Tesla's insurance business continues to grow. It forces competitors to offer lower rates to owners of the company's vehicles, while Tesla gets a “feedback loop” that ensures repair costs are kept to a minimum worldwide.
Speaking during Tesla's Q4 2022 Earnings Call, Elon Musk said the company's insurance offering has already made a significant impression on the market. Tesla CFO Zachary Kirkhorn confirmed that as of the end of last year, the insurance business was $300 million a year and growing at a rate of 20% per quarter. “It's growing faster than the growth in our vehicle business,” he noted. In states that have Tesla insurance, an average of 17% of customers use it, but the number of customers continues to grow.
“And we see most of the adoption occurring when folks take delivery of a new car, as they're setting up insurance for the first time as opposed to going back and switching when they already have insurance set up. So there's an inherent stickiness in the Insurance business.”
Tesla's competitors do not want to lose ground, so they have already begun to offer owners of the company's cars more favorable rates. This is a very important effect because now insurance companies cannot charge unreasonably high rates for Tesla owners, which is the first important advantage, as Musk explained.
“And so there are two really important side benefit to our Tesla Insurance that are worth mentioning, one of which Zach alluded to, which is that, just by Tesla operating insurance for our cars at a competitive rate, that makes the other car insurance companies offer better rates for Teslas. So it has a bigger effect than you think because it improves total cost of insurance costs even when they don't use Tesla Insurance because now the guy goes up to the world have to compete with Tesla and cannot charge outrageous insurance for Teslas. So it's great. So it has an amplified effect, very important.”
Another benefit of the proposal, from a Tesla user and operational standpoint, is the “feedback loop” that helps minimize the cost of Tesla car repairs worldwide, Musk explained.
“Then, it is also giving us a good feedback loop into minimizing the cost of repair of Teslas, for all Teslas worldwide, because we obviously want to minimize the cost of repairing a Tesla if it's in a collision and for Tesla Insurance. And previously, we didn't actually have good insight into that, because the other insurance companies would cover the cost. And actually, the cost in some cases, was unreasonably high. So we've actually adjusted the design of the car and made changes in the software of the car to minimize the cost of repair, obviously minimize -- first, the best repair is no repair, avoid the accident entirely, which since every Tesla comes with the most advanced active safety in the world, whether or not you buy full self-driving, you still get the intelligence of full self-driving or active safety, active collision prevention.”
Kirkhorn also noted that Tesla's broader motivation for introducing an insurance offering has always been to improve the total cost of ownership of the company's vehicles.
“And that remains our priority here. We'll obviously run this as a healthy business, but we want to make sure we keep our costs low and insurance stays affordable to our customers.”
© 2023, Eva Fox | Tesmanian. All rights reserved.
We appreciate your readership! Please share your thoughts in the comment section below.
About the Author
Eva Fox joined Tesmanian in 2019 to cover breaking news as an automotive journalist. The main topics that she covers are clean energy and electric vehicles. As a journalist, Eva is specialized in Tesla and topics related to the work and development of the company.