Consumer Reports Pulls Recommendation on Tesla Model S

21 Oct 2015 | Author: | No comments yet »

‘Consumer Reports’ yanks Tesla recommendation.

Consumer Reports said it would no longer recommend Tesla’s Model S sedan due to reliability concerns, in a blow to the luxury electric-powered car initially awarded the highest-ever score in the U.S. magazine’s performance ratings. Archer-Daniels-Midland Co. raised its stake in Wilmar International Ltd., the Singapore-based company that trades almost half the world’s palm oil, as demand for the commodity used in bread to shampoo grows in Asia.

BC Partners, the private-equity firm whose investments include PetSmart Inc., is changing the way it assigns profits so that individuals will benefit more from their involvement with successful deals, people with knowledge of the matter said.Despite past glowing reviews, Consumer Reports magazine said Tuesday that it is rating the company’s luxury electric car, the Model S, “worse than average” for predicted reliability and yanked its recommendation. The decision, based on the influential publication’s annual survey of vehicle reliability, sent Tesla’s shares reeling and underscored the risk of introducing cutting-edge fuel-saving technology and digital multimedia systems in vehicles. ADM, the world’s largest corn processor, “opportunistically acquired shares of Wilmar in the open market” recently, spokeswoman Jackie Anderson said in an e-mailed statement. For its next fund, which the firm plans to start raising next year, BC will assign a percentage of the profit from the sale of portfolio companies, known as carried interest, to individuals directly involved in those deals, said the people, who asked not to be identified because the information is private.

The magazine’s recommendations are considered so important for buyers of the electric car, which starts at $76,200 including delivery fees, that the stock took a hit. Consumer Reports found “an emerging trend of increased troubles” with a broad range of vehicles that use new transmission technology to boost mileage. Tuesday’s purchases represented about 22 percent of the total volume of Wilmar traded on the Singapore Exchange, according to Chicago-based ADM, which declined to disclose its current total stake and said it’s not a controlling stake.

The change means that unlike the firm’s current pool, which shares carried interest using a points system based on its total performance, individuals who work on more successful deals will receive more than those whose deals in the pool underperform, the people said. But several problems—ranging from charging problems to leaky sunroofs—led to a reversal and sent Tesla’s stock down as much as 11% in afternoon trading. Consumer Reports’ seal of approval has been a central claim in Tesla’s marketing, helping legitimize a product line that uses relatively new battery technology to power electric cars that cost $76,000 and up.

ADM, which makes food, fuel and feed from corn, soybeans and other crops, has tried to diversify beyond the U.S. and boost its presence in the Asian market. The magazine says the 1,400 Tesla owners who answered its annual predicted reliability survey complained about problems related to drivetrain, power equipment, charging equipment, center console and body and sunroof squeaks, rattles and leaks. Groundbreaking technology comes with a heightened risk of malfunctions over the life of a vehicle, compromising the reliability car owners enjoy from more mature technology. An offer to buy Australia’s GrainCorp Ltd. to ship agricultural commodities to growing populations in Asia and Middle East was rejected by the government two years ago. “This is another way for us to drive results for our shareholders,” Anderson said. “Our investment in Wilmar is one of the ways in which we are benefiting from Asian consumers’ growing and evolving food demand driven by rising populations and incomes.” Wilmar is a “strategic partner” and one of the company’s biggest customers, Anderson said.

Jake Fisher, the magazine’s head of auto testing, said Consumer Reports stands by the performance rating and owner satisfaction with the vehicle remains high, but the car’s predicted reliability has slipped, falling to below average this year in the magazine’s auto reliability survey based on responses from about 1,400 Model S owners. BC is targeting about 7 billion euros ($7.3 billion) for its new pool, which it will start raising in the first quarter of next year, people familiar with the matter said in August. In a statement, Tesla said the company’s close communication with customers allows it to get feedback and resolve problems quickly. “Over-the-air software updates allow Tesla to diagnose and fix most bugs without the need to come in for services,” the company said. In addition to problems that Consumer Reports has previously identified, like door handles that would’t pop out, now there are issues with the car’s electric powertrain.

Among the complaints to Consumer Reports were problems with body squeaks and rattles, sunroof leaks and the large, iPad-like touch-screen center console freezing. The stock is a good buy given the strength of the U.S. dollar and because Wilmar is trading below book value, and ADM expects the return on its investment to exceed its long-term weighted average cost of capital of 8 percent, Anderson said. One respondent told Consumer Reports that the car’s electric motor had to be replaced. “This is a great performing vehicle when it is working 100%,” Mr. Reached for comment, Tesla officials noted that respondents to the Consumer Reports survey lauded the automaker’s service and loyalty as the best in the world.

In instances when hardware needs to be fixed, we strive to make it painless.” Complaints about balky multimedia infotainment systems continue to plague several major automakers, including Ford Motor Co (F.N), Nissan Motor Co (7201.T), Fiat Chrysler Automobiles NV (FCAU.N) (FCHA.MI) and General Motors Co (GM.N), the magazine found. But Tesla over time has added more features and options, making the car more complicated to build and increasing the chances of something going wrong, he said. “It’s going to be more difficult for them to maintain quality as their whole business model changes,” Mr.

Wilmar, responding to inquiries about its “unusual” trading activity, said in a separate statement that it was informed about the stock purchases by one of its directors, who is from ADM. Fisher says the magazine isn’t backing down from its test results. “The rating we gave was based on how the car performed in testing, and that still stands. It’s not the first time we’ve seen something like that.” He says Chevrolet Corvette sports car also performed well in testing, but poorly on reliability.

The Palo Alto, Calif., car maker is in the midst of rolling out its first electric sport-utility vehicle, the Model X, and has another, cheaper plug-in car in the works, the Model 3, slated to hit the market in 2017.

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