Tesla (NASDAQ:TSLA) Leverages Insurance Data to Reduce Repairs Costs

Electric vehicles maker Tesla (NASDAQ:TSLA) is utilizing the info gathered by its Insurance business to reduce the associated fee of repairing its vehicles. In the course of the fourth-quarter earnings call, CEO Elon Musk stated that feedback from the Tesla Insurance business can be helping in making small changes in design and in improving the logistics of spare parts to make sure customer satisfaction and reduce repair costs.

Musk stated that “two really necessary side profit” to its Tesla Insurance business are price mentioning. Firstly, seeing Tesla Insurance’s competitive rates, other insurance firms have also began offering higher rates, thus ensuring lower insurance costs for patrons even in the event that they don’t use Tesla Insurance. Secondly, Musk noted that Tesla Insurance is giving them “good feedback loop into minimizing the associated fee of repair of Teslas.”

Musk explained that earlier, the corporate didn’t have an excellent insight into the associated fee of repairing or other facets as third-party insurance firms were covering the prices, which in certain cases were unreasonably high. Based on the feedback from Tesla Insurance, the corporate adjusted the design of the automobile and even made changes within the automobile’s software to reduce the repair cost.

Tesla Insurance’s Growth Potential

Tesla launched its insurance division in August 2019, promising rates as much as 30% lower than rival insurance providers. Responding to an analyst’s query about when Tesla Insurance will generate enough revenue for the corporate to supply details, CFO Zachary Kirkhorn said, “I believe it’s probably going to take a while before this business is large enough for specific financial disclosures.”

Nonetheless, Kirkhorn revealed that Tesla Insurance was generating premiums at an annual run rate of $300 million as of the tip of last 12 months. He added that it was growing at a quarterly rate of 20%, “growing faster” than the corporate’s vehicle business. The CFO also highlighted that 17% (on average) of the shoppers within the states where the corporate has a presence are using a Tesla Insurance product.

While Tesla is using data from Tesla Insurance to bring down costs, third-party insurers have a really different approach to handle the high repair costs. A Reuters report mentioned that insurers are writing off low-mileage Tesla Model Y cars which were in crashes and sending them to salvage auctions as they feel they’re too expensive to repair.           

What’s the Goal Price for Tesla Stock?

Wall Street is cautiously optimistic about Tesla, with a Moderate Buy consensus rating based on 18 Buys, seven Holds, and three Sells. The common TSLA stock price goal of $186 implies 16.1% upside potential. TSLA shares have rallied 30% year-to-date. This week, the corporate reported upbeat Q4 results.


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