Tesla's confusing rollout of its insurance program has created more questions than answers

Elon MuskJohn Raoux/AP Images

  • Tesla vehicles are, in some cases, more expensive to insure than cars from competing automakers.
  • The electric-car maker has launched an insurance product, Tesla Insurance, for California customers that is designed to give its customers a discount of up to 30% due to Tesla's more sophisticated understanding of its vehicles' technology, safety features, and repair costs.
  • But Tesla has removed the option to buy a policy, as of Thursday afternoon, and has left many questions unanswered, like whether or not it is partnering with an insurance company.
  • Customers who like buying different types of insurance at the same time to get a bulk discount may find that Tesla Insurance increases their overall costs.
  • Visit Business Insider's homepage for more stories.

Tesla vehicles are, in some cases, more expensive to insure than competing vehicles, a problem the electric-car maker has tried to address by introducing an insurance product, Tesla Insurance, for California customers on Wednesday.

Tesla said the program is designed to give its customers a discount of up to 30% due to the company's more sophisticated understanding of its vehicles' technology, safety features, and repair costs. But the original text on the Tesla Insurance webpage, as well as the option to buy a policy, were removed and replaced with a note suggesting Tesla is modifying its pricing algorithm. That note was the only text on the page, as of Thursday afternoon.

Consumers often buy multiple kinds of insurance or insurance for multiple vehicles at once to get a bulk discount, said Maryann Keller, the principal at the automotive consulting firm MK&A. That won't be possible with Tesla insurance, possibly negating some of its intended benefits.

"A very high percentage of Tesla owners have another car, and this insurance will not cover the other car if it's a brand other than Tesla," Keller said, asking: "In the grand scheme of their overall insurance planning, is this going to be worthwhile?

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Krzysztof Kujawa, the chief product officer at the insurance-shopping website Gabi, got a quote from the Tesla Insurance portal and found that the price to insure his Model S sedan would have been higher than the price he and his wife pay for the combined insurance on their Model S and Toyota Highlander.

Tesla's insurance rollout has raised questions

The information Tesla has offered so far about its insurance product leaves many questions unanswered, like whether Tesla will underwrite the product itself or serve as a broker for an insurance company that would collect premiums and pay out benefits.

Like the auto industry, insurance is a low-margin business, as increased competition has made the costs of acquiring customers more expensive, Kujawa said. That means Tesla Insurance may not be a profit-generator for a company that has posted losses in all but four quarters since going public in 2010.

But earning a profit on a standalone basis may not be the objective of Tesla Insurance, Kujawa said. Tesla may instead see the product as a marketing tool designed to boost vehicle sales by addressing the perception that Tesla vehicles require higher-than-normal insurance costs.

"I think that issue is more important than ever," Kujawa said.

While customers of Tesla's high-end Model S and Model X SUV - which start at around $80,000 - may not be worried about higher insurance costs, that isn't necessarily the case for customers of the Model 3 sedan, which starts at around $39,000. And affordability could become an even bigger concern in the future, as Tesla CEO Elon Musk's intention is for the company to become a mass-market automaker that sells millions of vehicles each year.

Tesla did not immediately respond to a request for comment on this story.

Are you a current or former Tesla employee? Do you have an opinion about what it's like to work there? Contact this reporter at mmatousek@businessinsider.com.

Get the latest Tesla stock price here.

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