Warning signs for Tesla as ‘maladies’ undermine Model reputation

US Outlook

Tesla founder Elon Musk with a Model S (Teri Pengilley/The Independent)

Anyone with a decent memory for heroic automobile failures might have thought the same thing as I did when they first poked their head inside a Tesla Model S: it looks just like an updated Lagonda. For anyone who has no idea what an Aston Martin Lagonda was, that is not a flattering comparison.

The Lagonda, first launched in 1974, has a special place in Aston Martin’s history – as its costliest failure. Its space-age design, complete with all-electronic dashboard and iPad-like console, was years ahead of its time in looks, but was unreliable even by the low standards of the day. Aston Martin ditched the Lagonda following a 16-year struggle to get it to work, although the company will still make the models “by invitation” for customers in the Middle East.

Thankfully the Lagonda’s faulty electronics, which allegedly cost four times as much to develop as the entire budget for the car, didn’t kill Aston Martin. Tesla might not be so lucky.

The electric vehicle manufacturer is now facing a perfect storm of bad news that will require a Herculean effort to overcome. Not only have several other carmakers announced imminent direct competition (including Volvo and, in perfect symmetry, Aston Martin), but this week Consumer Reports, the American version of Which? magazine, dropped a bombshell by withdrawing its recommendation for the Model S.

Consumer Reports is incredibly influential on this side of the Atlantic. Its reviews carry substantial weight – enough to have played a part in the withdrawal of the Japanese carmaker Suzuki from the American car market after a controversial and highly critical review of its Samurai mini SUV in 1988. Consumer Reports referred to its “unacceptable” tendency to roll over in sharp bends and an eight-year legal battle followed, eventually settled out of court.

Tesla’s hi-tech dashboard has been one of its key selling points, even if Consumer Reports gave the Model S its highest-ever rating based more on performance than on reliability. Last week the magazine withdrew that rating after analysing responses from 1,400 Model S owners, who reported “an array of detailed and complicated maladies”. Tesla subsequently claimed that these issues have been addressed in newer versions of the Model S – but, just like with Suzuki, much damage has already been done.

At the very least, anyone thinking about spending $75,000 (£48,000) on a Model S is going to think again.

Tesla’s situation has not been helped by the low oil price, which has resulted in cheaper petrol across the country. Model S sales have disappointed, particularly outside the US, and nobody wants to spend that much on a car if the sun roof and windows might stop working a year down the road. Any compelling reason to buy right now has just evaporated. The Tesla chief executive Elon Musk is perhaps the world’s most acclaimed businessman, at least for younger generations. He is regularly hailed as a visionary leader and deep thinker, both of which are true, but turning vision into profit is a little harder.

Mr Musk made almost all his money from PayPal, and while his subsequent ventures have been eye-catching (on top of Tesla, he is chief executive at SpaceX and SolarCity), he is yet to turn any into profitable businesses.

Not only has Tesla failed to generate the sales expected of it, especially in China, it has also run into cashflow problems – in large part due to its hugely ambitious investment in cars and its new gigafactory. The company didn’t flat-out deny that it would seek new capital in August, but asking investors for another $500m a week later did not look good.

Mr Musk will have to draw on all of his powers of persuasion to convince potential Tesla buyers that its cars are worth their high price tags. Unlike Aston Martin, Tesla has little to fall back on. Investors should be prepared for worse news to come.

The lunatics have taken over the Republicans

House Republicans gave themselves a pat on the back when they forced Speaker John Boehner into early retirement two weeks ago. Moderates, if anyone in the modern “grand old party” can be called moderate, are now getting a full dose of buyers’ remorse and another ugly fight over the debt ceiling is a certainty. The Treasury pulled a two-year bond sale on Thursday due to concerns over the debt negotiations – a sure sign that those in the know expect the worst.

Having a debt ceiling is itself a pretty stupid idea. Most of the national debt is a result of long-term fiscal irresponsibility – of putting wars and tax breaks on the credit card. You pay for it or you default, it’s that straightforward. For the “Freedom Caucus”, a group of right-wing House of Representatives extremists who got into Congress on the back of the Tea Party movement, it is the perfect vehicle to hold the country to ransom.

This group of 40 politicians, almost none of whom are actually economists, will use the debt ceiling negotiations to attempt to force their agenda through the new speaker, whoever ends up getting the job. Paul Ryan, Mitt Romney’s running mate in 2012, is going to get the job because he is likely to cave in to their demands, thereby giving the Freedom Caucus unprecedented power.

Ignore any comment about Mr Ryan being moderate. He is not. If the Republican Party had not lurched further to the right than Attila the Hun (who is not available for the Speaker’s job), he would be considered a lunatic unfit for any government post. However, such is the state of the Republican Party in Congress that for some he is a milksop liberal.

Many in the House of Representatives have convinced themselves that defaulting on the US national debt would be no big deal. They are wrong. Dangerously wrong. If Mr Ryan caves into their demands in order to get their support, the debt ceiling battle will be uglier than ever and another government shutdown is likely.

The prospect of a US default is real, but of course it’s only ordinary Americans who will suffer. No wonder House Republicans are up for it.