Earlier this month, Consumer Reports once again named electric-car maker Tesla Motors (NASDAQ: TSLA) the most-loved car brand, with the brand's 91% overall owner-satisfaction rating trouncing every other car maker on the planet. Indeed, second-place Porsche was a wide seven percentage points behind. And third-place Audi trailed Tesla by a whopping 14 percentage points. Topping off Tesla's high brand score, CR also said both of Tesla's vehicle models -- S and X -- had exceptionally high customer satisfaction scores on their own.
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Here's a closer look.
Tesla's Model S (left) and Model X (right). Image source: The Motley Fool.
Tesla's customer satisfaction
So, how exactly are CR's ratings derived? CR explains:
Our brand rankings represent owner sentiment across each brand's product line. (Model satisfaction is determined by the percentage of owners who responded "definitely yes" to the question of whether they would buy the same vehicle if they had it to do all over again.) To determine brand love -- or disdain -- we took a straight average of the satisfaction score for each brand's models.
In order to qualify, the brand had to have at least two models with data. For this analysis, we focused on cars from model years 2014-2017 to represent the current state of the brands, which included over 300,000 vehicles from the survey.
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Of course, investors should note that while CR's 91% customer satisfaction rating for Tesla was higher than any other automaker's rating, the rating was down considerably from its 98% and 99% ratings in recent years. This is likely attributable to the Model S's wider adoption outside of the hardcore early adopters who likely represented a large portion of Tesla customers in the sedan's earlier years. Tesla's sales have doubled over the last two years, opening up its vehicles to a wider, more diverse customer base.
Customers love the Model X, too
Considering that Tesla's new Model X -- which CR recently criticized for having "compromised functionality" and "dismal first-year reliability" -- was included in the survey this year for the first time during 2016, it's arguably good news to see Tesla still ranked so high on the list.
The Model X. Image source: Tesla Motors.
Tesla's Model X surprisingly performed quite well when it comes to owner satisfaction. In CR's car-by-car owner satisfaction ratings, the Model X came in eighth place, with a score of 88% -- not far behind the Model S's 94% rating. So, while the Model X was holding back Tesla's overall brand ranking, the new SUV's score was still notably high considering the reliability issues the complex vehicle has experienced during its first year.
Tesla said in its third-quarter shareholder letter, released in October, that the Model X's reliability improved dramatically as the year went on.
"The amount of [reliability] issues that we have addressed with Model X have fallen by 92% in the last 12 months," Tesla said, "a reflection of the improvements we have made in Model X due to our ability and commitment to react quickly to issues."
Image source: The Motley Fool.
Improvements in reliability are not only important for customers, but also for Tesla's business. By improving the reliability of both the Model S and Model X, Tesla's warranty accrual rates (the percentage of warranty reserves used for warranty claims, on both new and used vehicles) declined between Q2 and Q3.
Tesla's ability to satisfy customers is a key metric for investors. It's crucial for a young automaker to stand out with satisfying products. If Tesla's ability to delight customers fades, its well-capitalized competition could establish a foothold with would-be Tesla customers and mitigate Tesla's growth potential -- a threat that will only become more prominent as automakers follow through with their plans to release more long-range, fully electric vehicles in the coming years. Further, Tesla's vehicles will likely be scrutinized closely in 2017, as the company prepares to launch its lower-priced, higher-volume Model 3 in the second half of the year.
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