Tesla Insurance Was Meant to Solve an Issue Only BEV Making Can Address: Repair Costs

We could have already seen that coming after what Elon Musk shared at Tesla's Q4 2019 earnings call. The CEO demonstrated a very basic misunderstanding about what makes insurance expensive. In his words, "a lot of that insurance cost is just because the insurance companies don't have good information about the drivers." Anyone minimally familiar with how these things work will struggle to understand what Musk tried to suggest.

The only logical hypothesis is that he thought you could determine the risk of crashes by checking how someone drives. In other words, that you could avoid the repair costs by preventing wrecks. That could only work if you could assess how everyone on the road is dealing with it (including animals) for a simple reason: people who crash their cars are not always to blame. Other drivers, people, beings, or things may provoke the situation.

The Reuters story itself brings at least two situations that show that pretty well. Scott Sawyer's 2021 Model Y was rear-ended on a freeway in February 2022 by a truck driver with no insurance. Jonathan Garcia was traveling with his 2021 Model S for Thanksgiving in 2022 when a deer jumped in front of his car and destroyed the hood and the front bumper. And these are only two situations that may end up in an incident in which the driver has no fault.

You could be carefully driving your car, and the road may suddenly become unsafe. It may have a hole that wasn't there the day before, an oil spill, a tree that fell, something that dropped from a pickup truck bed… anything. It could be raining, and your car may aquaplane – BEVs are particularly prone to that due to regenerative braking. An animal, another vehicle, or a person could appear out of nowhere. The imponderable may play tricks at any time.

What makes insurance truly affordable at all times is having a vehicle that is cheaper to fix and difficult to steal. Tesla has apparently done good work to prevent theft, but the Model 3 Highland has dropped the ball. Supposing that does not make much of a difference – because the Model 3 Highland is not selling that much anyway – the silver bullet to make insuring a Tesla cheaper is lower repair costs.

Just think about it. An insurance company receives thousands of claims for each automobile model for all reasons: from a fender bender to massive wrecks. This insurer will eventually learn how much it costs to get units of this model running again and how much and which kinds of damage put it in the write-off zone. Ultimately, this is what will make this insurer profitable or not.

The driver's profile strategy merely helps the company reward someone who has a good record by never needing to make a claim. Those who are always involved in incidents get punished, but the idea is merely to give customers a sense of justice. By no means is it what determines what premiums will cost. If that were the case, you'd have the same premium for all cars, regardless of their price tags or how expensive it is to put them back to work.

When Tesla created its own insurance, knowing the driving habits of each owner was not the asset Musk said it would be. At first, the company would use Autopilot and give discounts to those who used it the most. In Musk's words, "it reduces the insurance costs as well as the probability of injury." Noah Goodall debunked that idea long ago because the Tesla Safety Report contains substantial distortions that make Autopilot look safer than it actually is. On top of that, the deaths involving the software and the lawsuits based on them show customers do not swallow that as easily as they used to do.

When Tesla realized that, it tried to use the Safety Score Beta that it had developed to give customers Full Self-Driving (FSD) access. This software has been under fire since its presentation for using the wrong parameters to measure how safely someone drives. Tesla is even being sued for using it to determine insurance premiums. In the Reuters story, Chanda Santiago complained about it.

The true advantage Tesla Insurance could offer would be lower repair costs. Theoretically, the company that builds the cars can fix them for better prices. Elon Musk also said that would happen "immediately," with "no argument." Reuters proved that was not the case.

The core issue that Tesla tried to conceal remains there. A battery pack costs $30,000, but the BEV maker will sell you one for $18,000 if it gets to keep the old component, which it prices at $10,000. Any damage that affects it will turn the vehicle into a total loss. If that were not enough, Tesla vehicles were not designed with repairability in mind.

The BEV maker's customers often share images of their crashed cars on Facebook groups, asking if they are totaled or not. Fender bender images are common, and other commenters often answer that the cars will be written off because of how expensive the repairs will be. Tesla is not alone on that: Rivian faces a similar problem, with fender benders costing up to $42,000 to fix.

Another example of how repairability was not among the top priorities at Tesla was something Jennifer Sensiba experienced. If your dog or your children happens to puke on the seatbelt mechanism on the second row, the company will replace the entire second-row seat assembly, not just the seatbelt component.

For Teslas and other BEVs to have lower repair costs, they have to be conceived with repairability in mind. Insurance companies promote low-speed crash tests to measure how much it will cost them to fix the vehicles. That said, the most common crash types have to be easy and cheap to mend.

The battery packs have to be so protected that serious wrecks will still leave them intact. Another possibility is that they are swappable or do not belong to the driver. If they get damaged, that's something the battery pack owner should worry about. The insurance company and the BEV owner will only care about getting the car ready to receive another battery pack.

In the end, Tesla Insurance was an ill-informed attempt to hide the vehicle's high repair costs. As it did not work, it is time the BEV maker starts to design its cars in a way that will make them genuinely affordable to own. It may even ditch Tesla Insurance when it truly allows "as many people as possible to be able to afford" its cars, as Kikhorn said the goal was. Again, it does not depend on having information on how someone drives their car.

While insurance premium prices are not comparable to those internal combustion engine (ICE) vehicles offer, saying that BEVs are cheaper to run and keep will not be accurate. That will be even worse for the affordable electric cars that so many companies are now trying to develop and sell. Legacy carmakers may solve this before Tesla does. Insurance companies will be the first ones to learn about that for professional reasons. Let's hope they will share that with car buyers as quickly as they raise or lower their premiums.