Warranties are fantastic tools, both for companies and consumers alike. It gives customers some peace of mind that the vehicle they buy — one of the largest purchases one can make — won’t fall apart the moment it leaves the lot. It’s essentially a pledge from the company that says “we can guarantee your vehicle for this amount of time and this many miles” before any repair costs — on the fault of the car — fall on the driver.
However, not all warranties are equal. In the auto industry, companies like Hyundai and Kia offer some of the best in the biz, as they cover their vehicles for 10 years and/or 100,000 miles, whichever comes first. That’s pretty strong, and for people who don’t appreciate investing more money in their vehicles throughout its lifetime (which, let’s be honest, is just about everyone), that’s a pretty appealing selling point. Chrysler offers a Lifetime powertrain plan that has no cap for years or mileage, but it’s only applicable to the first owner of the car, among other caveats.
However, the kind of mileage-limited warranties can play to a disadvantage for those who rely on their vehicles considerably. The average American driver will log about 15,000 t0 20,000 miles on their vehicles every year, but some travel considerably more than that. If a person who drives for a living logs as much as 50,000 miles in a year, that 100,000 mile warranty will be meaningless in just two years, making the 10-year aspect completely irrelevant. For these kinds of people, Tesla Motors (NASDAQ:TSLA) has extended a helping hand.
No stranger to shaking things in the auto industry up, Tesla has decided that — given the largely experimental nature of its product and sector within the auto world overall — it will give more leeway to the consumer, in order to boost confidence for potential buyers. On Tesla’s 85 kWh battery equipped models, Tesla will now offer an eight year, unlimited (or infinite, as Tesla says) mile warranty for its lithium ion pack, over the four-year and 50,000 mile warranty that covered it previously. Essentially, Tesla drivers can drive as much as they’d like in eight years with no concerns about voiding the warranty. But it gets better.
CEO Elon Musk said in the company’s blog that the changes are retroactive, meaning if you bought a 2013 85 kWh Model S, you still have until 2021 to load up as many miles as you can before your warranty expires. It covers “all Model S vehicles ever produced,” Musk added, noting that “this should have been our policy from the beginning of the Model S program.”
“If we truly believe that electric motors are fundamentally more reliable than gasoline engines, with far fewer moving parts and no oily residue or combustion byproducts to gum up the works, then our warranty policy should reflect that,” he said.
It also is transferred between owners, too. So if you buy a used Model S, the eight-year cap still applies, regardless of how many miles the previous owner has put on the car.
The good news came with a warning, however: due to the sudden retrofitting of all the 85 kWh Model S vehicles on the road, Tesla expects that its short-term earnings will suffer as a result, because in order to execute a successful warranty program, the company has to have the money on hand in order to make the payouts necessary to support its claims. In this sense, the company won’t be ‘losing’ money as is usually the case when earnings nosedive, but it will instead be paying it into an account that’s dogeared for warranty expenses specifically.
“However, by doing the right thing for Tesla vehicle owners at this early stage of our company, I am confident that it will work out well in the long term,” Musk said.