Musk & Co. shared their insurance results during its latest earnings call
During its latest fourth-quarter earnings call, the company was queried on the results of its burgeoning insurance business. The company first began to sell insurance to counter what it called often “unreasonably high” premiums from third-party insurers costs with the end effect “…to improve the total cost of ownership of our cars.”
“…[J]ust as a broader reminder on kind of the motivation for starting this business,” expounded Tesla’s Chief Financial Officer Zachary Kirkhorn during the call, “it was to improve and still is to improve the total cost of ownership of our cars, given that we’re seeing high premiums of insurance from third-party companies. 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.”
Going further, Mr. Kirkhorn explained that while the automaker is still a way aways from becoming large enough for “specific financial disclosures” he was happy to disclose that its insurance business is growing at 20% a quarter, a faster growth than even its vehicle business. More specifically, the company boasts about $300 million in premium with 17% of customers using the product in those states where Tesla insurance is offered.
Embedded insurance makes it an easy selection for many new customers
Mr. Kirkhorn also highlighted the fact that the highest uptake of Tesla Insurance occurs when “folks take delivery of a new car.” Noting the “inherent stickiness” of the insurance business, Tesla is finding that many new drivers select Tesla Insurance when they are setting up insurance for the first versus going back and then switching to Tesla insurance from their previous provider.
Small changes can lead to big savings
Following Mr. Mr. Kirkhorn’s comments, CEO Elon Musk also discussed a significant side benefit to having started their Tesla insurance business. That is, improving the total cost of insurance costs for using a Tesla.
“…[J[ust by Tesla operating insurance for our cars at a competitive rate, that makes the other car insurance companies offer better rates for Teslas,” said Mr. Musk. “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….So it’s great…it has an amplified effect, very important.”
In addition, he also mentioned that “good feedback loop” that the insurance business has given the automaker, allowing it to continue to minimize the cost of repairs, noting that before starting this business, the company did not actually have good information or insight into this aspect.
“So it’s giving us this really good feedback before, again, reducing cost — total cost of ownership and also just figuring out how to get — if somebody’s cars in an accident, most accidents are actually small. They’re like a broken fender or scratched side of the car or something like, the vast majority of accidents. But we’re actually solving how to get somebody’s car repaired very quickly and efficiently and back in their hands. And like I said, those improvements actually apply then to old cars.
And we’re making just to emphasize another key point, because some of these points might be like, so I apologize for being repetitive. But it’s remarkable how small changes in design of the bumper and improving — obviously improving the logistics of spare part or providing spare parts needed for collision repair, have an enormous effect on the repair cost.
So, if you’re waiting for a part to get repaired and that part takes a month, now you’ve got a month of having to rent another car. It’s extremely expensive. And of course, you’re missing the car that you love and the one you actually want to drive. So, this has actually a very significant effect on total cost of ownership and customer happiness.”
Telsa insurance is currently available in the following states: