FIRST UP!
Before I get to the topic of this newsletter, a little “breaking news.” It’s good news for Tesla. The California New Car Dealers Association reported this week that the top-selling vehicle in California last year was the Tesla Model Y. That is quite the accomplishment for Tesla in the most important vehicle state in the country. Now… in other news…
This story may end in a few years with analysts saying a problem turned into a moneymaker for Elon Musk’s car company. Right now, Tesla has a problem. Its cars are expensive to repair.
TOTAL IT!
A recent report by Reuters found that insurance carriers are totaling low mileage Teslas rather than repairing them. The analysis, using data from two large auction houses, discovered a 2022 Model Y that had a front-end collision. The Tesla cost more than $61,000 and repair was estimated at $50,000. It was totaled.
This repair problem led insurance companies to charge more to cover a Tesla. Musk’s answer was to start his own insurance business in 2019 and offer premiums lower than other carriers.
TESLA INSURANCE
Insurance is turning into a real business for Tesla. On the earnings call for the 4th quarter, the CFO revealed the EV company is currently, “at a $300 million annual premium run rate,” which is growing 20% each quarter. Right now about 17% of Tesla owners are buying the company’s insurance in the states it is offered.
Musk says his insurance is forcing the other carriers to lower their premiums to compete, which will lower the “total cost of ownership.”
INSIGHT LEADS TO DESIGN CHANGES
Something else is happening, too. Musk is using the data from accidents and repairs to change the way he builds cars. “[Tesla Insurance is] giving us a good feedback loop into minimizing the cost of repair of Teslas, all Teslas worldwide… and previously, we didn't actually have good insight into that, because then the other insurance companies would cover the cost.”
That insight is landing on the desks of Tesla designers. “It's remarkable how small changes in design of the bumper and improving… the logistics of providing spare parts needed for collision repair have an enormous effect on the repair cost,” Musk said, adding, “We've actually adjusted the design of the car and made some changes in the software of the car to minimize the cost of repair.”
This is new ground for Tesla. But this kind of accident data has been used for decades to change vehicle design and improve safety.
THE INSURANCE SCIENTISTS
The Insurance Institute for Highway Safety (IIHS) was founded in 1959 for many of the reasons Musk started selling insurance. Car repairs were expensive back then. So the vast majority of insurers in the US banded together to support highway safety efforts. By the end of the 1960’s the non-profit became a research powerhouse testing vehicles and strongly suggesting changes to the auto makers.
IIHS has become famous for its crash-tests and rankings of the safest vehicles on the market and those that need improvement. I have spent several days at the IIHS test facilities where they dig into the various safety systems being added to cars. I first experienced traction control and automatic braking at IIHS. The researchers there have even tested headlights and found many lacking.
But the insurer-funded Institute says it recognizes, “vehicle design isn't the whole story and continues to look for ways to improve driver behavior and roadway design.”
THE SAME MISSION
Elon Musk has now discovered that his vehicle design can be altered to reduce the cost of repairs. He’s done that by getting into the insurance business. He’s playing both roles of the past, the carmaker and the entity trying to figure out how to bring repair costs down.
Analysts may conclude years from now that Musk’s decision not only helped his production, it helped his insurance business as well.
Tesla said the business wasn't big enough to provide detailed financials yet. But as the Tweet I posted shows, some think they can be a player. Musk mentioned changing the software too. That intrigued me. What did they change?
Interesting. Is Musk's insurance company profitable? I'd be interested to hear what improvements (besides the bumpers) have been made because of insurance claims filed.