Tesla brand loyalty is off the charts. That is a positive factor for the company and its stock, but it could change as more electric vehicles roll off assembly lines from competing auto makers.
Tesla bulls will have to expect some customers to try other EVs. Just how much loss of brand loyalty it would take to dent the stock isn’t easy to decipher.
Still, it helps to know where Tesla (ticker: TSLA) is starting. The numbers are impressive. Bernstein analyst Toni Sacconaghi surveyed about 450 Tesla owners recently and found that 79% are “very likely” to buy another Tesla.
Almost 80% is incredibly high.Toyota Motor‘s (TM) Lexus brand, for comparison, led the 2020 J.D. Powers luxury brand loyalty report with 48% of Lexus owners replacing their prior car with another Lexus. There is some difference between “very likely” in Sacconaghi’s survey and the J.D. Powers data, which is based on actual transactions, but Tesla’s brand still looks very strong.
Among mass-market brands,Subaru and Toyota ranked highest in the 2020 J.D. Powers report, with repurchase rates of about 61% and 60%.
Tesla wasn’t included in the 2020 J.D. Powers report. J.D. Powers wasn’t immediately available to comment on why, but the company only recently began selling cars in large volumes, and many Tesla owners have only had their cars for a few years, so relatively few of them may have replaced their vehicles.
Importantly, the Tesla results are below the numbers Sacconaghi found in 2017 and 2019. In 2017, 82% of Tesla owners said they would replace their vehicle with another Tesla. The number in the 2019 survey was 89%.
He attributes the decline to a pair of factors. First, Tesla owners have had their cars longer than in the prior survey, so any initial euphoria may have worn off. Second, there are more EVs to pick from. More than half of the respondents said they would consider an EV from a European luxury brand.
China is a potential problem for Tesla, the data indicate, although only 32 owners were surveyed there. Sacconaghi found 50% of Tesla owners planned to replace their vehicle with another Tesla and 35% said they were unlikely to do so.
China is the world’s largest market for new cars and new EVs, so brand loyalty there matters. Tesla recently recalled almost all the cars it has produced in China to update software related to its cruise-control feature. While officially categorized as a recall, the Tesla vehicles don’t have to go into a service department. The problem will be fixed with an over-the-air software update.
Sacconaghi qualifies as a Tesla bear. He rates the shares at Sell and has a target of $180 for the price, far below the average of about $620 among analysts. Overall, about 43% of analysts covering Tesla stock rate shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%.
Tesla stock was up 2.5% at $688.72 on Monday. As of the close on Friday, the stock was down about 5% year to date, leaving it well behind the S&P 500 and Dow Jones Industrial Average.The stock is up more than 250% over the past year.