Tesla Launches Insurance Plan In Another High-Risk Bet It's Smarter Than Everyone Else

Illustration for article titled Tesla Launches Insurance Plan In Another High-Risk Bet Its Smarter Than Everyone Else
Photo: AP

Tesla, much like its mercurial leader Elon Musk, has a philosophy: It is smarter and better than everyone else, including other companies that are much bigger and much older and much richer than Tesla. This is the spirit in which Tesla Insurance has come into existence.


Announced today, Tesla owners in California can now sign up for an insurance plan for their car directly through Tesla.

The company claims its in-house insurance can “provide Tesla vehicle owners with up to 20 percent lower rates, and in some cases as much as 30 percent.” That is pretty vague language, and none of us at Jalopnik own a Tesla in California so we cannot log into the portal and get a quote, so we’ll just have to warn you that in the past Tesla’s claims have not always been on the level.


In any event, this sure is a big bet from Tesla that it knows better than all those car insurance companies that have existed for decades and calculate their rates based on reams of data from millions upon millions of cars.

In its FAQ, Tesla claims it can offer lower rates because even though it has fewer cars to glean insights from, it knows more about them than other insurance companies:

Tesla uniquely understands its vehicles, technology, safety and repair costs, and eliminates fees taken by traditional insurance carriers. By pricing policies to reflect Tesla’s active safety and advanced driver assistance features, which come standard on all new Tesla vehicles, Tesla Insurance is able to offer reduced insurance costs for many eligible owners.


There may be some truth to this, as insurance companies have admitted they don’t have enough data to validate automaker claims that driver assistance features result in fewer or less damaging crashes. In fact, the key bits of information they typically don’t have—whether the ADAS system kicked in prior to crash or if the ADAS system prevented one—are, least in theory, insights Tesla does have, at least in aggregate (Tesla says in the FAQ its will not “use nor record vehicle data, such as GPS or vehicle camera footage, when pricing insurance”).

Given that auto insurance is a low-margin business, offering discounts as steep as 20 percent, to say nothing of 30 percent, is a big bet that their data isn’t just a little bit better, but a lot better. And it’s a risky bet given Tesla’s current financial situation.


But hey, that’s what makes Tesla Tesla, right? Sometimes, its gambles pay off and it makes better electric cars than anyone else. Other times, it doesn’t and the company goes through a year of utter hell in a failed attempt to automate a car factory. Only time will tell which side of the balance sheet Tesla Insurance occupies.

Former Senior Reporter, Investigations & Technology, Jalopnik

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Before you reflexively bash Tesla, think about it... This is brilliant.

They are the only suppliers for their parts. They can either limit repairs to certain shops they contract with, or do bodywork at a lower rate than a body shop that has to work on hundreds of different models. Get reinsurance to cover personal injury, liability or damages to the other car to stabilize costs and as an insurer, there are significant gains off the investment income from premiums.

Insurers always have ridiculously tight margins, but the mere fact that Tesla owns a monopoly on parts and can get all those parts at cost - true cost, not wholesale cost - means they have a margin advantage no one else can compete with. On the flip side, regulatory hurdles are immense and I’m not sure that if I were a Tesla owner looking into this, I’d want to buy into having to rely so heavily on Tesla customer service.