Musk says Tesla insurance forces competitors to charge competitive rates

Tesla CEO Elon Musk says his company’s insurance products have already made a big impression on the market, forcing other major auto insurers to offer better rates for Tesla vehicles. He said that he was

During Tesla’s fourth-quarter earnings call, Musk also spoke about the “unreasonably high” repair costs the company is trying to minimize through its forays into insurance.

Tesla reported fourth-quarter sales of $24.32 billion, which included $21.3 billion in automotive sales, but the automotive gross margin was the lowest in five quarters. It was 25.9%.

Currently, the company does not provide specific financial information for its early insurance business, which it launched last year, and uses real-time driving behavior data to determine insurance terms for Tesla drivers.

But CFO Zach Kirkhorn confirmed on the company’s earnings call that the insurance business had an annual premium rate of $300 million at the end of last year and is growing at a rate of 20% quarter on quarter.

“It’s growing faster than our vehicle business is growing,” he said.

In states where Tesla operates, an average of 17% of customers use Tesla insurance products, Kirkhorn said, and that number will continue to grow as they spend more time in those markets. He adds that there are.

“Most adoption happens when a new car is delivered when setting up insurance for the first time, rather than going back and switching when the insurance is already in place,” he explained. “So there is an inherent tenacity in the insurance business.”

Analysts at Morgan Stanley predicted that Tesla Insurance could pose a long-term threat to the U.S. auto insurance industry upon its launch due to its sophisticated pricing and distribution strategy.

So those projections could be supported by the strong growth we’ve seen for Tesla’s product so far, and Musk’s comments that this product is already starting to impact competitors’ prices.

“Tesla’s competitive rates on our cars will encourage other auto insurers to offer better rates for Tesla,” Musk explained. . “So it has a bigger impact than you might think because it improves your total cost, which means you can reduce your premiums even if you don’t use Tesla insurance. has to compete with Tesla and can’t claim exorbitant insurance from Tesla, so that’s great.”

Another benefit of the service from a Tesla user and operations perspective is a “feedback loop” to minimize repair costs for Tesla around the world, he continued.

“Obviously, Tesla wants to minimize repair costs and Tesla insurance costs in the event of a crash,” Musk said. “Before, we didn’t really have enough insight into it because other insurers were covering the costs. In fact, in some cases, the costs were unreasonably high.”

In response, Tesla has actually adjusted the car’s design and made changes to the car’s software to minimize the cost of repairs, the CEO reported.

“It gives us this very good feedback for lowering total cost of ownership,” he said. , are working out how to get it back in their hands.”

Kirkhorn agrees that Tesla’s broader motivation for introducing insurance products has always been to improve the total cost of ownership of a vehicle, given the high premiums seen by some third-party insurers. I pointed out.

“That’s our priority here,” he concluded. “Obviously we want to run this as a healthy business, but we want to keep costs low and keep insurance affordable for our customers.”

Tesla’s CEO has previously spoken out against the “incredibly inefficient” process of insurance, which he sees as keeping many drivers’ premiums high, and that the “intermediate entities” involved in the process are inefficient. I think there are more than necessary.