High Tesla Warranty Costs Show Learning to Make Cars is Hard
Tesla Motors has received high praise not just for its electric cars, but also for its high standard of customer service. Customers have been as impressed with the company’s service centers and Tesla’s swiftness in responding to problems as they have with the cars themselves. But Tesla’s laudable customer-service policies has masked some stubborn quality issues with the Model S and Model X electric cars.
That’s something Tesla CEO Elon Musk hopes to address now as high warranty costs continue to drain cash when the company needs it to develop its next car, the Model 3. Musk recently told investors that Tesla will focus on containing quality problems as part of a plan to control spending and turn a profit this year, reports Reuters.
Despite recent reductions, Tesla on average still spends twice as much per car on warranty costs as General Motors and Ford, according to Reuters. Tesla’s warranty costs are also higher than those of Mercedes-Benz, which competes more directly with the Silicon Valley carmaker in terms of pricing.
Tesla and other carmakers don’t release specific figures on warranty cost per vehicle; the Reuters data is based on a comparison of total deliveries to the total amount spent on warranty costs by a car company. In 2015, Tesla spent an average $1,043 per vehicle on actual repairs, and set aside $2,036 in warranty accruals for anticipated repairs.
GM spent just $400 on repairs and set aside $332 for anticipated work, while Ford $429 and $308, respectively. Mercedes spent $970 per vehicle on repairs, and put aside $1,294.
Tesla currently builds only two models that are closely related, while GM, Ford, and Mercedes have much larger and more diverse lineups. But so far Tesla has been more comfortable spending money on warranty work in order to delivery what it hopes to be better service for customers.
It’s also fairly new to the carmaking business, and continually adds new features to its vehicles. Consumer Reports posited that as one of the reasons for poor reliability cited by Model S owners in customer surveys. Early Model X crossovers have also generated a spate of customer complaints, ranging from poor fit and finish to misbehaving doors.
Yet Tesla needs to cut spending money on warranty repairs substantially as it continues to burn through cash for other reasons. The company is still working to complete its massive battery “Gigafactory” in Nevada, and hopes to start production of its less-expensive Model 3 sedan by the end of 2017.
Meanwhile, Tesla investors are getting impatient waiting for the company to turn a profit. In 2015, Tesla lost a net $888.7 million, and $716 million from operations.