Tesla, insurers take different paths to deal with expensive repairs

© Reuters. FILE PHOTO: Model Y cars are pictured during the opening ceremony of the new Tesla Gigafactory for electric cars in Gruenheide, Germany, March 22, 2022. Patrick Pleul/Pool via REUTERS/File Photo

By Paul Lienert

(Reuters) - Tesla Inc (NASDAQ:TSLA)'s electric vehicles are expensive to repair - so much so that the automaker and insurers are addressing the issue in sharply different ways.

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

Insurance carriers, meanwhile, are writing off low-mileage Tesla Model Ys that have been in crashes, 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 "in some cases were unreasonably high" and that the EV maker's insurance arm was putting pressure on those carriers by offering lower rates to Tesla owners.

Musk also said "we want to minimize the cost of repairing a Tesla if it's in a collision," citing changes to vehicle design and software.

"It's remarkable how small changes in the design of the bumper (and) providing spare parts needed for collision repair have an enormous effect on the repair cost," he said. "Most accidents are actually small — a broken fender or scratched side of the car."

Tesla did not respond to a request for further comment.

So far, Tesla's reputation for expensive vehicle repairs does not seem to have dampened demand, which Musk says is running well ahead of the company's ability to produce.

SALVAGED

The data on crashed low-mileage Teslas showing up at auction presents a slightly different - and previously unreported - picture, according to a Reuters analysis.

Of more than 120 Model Ys that were totaled after collisions, 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 and IAA, the two largest salvage auction houses in the United States.

The retail prices of those cars ranged from about $60,000 to more than $80,000.

Copart and IAA auction listings note whether the vehicles were involved in front, rear or side collisions, and typically include after-crash photos of each vehicle. But the listings do not disclose specific details on the type of damage suffered.

Insurance companies typically "total" a vehicle - that is, choose to scrap it and reimburse the owner - when the estimated cost of repair is deemed too high.

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

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

LOW MILEAGE

Tesla launched its own insurance affiliate in August 2019, promising rates up to 30% lower than competitors.

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

All the Model Ys in the Reuters analysis were 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 through November and sent to auction after being totaled in crashes, all but one had fewer than 10,000 miles on the odometer.

An Austin-built 2022 Model Y Long Range involved in a front collision and listed by IAA in early January had a retail price of $61,388 and estimated repair cost of $50,388. The vehicle's owner 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 estimated repair cost of $43,814.

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