Last week was typical for Tesla.
On the same day the company announced that its was reintroducing a cheaper version of its Model S sedan to satisfy surging interest in the brand, reports surfaced that the automaker is under NHTSA scrutiny for nondisclosure agreements for off-warranty repairs it asked owners to sign.
Great news! Alarming news!
Business as usual at America’s youngest car company.
Tesla published a lengthy blog post on Thursday addressing the issues that were raised by reporting at the auto site DailyKanban. The post suggested that the publication might be serving short sellers of Tesla stock, an accusation that DailyKanban denied.
The whole thing has gotten quite messy.
But if you step back, you can see a theme — one that has been developing with Tesla for the past two years.
Reluctantly joining the auto industry
Based in Northern California with its roots in Silicon Valley, Tesla has always presented itself as being a visionary technology company. Palo Alto is far, far away from Detroit, geographically and psychologically.
And as much as the traditional auto industry has expressed considerable admiration for Tesla and CEO Elon Musk’s achievements — Ford and GM know how hard it is to create a carmaker from scratch — Tesla has consistently sought to set itself apart and cultivate its own separate and at times cult-like and fanatically loyal customer base.
But as Tesla transitions from building around 50,000 costly luxury cars for a well-heeled tech elite to satisfying over 350,000 preorders for the Model 3, it’s going to have to figure out what it really is: tech firm that plays by the secretive protocols of the Valley, or major-league automaker that is going to be spending a lot more time talking to the federal government about how it does business.
Tesla has brand goodwill to burn, but there’s ample precedent for how that goodwill can erode — rapidly. In fact, automakers that have the best reputations are the ones in greatest danger of falling hard.
In 2010, Toyota had just accomplished a long-cherished goal: It passed General Motors as the world’s largest automaker.
But from the top of the mountain, all that Toyota could survey was the reputational apocalypse it was enduring as its sudden and unintended acceleration worsened, with at one point its CEO summoned to testify before Congress.
[T]he climb often requires a distinct, unyielding philosophy, while setting up shop on the pinnacle requires something else entirely, like the ability to absorb some punishment. Companies that aim for cultish loyalty are vulnerable in this way. Apple doesn’t respond well to customers criticising its products. Toyota, likewise, doesn’t have much experience being attacked. It just wasn’t ready to handle doubt, dismay or the obliteration of trust.
Contrast this with the eight-decade reign of GM as the world’s largest carmaker. Now there was a company that could handle hatred. There were times, in fact, when it seemed that GM didn’t care what its customers thought.
The old, pre-bankruptcy GM was guilty of this; the new GM has largely shed that attitude. But the point remains: GM was completely accustomed to being hammered.
A learning process
Tesla has its naysayers, but for the most part, its run from plucky startup to — potentially — the most disruptive force in the history of the car business has been rapturously celebrated. Tesla doesn’t need to advertise, but traditional automakers spend billions to market their vehicles. Tesla is special.
And like Toyota, Tesla isn’t very good at fighting back in ways that work to its benefit. Business Insider’s Myles Udland is right that blaming short sellers for bad news isn’t a very savvy move.
Until Toyota began to realise the gravity of the damage that it was taking in 2010, it seemed oblivious to how its brand was being punished.
General Motors, by contrast, blended a certain amount of tough defiance into its own brand. This arrogance didn’t always play well, but it also meant that GM saw a thick skin as a prudent aspect of doing business in an industry that had been built in a more bare-knuckled, mid-20th-century period in US history.
Obviously, Tesla isn’t going to radically change its mojo, and there’s no reason for it to. The company is going to continue to intentionally set itself apart from what will eventually become its rivals.
But at the same time, it would make sense for Tesla to armour up for future problems as it goes from being small and admired to large and, by at least a few people, hated.
NOW WATCH: Elon Musk admits that Tesla may not be prepared to meet demands for $11 billion in preorders for their new Model 3
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