Tesla and insurers take different paths to tackle costly repairs By Reuters

By Paul Lienert

(Reuters) – Tesla (NASDAQ:) Inc’s electric vehicles are expensive to repair, so much so that the automaker and insurers are tackling the problem in very different ways.

Chief Executive Elon Musk says Tesla is making changes to the design and software of its vehicles to reduce repair costs and insurance premiums.

Meanwhile, insurance companies are writing off low-mileage Tesla Model Ys that have been in accidents and sending them to salvage auctions after deeming many too expensive to repair.

During Tesla’s fourth-quarter earnings call on Wednesday, Musk said premiums from third-party insurance companies were “in some cases unreasonably high” and that the electric vehicle maker’s insurance arm was putting pressure on those carriers by offer lower rates to Tesla owners.

Musk also said that “we want to minimize the cost of repairing a Tesla if it is in a collision,” citing changes to the vehicle’s design and software.

“It’s remarkable how small changes to bumper design (and) the supply of replacement parts needed for collision repair have a huge effect on the cost of repair,” he said. “Most accidents are actually small: a broken fender or a scratched car side.”

Tesla did not respond to a request for further comment.

So far, Tesla’s reputation for expensive vehicle repairs doesn’t appear to have dampened demand, which Musk says is well beyond the company’s production capacity.

SAVED

According to a Reuters analysis, the data on the low-mileage wrecked Teslas appearing at the auction paints a slightly different picture, and one not previously reported.

Of more than 120 Model Ys that were totaled after the collisions and then listed at auction in December and early January, the vast majority had fewer than 10,000 miles on the odometer, according to online data from Copart (NASDAQ:) and IAA (NYSE:) , the two largest salvage auction houses in the United States.

Retail prices for those cars ranged from $60,000 to over $80,000.

Copart and IAA auction listings indicate whether vehicles were involved in frontal, rear, or side collisions and typically include post-crash photos of each vehicle. But the listings do not reveal specific details about the type of damage suffered.

Insurance companies generally “total out” a vehicle, meaning they opt to scrap it and reimburse the owner, when the estimated cost of repair is deemed too high.

Copart’s listings in some cases included the names of insurance companies that had bought back damaged vehicles and then put them up for auction. Those companies include State Farm, Geico, Progressive and Farmers. Geico is part of Warren Buffet Berkshire Hathaway Inc. . (NYSE:)

Insurance companies contacted by Reuters declined to comment or did not immediately respond to requests.

LOW MILEAGE

Tesla launched its own insurance subsidiary in August 2019, promising rates up to 30% lower than the competition.

During Wednesday’s earnings call, Chief Financial Officer Zachary Kirkhorn said that Tesla Insurance at the end of the year was generating premiums at an annual rate of $300 million and growing at a quarterly rate of 20%, “faster than the growth of our vehicle business.

All of the Model Ys in the Reuters analysis were either 2022 or 2023 models, and were built at either the Fremont plant in Northern California or the Austin, Texas plant.

Of the 15 Model Y Long Range vehicles built in Austin from June to November and submitted for auction after being involved in accidents, all but one had less than 10,000 miles on the odometer.

An Austin-built 2022 Model Y Long Range involved in a head-on collision and listed by IAA in early January had a retail price of $61,388 and an estimated repair cost of $50,388. The owner of the vehicle was not listed.

A second Austin-built Model Y, involved in a side collision and listed by IAA, had a retail price of $72,667 and an estimated repair cost of $43,814.

Representatives for Copart and IAA were not immediately available for comment.