perception is an important factor for Tesla.
That said, given Tesla's bullish valuation with the stock trading at about 12 times sales, any negative press could easily spark a sell-off. Whether the reported fires followed by the subsequent lack of news caused the stock's respective sell-off and recovery or not, it is difficult to dispute the argument that the public perception of Tesla's brand is imperative to the its success -- especially considering it currently derives 100% of its automotive revenue from sales of just one model.
Given the importance of Tesla's brand for the electric car-maker in these early stages of its history, Consumer Reports' rank of the brand at number five is great news for investors. The ranking was derived from a survey of 1,578 vehicle owners who were asked to rank brands on quality, safety, value, design and technology. Tesla's score in the study nearly doubled from last year, rising from just 47 to 88. Consumers ranked Toyota, Ford, Honda, and General Motors' Chevrolet ahead of Tesla in the study. To take fifth, Tesla displaced Mercedes-Benz, falling from fifth last year to seventh this year.
Investors should keep in mind that Consumer Reports' auto brand perception poll measures consumer mindshare among auto brands and is not a measure of owner customer satisfaction. When it comes to customer satisfaction, owners of the Model S gave the vehicle 99 out of 100 possible points in a Consumer Reports survey. Further, Consumer Reports' own review of the car earned the Model S 99 out of 100 possible points.
Can production keep up?
While it's great for investors that Tesla's brand is doing so well among consumers, production is the factor that has the potential to make or break the story driving Tesla's stock right now. As a supply limited company, there is no shortage of demand for its vehicles; despite zero advertising spending, Tesla sales every car it makes. Investors should keep a close eye on Telsa's guidance for deliveries in 2014 when it reports fourth-quarter earnings to see how well it will be able to ramp up production to take advantage pent-up demand.