Connect with us

Hi, what are you looking for?

CleanTechnica

Cars

Defective Model S Drivetrains Due To Give Tesla Unfunded Warranty Problem Headache?

Reports have recently begun to surface about Model S drivetrains developing issues, and/or completely failing, and needing to be completely replaced. Mostly just issues with noise, but still, not a good sign.

Greater than expected issues with said drivetrains could have a notable effect on Tesla’s profitability, via greater-than-expected repair costs for vehicles under warranty — and also via the company’s “Resale Value Guarantee” program. (Examples of issues with drivetrains: via MotorTrend; Edmunds; and Tesla’s message boards here and here.)

Something to think about, especially when you consider that the out-of-warranty replacement cost for consumers is about $15,000.

Seeking Alpha provides more:

This potential drivetrain problem has significant negative ramifications for Tesla’s profitability due to the expense of repairs performed under warranty as well as future liabilities incurred under the company’s Resale Value Guarantee” program. (The resale issue is likely to occur because as word of the problem spreads, secondary buyers may refuse to pay original owners Tesla’s guaranteed price of approximately 48% of the initial cost of a three year-old car that may need a $15,000 repair– or multiple $15,000 repairs– at any time, thereby forcing Tesla to make up the difference.) Now let’s try to quantify the impact of this on Tesla’s income statement…

Tesla’s most recent 10-Q states that Q1 2014 warranty expense was $9.3 million. If this was distributed among 28,000 cars (Tesla had delivered approximately 31,000 by the end of that quarter, but many of those came in late June and thus probably wouldn’t have yet needed warranty work), it would come to $332 per car per quarter which is $1328 per car per year which– over a four year warranty period– would be $5300 in repairs per car. (Keep in mind that this was before the company started retrofitting the titanium undershields, a project first announced on March 28th; thus, presumably none of that expense was in this figure.)

Now, one might argue that these warranty repair costs were particularly high because they covered many cars built early in the production cycle that may have had relatively minor defects that might have been engineered out of the newer cars, and I agree that this is possible. However, as the bulk of the Model S’s were less than a year old in Q1 of 2014, I think it’s also reasonable to assume that as those cars age into years two, three and four of their warranty periods (and their mileage continues to accrue), their warranty expense may increase significantly, perhaps overwhelming whatever savings Tesla may enjoy on fewer later-production squeaky sunroofs, balky door handles, etc. Thus, I think it’s reasonable– based on the information in hand– to guess that Tesla’s current “lifetime warranty repair run-rate” of approximately $5300 per car (as outlined in the paragraph above) could wind up running 50% higher, to as much as $8000 per car.

Certainly an “interesting” thought, but, of course, also something that’s very hard to predict at this point. If correct, though, it’s easy to see how this could eat quite a hole into Tesla’s profits — perhaps as much as “$87.5 million to $182 million.” The full article over at Seeking Alpha is interesting. Give it a read.

While on the subject of Tesla and money, it seems worth noting, humorously, that Tesla’s CEO Elon Musk recently pledged to donate $1 million to the creation of a museum at Nikola Tesla’s old lab in Wardenclyffe New York. While a $1 million dollar donation from a single individual is of course nothing to scoff at, it will apparently take another $8 million to completely rehab the old facility, according to those involved.

Not sure why so much would me necessary? Seems like they could get something started with less, doesn’t it?

 
Check out our brand new E-Bike Guide. If you're curious about electric bikes, this is the best place to start your e-mobility journey!
 
 
Appreciate CleanTechnica’s originality and cleantech news coverage? Consider becoming a CleanTechnica Member, Supporter, Technician, or Ambassador — or a patron on Patreon.
 
Have a tip for CleanTechnica, want to advertise, or want to suggest a guest for our CleanTech Talk podcast? Contact us here.

Advertisement
 
Written By

James Ayre's background is predominantly in geopolitics and history, but he has an obsessive interest in pretty much everything. After an early life spent in the Imperial Free City of Dortmund, James followed the river Ruhr to Cofbuokheim, where he attended the University of Astnide. And where he also briefly considered entering the coal mining business. He currently writes for a living, on a broad variety of subjects, ranging from science, to politics, to military history, to renewable energy.

Comments

You May Also Like

Sticky Post

Global plugin vehicle registrations were up 55% in May 2022 compared to May 2021. With the China covid lockdown effects easing, sales have recovered...

Cars

Tesla appears to have begun making the Model Y Long Range in Texas along with a new Standard Range with 4680 battery cells.

Clean Transport

The Tesla CEO's allure transcends his millions of fans and includes other CEOs, who have been drawn to his innovative compensation package.

Cars

Tesla’s Autopilot team recently visited New Orleans for the Conference on Computer Vision and Pattern Recognition (CVPR). Ashok Elluswamy, Tesla’s Director of Autopilot Software,...

Copyright © 2021 CleanTechnica. The content produced by this site is for entertainment purposes only. Opinions and comments published on this site may not be sanctioned by and do not necessarily represent the views of CleanTechnica, its owners, sponsors, affiliates, or subsidiaries.