Tesla: The Bloom is Coming off the Rose

With last week’s news that Tesla has settled a class-action lawsuit over its autopilot feature, the innovator continues to lose its lustre. After months of defending its technology, Tesla announced that it will compensate customers who purchased its supposedly enhanced cruise-control system. The technology that partly automates steering and braking was claimed by its detractors to be “essentially unusable and demonstrably dangerous.” 

This latest news comes on the heels of Tesla’s continuing inability to meet its production targets for its “mass-market” sedans that were pre-sold with much fanfare in 2016.  Within a week of unveiling the Model 3, Tesla revealed it had taken 325,000 reservations for the all-electric vehicle. Less than 10,000 of these cars had been produced through March 2018, and Tesla continues to fall far short of its 5,000 per week production promises.

And, as if to underline that it is not immune from the challenges facing other automakers, Tesla issued a voluntary recall for 125,000 Model S cars in March of this year.

Tesla has received dozens of awards over the past 15 years since Elon Musk first announced his ambition to mass market electric cars. Today, however, Musk is busy defending his business from consumer and media scepticism that threatens to tarnish its reputation. The trust that surrounded the Tesla brand is beginning to erode.

As revealed in the 2018 Gustavson Brand Index, Toyota now ranks ahead of Tesla. Two years ago, Tesla ranked 11th overall in the index while Toyota was 57th. This year, the manufacturers have reversed positions with Tesla down to # 32, behind Toyota in the # 11 spot. Tesla continues to lead in terms of value-based trust (at # 3 overall) but lags badly in terms of word of mouth recommendations (at # 102). Consumers appreciate Tesla’s sustainability promise but question its functional ability to deliver.

What has driven this change? Unrealistic customer expectations may certainly have played a part, but so may have a lack of production expertise. Tesla is employing a high degree of automation in its manufacturing processes, in an attempt to attain higher, speedier volumes at low cost, but such automation is difficult to perfect. Toyota, on the other hand, has learned well from its long history of auto production, and utilizes a ‘lean manufacturing’ process that puts humans at the centre of production (not robots), allowing them to quickly and effectively adapt and tweak processes.

Measuring trust, and the factors underpinning it, provides valuable insight into market shifts. The annual Gustavson Brand Trust Index helps us better understand the rise and fall of brands in consumers’ minds. Each year we collect data from more than 6,000 people in Canada on the extent to which they trust about 300 different brands across 26 categories. We measure beliefs that the brands deliver on basic promises of reliability, quality and good value, that they communicate with us fairly and treat us well as customers, and that they play a positive role in society.

What we are seeing year in and year out is that trust plays a vital role in our community, economy, and collective mindset. A company’s actions and deliverables speak volumes about its integrity and transparency in business practices. In turn, trust is an important driver of consumer purchasing decisions and, ultimately, business performance.

The release of our 2018 results highlights the continued success of some of Canada’s best-known brands, as well as the consequences of corporate mis-steps. In the case of Tesla, the index demonstrates a faltering that should be carefully monitored by the company as it puts the next phase of its operations into high gear.

Saul Klein, PhD
Dean, Peter B. Gustavson School of Business at the University of Victoria