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Tesla's Achilles Heel? Warranty Costs Through the Roof...

Although some might prefer to see this posted privately, I would want to know the following story if I were thinking about buying a Model S.

First, we are happy Model S owners (s/n 4061, S85, pearl white, gray, pano, tech, air sound) and would not give back our car for anything. However, we are beginning to wonder if the Model S was really ready for prime time. Based on what we see in the forums, and our own experience, I suspect that TM's warranty service costs are going to be astronomical.

TM has already spent over 1/3 of the purchase price in repairs to our car since it was delivered on Feb 3. This hasn't inconvenienced us much, and the ownership experience has been fine. Our car has been serviced only three times, and so far, experienced a total of about 10 days downtime (and counting).

Our car is currently being serviced at the Rockville Service Center. It went in last Wednesday for the 12-volt battery replacement, defroster vent upgrade, pano roof noise over 70 mph (new urethane seal?), right rear door handle inoperable, bumper misaligned (was removed previously for bolt inspection), axle nuts service bulletin, ground antennae, rear door window regulator service bulletin, add “85” insignia to rear, upgrade rear footwell cover, tire rotation, motor noise on acceleration, upgrade rear seatbelts, updated HPWC fuses for our two charging units.

Our prior service experience included one visit to Rockville when the car was a couple weeks old for a full inspection after I found loose rear bumper nuts while installing the Torklift hitch (see http://www.teslamotors.com/forum/forums/check-your-nuts-found-assembly-e...). During that three-day visit TM removed the front and back bumpers and the underbody panels to inspect all nuts and bolts. They also replaced a malfunctioning door handle and did some other minor things like upgrading the carpets and replaced our charging cord.

A couple months later TM sent a ranger to our house to apply the pano roof creaking upgrades (shims) and replace another inoperable door handle.

A couple weeks ago we had a third handle failure, and needed a tire rotation, so scheduled all of the above items, along with ensuring that we would get a Model S loaner (we are currently driving red P85). Then, one day before it was scheduled to go in, our car threw four "Service needed - car may not restart" messages during a 200-mile trip. We had no problem completing the trip and added this to the list for the next day's service visit.

Today, after six days in service, a service advisor called to say they found error codes immediately upon taking the car in, indicating "anomalies" in the main high voltage battery. They replaced the main battery and the 12-volt battery and are now getting started on the rest of the list. He said they will get back to us in the next day or two with another update.

Again, I am a happy owner. We love our car and believe that Tesla is being responsive to our service needs. We have never been stranded and the car is stunning in both appearance and performance. However, our experience is worrisome. Yes, there's some early-adopter stuff in our service record. However, except for the bumper bolts being loose on delivery, all of what we have experienced seems to be a recurring theme with these cars - many other owners are having these exact same issues.

When I add up what TM has spent so far, it is way more than the car's gross profit, and is about 1/3 of what we spent to buy the car originally - and this assumes that TM does not have to replace our motor or inverter to eliminate the increasingly loud motor hum. Bottom line: TM is already in a loss position on our car, apparently due to assembly and design-related issues. The car is only six months old (and it sat for two months while we were away) and we still have years of warranty coverage yet to go on TM's dime. Perhaps we are an extreme example, but TM can't survive if it has to spend 1/3 of the car purchase price on warranty.

I expect to be a long term Tesla owner and will definitely upgrade to a new model at some point - if their warranty costs don't eat them alive first. Great car, but was it really ready for release if it has this many issues? We aren't particularly demanding or unique customers.

Consumer Reports withheld their recommendation for the Models S because, even though it was the highest-ever car test score, it did not have enough service history. I am not looking forward to answering the Consumer Reports annual car survey, which has a lot of specific questions about repair experience. I want to see TM sales grow and the company become increasingly profitable and viable. Reliability is the last element after design excellence and superior safety, both now proven. Reliability not so much. I once told a boss that we were losing money on every sale. His response, "we'll make it up in volume" was funny, but preceded failure.

I think this is an assumption on your part, yes? You don't actually have any numbers from the service teams about what the repair would have cost to support your contention that it is 1/3rd of the purchase price?

Also, your experience may not match the average.

This does happen in high-tech. Slap it out there and fix it in the field. It's not without precedent, but neither is it scalable. And I don't expect Tesla thinks they will need to scale it.

I'm wondering what you're basing your actual dollar amounts on when you say that Tesla spent 1/3 of the purchase price for repairs.

@jbunn Great minds think alike and at the same time.

Dave I have had almost none of your issues. Took my delivery on Feb 9th. I did have a 12 volt buss issue but it turned out it wasn't the battery but a bad micro switch.

Also the people sitting around at the service centers get paid if they sit there and twiddle their thumbs or work on cars so that cost is paid already. The parts are the only real added cost. The real parts cost versus the marked up parts cost is probably quite a bit. The 'billing' side will show the labor and full parts price.

Hopefully the newer cars have less and less issues. Heck an early February delivery was built in Jan and they were still working out the kinks at the factory.

Take the 12 volt battery as an example. They purchased the batteries from a vender that turned around and subbed it out to another vender who supplied bad batteries. That issue should be gone now. They have a completely new vender with totally different batteries.

Basically I am not real concerned. I don't see 10,000 posts about problems with cars.

My guess this is an abnormal experience. Many folks have had the car with only minor issues. As you said several of your issues were related to earlier cars and no longer exist. 2014 models will have very little if any issues.

I'd say the battery replacement is the one very expensive item, and that seems quite rare based on other posts here. Tesla likely can repair the pack and re-use it internally for test cars and perhaps the Supercharger battery backup. In this cases, the fact it is used is unimportant, so the real cost may be far less to Tesla.

Most (all?) of the other items seem to have been fixed in the newest cars, so it hopefully is not an ongoing expense other than early cars.

Glad you're happy with the MS and hope you have smooth sailing after these updates.

They have likely factored these kinds of costs of operations in to their business model. Plus, as everyone knows, what costs you $400 dollars to fix at a dealership really only costed them $50 to them.

The battery alone is 1/3 of the price of the car, if the $30k estimate is accurate. Assuming that TM has built-in margin, and that their cost is half, or $15K, we then have to account for 13 service-days at $75/hr, there's about $8,000 of labor, plus the other parts. It easily gets to $30k, not counting supervision or the executive-level involvement in the bumper nuts problem. And they have just started on the much longer list of upgrades and service items above - I believe they still have a couple days work to go yet. No question they've spent WAY more than 1/3 of the purchase price of my car on service at retail parts and labor pricing, with more to go, and about 1/3 at TM's internal cost.

Again Dave you CAN't take in the labor costs. Those guys sit around the shop and get paid to sharpen pencils if there are no cars to fix. Also you did not have a complete battery failure. You probably had one part on the pack fail and they will fix that and haul the battery out to a Supercharger so there is no loss for the major cost which is the cells. If the car was still running you most definitely did not have a pack failure.

They had to release their cars to the wild. I don't think there was any other way to get their cars "ready for prime time". They learn from early adopters and improve constantly. I'm not worried personally.

They just raised the prices. That may cover it.

Seriously though, your experience seems out of the ordinary. I expect that consistency will improve with time and that there's a decent margin on these cars to begin with.

Even if my estimate of TM's warranty costs on my car are a bit high, there's no question that the gross sales margin is gone. My car was about $89K - margins were lower then, but assuming Elon's 25% target for the year, that would give a $22,250 gross margin on my sale. That is certainly gone.

I anticipated all of the responses above. Wishful thinking, most. Remember that these cars are new and we are just beginning to learn how long batteries last, what the failure rate is, etc. Until last week I had zero battery problems. The car always ran fine. Now it has had to have its core part, the high voltage battery, replaced. Neither anyone responding above, nor TM, has a complete picture on how well the batteries will hold up. I have seen several other total battery replacements and now at least that many total motor/inverter replacements on these forums (most in the last couple days), so I am not alone.

Remember, six months in = huge costs to TM. I am not saying that my car is representative, but it wasn't a really low number either. I have the 8-year warranty deal, so there's probably lots more costs to come for TM. We have no idea how well the cars will hold up, but we have been telling ourselves that an EV has fewer moving parts, so fewer repair issues. So far I have had many more repairs than on any MB, Porsche, or BMW that I have owned over the past 20 years. Most of those never needed any repairs beyond maintenance, yet this car is essentially being rebuilt at the manufacturer's expense, and who knows how long the "upgrades" will last? Will the new battery be better than the old? TM won't tell me what went wrong with the old battery - just referenced anomalies. Note that NONE of my problems have been related to electronics or the computers - they are ALL mechanical and design.

Sudre, I respect you, but your statement that the SC people would sit there twiddling their thumbs if I didn't have these issues is absurd. (1) TM has a long waiting list for service, at least at Rockville, and (2) any auto service business scales their labor availability to meet demand. No one sits around waiting for work to come in at a properly run service center. Labor is not free as you imply. I used $75/hr in my estimate, far below most import luxury dealers, and way below California-level labor charges. Yes the employees make less, but you have to account for overhead, etc. There's very little or no profit in a $75/hr labor charge.

OK Dave. Have it your way. Tesla will fail because your car is having problems. Hope you're happy.

Sudre, you are really reaching. Are you also a shareholder?

The answer to battery pack failures cannot always be "they will simply repair and haul it out to be part of a Supercharger". These things weigh hundreds of pounds and have huge transport costs. My dead one is 3,000 miles from the mother ship an dis a sealed unit that can only be serviced at the factory. And how many battery packs do they need to build out 100 supercharger locations? They can't all be reconditioned units. I would be shocked if TM can recover 1/3 of the value of a battery in a reconditioned state. They certainly cannot re-use them in other cars.

Again, your assertion that labor is free says you know little about the service business. I have owned several and can state categorically that a properly run service business has less than 10% non-billable labor slippage. Costs are costs. The people would not be there if the work were not there. They would have one mechanic, rather than 10 based on average repair load requirements. Same for the space overhead and tools associated with servicing cars.

Your car is not representative of the whole population.

Hmmm, I don't buy it. I've had my S60 for just over a month now and about 3,000 miles and the only real problem has been a bad seat recline switch that failed on day two, otherwise, the car has been awesome. As I see it, in the examples here from the OP, Tesla has essentially no labor cost (as previously mentioned) and the parts are pretty low as well, even the battery as they WILL repair and reuse it. Tesla needs to find and fix weakness as early as possible, so this is good training and building of the database before the customer base overwhelms the service center capacities. It is WAY cheaper for Tesla than traditional dealer arrangements and my previous cars have had more trouble and repairs than my Tesla so far. I those cases, the manufacturer had to pay the dealers retail (or near retail) rates to fix it. Way more expensive than Tesla's arrangement.

Dave:

I see two flaws in your logic:

1) First you are extrapolating your experience into a general trend--I don't think you actually have the data to back that up--you are essentially basing your argument on a sample size of 1.

2) You have a fairly early s/n. They have built some 11K cars between mine and yours. I would venture that Tesla has learned something along the way as have their sub contractors. The rise in gross margins would seem to bear that out, so the second flaw is you seem to consider the defect rate as a steady state instead of declining, which is likely more a reasonable position to take.

Finally, you really don't have any idea of what the financial impact of all your repairs are. Companies that offer warranties maintain a liability account to cover the potential costs of those repairs. Odds are the costs of your repairs were paid out of that account which is already baked into Tesla's overall numbers.

Regards,

Omar

Dave, we have had our car since April with no real problems. With any "start up" there will be some cars that do not measure up and I think your car unfortunately maybe one of the few with multiple problems. I am on this forum and the TMC forum almost everyday and do not read about your situation...in fact you are one of 3-4 owners that have had multiple problems. I do think that if an owner has a problem, they would hopefully go to the forums to get other peoples thoughts, or more important, address it directly with ownership. Good Luck with your car and I hope this last service call will be your last.

As pointed out the battery was the biggest cost item. Good news is there is history of the Roadster that shows that the batteries are pretty reliable. Some outside testing shows the life of the batteries are actually a little longer than the estimate.

The other items problems you mentioned will clear up with time. I remember when we would bring a radar into production and it seemed that the first 15 to 20 would be like pulling teeth then a point comes when things begin to move smoothly.same with MS. we are seeing some repeating problems being addressed and future cars won't have those problems... Rear window going off guide, 12V batteries, door handles etc.

It does appear your car ate all of Tesla's profit but it is an anomaly.

All of the "I have had my car since xxx and have had no real problems" are also anecdotal and surveys of one. I also had very few issues for the first 7,000 miles except the bumper nuts. Now the wheels have fallen off their profits on my deal. Batteries cannot be re-used except in limited situations and for specific low-demand alternatives such as superchargers, and labor is not at all free. My cost estimates are generous in favor of TM. I am a CPA and am well aware of how warranty reserves work. Mine is definitely fully used. Yes, that's a sample of one, and as I said above, I do not believe that my car is representative OR that we should extrapolate from my experience to ALL Tesla deliveries. However, if even a fraction of my experience is broad-based, TM has an issue.

I have seen dozens of other owners on the forum with multiple issues. Anyone who thinks otherwise hasn't been watching closely. Some have been MUCH worse than mine, including full motor and inverter replacements )several in the past couple days alone). I am not nearly as harsh as some here - I am still a TM fan, and have no issues with their service - I just worry that it is getting expensive for TM. Remember that we on this forum are a small subset of the owner base, so it is valid to see issues identified here having wider implications.

Again, every single issue that I have had on my car except the bumper nuts and my most recent main battery failure has been identified and discussed at length by MANY other people here on this forum - in all cases I learned about the problem and solution by someone else posting about it being a problem on their car first. I am certainly not an exceptional case and my car is not a one-off early lemon.

I'm a P13xxx owner, 5k miles. So far 2 major service issues: pano roof had to be replaced (not just fixed) due to excessive wind noise. Inverter failed and had to be replaced.

Currently my headlight goes on during broad daylight in auto mode and my indoor accent lights aren't working so ill need a 3rd visit soon. I consider that a lot of issues for having a car just 2 months so I can sympathize w Dave.

Definitely seems like there are early adopter issues. Whether or not they have resolved them on newer builds and how long term reliability will be only time will tell.

I think Dave has valid concerns. But I tend to agree with some people that not everyone is having problems. But especially I would have to believe that Tesla has drastically improved things during the assembly process from when he got his.

I'd think that the company will constantly improve their manufacturing process when there are complaints and the newer models SHOULD experience far fewer problems (wishful thinking on my part).

I don't think that Dave's concerns should be dismissed. It's not like there aren't many many posts about problems out there.

To me, the important part will be that Tesla always takes care of their customers problems. I could care less where the stock price is. It sounds like they have addressed all your issues Dave which is great. A company like this will always experience growing pains.

I'd have to believe they will work out the kinks as they hear about these on-going issues. But no doubt I understand where you are coming from.

I pick up my car in a few days and hoping I don't have the problems that you have.

I'm with @sudre_, @Pungoteague_Dave you're right and Tesla will crash and burn. You are our Jeremiah.

The proof is in the financial numbers. Tesla's earning reports continue to be better than expectations, so they must be making money from their cars. Main battery pack replacement is quite rare, if you follow the forums, which you do, so you know that to be true.

I picked my car up in march and it has been working fine.

@Pungoteague_Dave I applaud your courage for this post - you had to know some forum members would now have you in their crosshairs.

I have had several problems as well, though nothing as serious as the main battery. I received my car in March (VIN 6542), it has been in the service center 3 times and I have had 2 ranger visits. My car goes in again next week. I have already put close to 2500 miles on loaners, and 8000 on my MS.

I am happy to report that I have had no issues with the "big stuff", i.e. the battery or electric motor. As an early adopter, that was my biggest fear when I purchased the car. I still love the car and I promote it like I was getting a commission on every sale. I have no doubt Tesla will work out the kinks in the long run. Since I live in Florida, I can't buy the extended warranty so I hope I am right.

I have definitely thought about how much money Tesla has spent servicing my car, and how much service may be needed in the future. It worries me. Just the delivery/dropoff and loaner use has to add up. I have no idea how representative my car is, but I have had problems with so many different parts of the car (sunroof, paint, radio, headliner, turn signal, door handles, chargeport door, bluetooth, etc.) that there must be many, many other owners with at least some of the same problems.

I should add that the Dania service center has tried to make every service as painless as possible. That really goes a long way on building loyalty and reducing the frustration that can come with the need for repairs. I have never received such good service with my previous cars (though, none of my previous cars had so many problems early on)

I don't think you need to worry for Tesla. Account payable and warranty cost are all included in the financial reports as operation cost. I'm sure Tesla which is serving 10,000+ customers have a much better idea than you as to what the cost is.

Watch out for the dreaded motor failure... I was told at a store that it costs a whopping $1500! Of course there are going to be some issues, but if it were really widespread, we would be hearing about it much more, I suspect. I bet there are a few cases that are much worse than these, but thankfully Tesla is taking care of them quickly and efficiently. I suspect that in some early cases, Tesla will replace a battery, a motor, an inverter, etc., just so they can dissect and study the problems for future improvement. A year or two from now, either the battery will be improved, or they will know how to fix them at the service center, rather than replace them. I was quite impressed that the SC had TWO of the seat recline switches in stock. That's pretty impressive for such an obscure part and at a SC that was only about 3 weeks old. Call me naive, but I'm not worried about Tesla's quality.

Every new car I've ever purchased has had something significant fail within 3,000 miles. Car manufacturers incorporate warranty service into their operating cost planning...that's business 101.

Now, for a few actual FACTS:

If you look in Tesla's latest 10-Q (quarterly SEC report), you'll see these numbers:

Warranty costs incurred:
Three months ended June 2013: $1,601,000
Six months ended June 2013: $4,708,000

So, the incremental increase in warranty repairs for Q2 was actually lower than in Q1, despite them putting more actual cars out in the field. So, warranty repairs PER CAR seem to be going down rather than up.

pbendo,

Thanks. I have sold at least a half dozen Models S by giving test drives, and am still a big TM promoter. I get the smile every time I drive one - either mine or a loaner. But I am not a fan-boi to the point of justifying everything that goes wrong by saying "startup" or "early adopter", etc. as an excuse. Elon is selling the Model S as a no-excuses, best car in the world. I buy that in my regular driving experience - I have never driven a car that provides a better driving experience, or one that is more fun or efficient.

Perhaps I am a bit harsh in implying they weren't ready for prime time, but the regulars here who make excuses or shoot at anyone even mildly critical have certainly come out to rebut. Look at shop's response above - he tells part of the story by saying they exceeded expectations (which they did in sales volumes), and ignores the fact that TM lost money in the last quarter after putting up a profit (using non-GAAP numbers) in the first quarter - but these TM defenders all seem to think that if they put it in writing, it makes the assertion true.

Anyway, I have a pretty thick skin and stand behind the facts presented and the views stated above. I have a big smile, am a happy owner, knowing that I would not have cut Mercedes or BMW anywhere near as much slack if I had similar problems with the products that I bought from them over the years - and neither would any of the responders if they are honest with themselves. I still have ZERO issues with TM's service or response to my problems and would buy the car again. But I do think they may begin to miss their warranty cost targets if my experience is even the small tip of a very small iceberg.

Some of this is being borne out by recent TM moves - they increased prices on the vehicle and the service contracts - specifically citing experience that said they were losing money on the contracts. Appears that TM agrees with me, at least in part...


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