High warranty costs reflect Tesla’s struggle with quality

Wed Apr 27, 2016 10:14am EDT
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By Paul Lienert and Alexandria Sage

DETROIT/SAN FRANCISCO (Reuters) - Tesla Motors Inc (TSLA.O: Quote) Chief Executive Elon Musk has told investors his electric car company will stop burning cash and turn a profit this year, and corralling costs associated with quality problems will be critical to making good on that pledge.

While Tesla has trimmed its average warranty repair cost per premium electric vehicle since 2014, it still spends more than twice as much as General Motors Co (GM.N: Quote) and Ford Motor Co (F.N: Quote), according to a Reuters analysis of company data.

Tesla's warranty costs are also higher than those of Germany's Daimler AG (DAIGn.DE: Quote), maker of Mercedes-Benz luxury cars.

Tesla and other auto makers don't reveal specific figures for warranty costs per vehicle, but they do disclose vehicle deliveries, and total spending for warranty repairs and accruals, representing money set aside for future warranty repair work.

Last year, according to a Reuters analysis of data provided in the company's annual report, Tesla spent $1,043 per vehicle on actual repairs and set aside $2,036 in warranty accruals to cover future repairs on the vehicles it sold in 2015. It trimmed warranty expenses by 17 percent from 2014 and cut warranty accruals by 34 percent.

Meanwhile, GM spent just $400 last year for every vehicle it sold on warranty repairs and set aside $332 for future work. Ford spent $429 per vehicle and set aside $308. Daimler spent $970 per vehicle and set aside $1,294.

While Tesla builds only two models and last year sold just 50,000 vehicles, GM, Ford and Daimler all have widely disparate product lines and sell millions of vehicles a year. And where Tesla's 2015 revenue was just over $4 billion, the three larger automakers reported revenues of $150 billion and more.


People visit a Tesla Model S car during the Auto China 2016 in Beijing, China, April 25, 2016. REUTERS/Jason Lee