Tesla Motors Inc. Provides Perspective on Drive Unit Replacements

Reports from owners of Tesla's (NASDAQ: TSLA  ) Model S were making the rounds a few weeks ago regarding the frequent need to replace drive units. Some investors wondered: Could one of 2013's most decorated cars end up facing a major recall because of the drive unit? Or, worse yet: Is Tesla's reputation on the line?

But Tesla CEO Elon Musk soothed concerns during Tesla's second-quarter earnings call on July 31 when he shared his perspective on the drive unit replacements. Since then, the problem has faded into the past and shares have soared more than 10%. Here is what you need to know about Tesla's drive unit replacements.

The Model S powertrain sits on the rear axle. Image source: Tesla Motors

Where the concerns started

Concerns about Tesla's drive unit replacements initially began mounting in July, when Edmunds.com detailed a list of problems it had with its Model S, including rapidly wearing tires, a battery that had to be replaced, a broken sunroof, and a drive unit that was replaced a whopping four times. Then, after a user posted the Edmunds story to Tesla's forums, customers began to talk about the issue. Sure enough, other drivers reported needing multiple drive unit swaps, too.

Tesla service center. Image source: Tesla Motors

Considering that Tesla boasts a low maintenance profile for its Model S, the company is held to high standards when it comes to maintenance. Tesla has made some bold claims about the maintenance and service profile of its cars, including this excerpt from one of its blog posts:

Model S is by design a low-maintenance vehicle. There are no spark plugs, timing belts or oil filters to replace. Model S will never need a smog check or a typical oil change. In fact, the only oil needing to be changed is in the gearbox, which on average needs replacement once every twelve years.

Model S has at least a thousand fewer moving parts than a traditional car -- no internal combustion engine, no transmission, no mufflers or catalytic converters -- thereby lowering the chances of things breaking down or wearing out. Thanks to regenerative braking, even brake pads will last longer on Model S than on other cars.

But a faulty drive unit could bring into question Tesla's claims about its vehicles having a low maintenance profile. So, it made sense that there was some concern among investors.

Perspective

Tesla had plenty to say about drive unit problems during the recent earnings call. Fortunately, the added perspective makes the chances of a recall due to the drive unit look incredibly unlikely.

Broadly, Musk acknowledged that "we definitely had some quality control issues in the beginning for the early serial number cars" as we were "basically figuring out how to make the Model S," but he insists that the company has now addressed the vast majority of these issues in current production cars.

Model S. Image source: Tesla Motors

With a nod to the drive unit reports, Musk said the frequent replacements have largely been a function of either replacing drive units that didn't need to be replaced because the problem was misdiagnosed, or replacing drive units for the sake of expediency instead of repairing them.

Musk gave an example during the call of early drive unit problems that were misdiagnosed:

And we had one particular case where there was vibration, and it was due to ... a cable detaching itself and touching the drive unit assembly and causing vibration to be transmitted to the body of the car. And it was somewhat pernicious because if the cable moved a little bit and so that it didn't provide a conductive path, then ... the vibration would go away. If you replace the drive unit, you temporarily tuck the cable back and think the problem was solved -- and it was. But then the cable would vibrate itself down and transmit the energy. So, I mean that, you know, the cable thing takes us like -- it's nothing to fix it. It's like, virtually, it's like a $3 cable tie to solve it.

"There are a bunch of things like that," Musk explained during the call. But Tesla says that experience is helping the company get better at diagnosing what's wrong.

Still, "a fair number of drive trains will need to be serviced," Musk said. But the particular problem he was referring to will be easy to fix, Musk insisted. It will simply consist of the insertion of a $0.50 shim by a technician.

Further, Tesla chief technology officer JB Straubel contends that the replacements aren't a business concern at all, anyway. In fact, it's more of a reflection of Tesla's efforts to provide rapid service, according to Straubel:

If I might add one thing on the drive unit replacements as well, I think it's important to note that the drive unit is a very complicated sort of assembly of different components, and the pieces that have needed service and failed internal to the drive unit are relatively not very expensive. And they're being replaced in order for expedience, so they get the car back on the road for the customer in the minimum time.

To Tesla's credit, actions like this simply aren't economical for internal combustion vehicles. Imagine replacing an internal combustion engine every time something small went wrong.

"But our optimization was customer happiness," Musk said during the call. So, instead of making customers wait for a drive unit to be repaired, the company just replaces it -- because Tesla can and because it can do it expediently. Comparing the replacement of an internal combustion engine to the replacement of an electric motor simply isn't comparing apples to apples.

Further, the cost to Tesla for replacing these drive units is nothing for investors to be concerned about.

"Just to add, from a cost perspective -- since these are not significant -- the overall impact on our warranty reserves has not been significant," explained Tesla chief financial officer Deepak Ahuja during the call. 

But drive unit replacements may not even be needed to emphasize expediency in the future, Straubel explained during the call. "[G]oing forward, we're looking at ways to repair them and give people back their same drive unit very, very quickly, in about the same amount of time [as it takes us to replace them].

But what about the Edmunds car?

Tesla acknowledged that there were "definitely some genuine issues" with Edmunds' car, but Musk reminded investors during the call that it was "one of our early production units, and, in fact, most of the problems that they have encountered are not present in current cars." Also, the misdiagnosed drive unit issue that was really just a cable happened to the Edmunds car twice, Musk explained.

Further, Tesla said they were replacing parts with the Edmunds car sometimes "just on the off-chance something could go wrong." Being ultraproactive with the Edmunds car, however, may have resulted in being counterproductive, Musk said.

The downside of Tesla's proactive service mentality is that service frequency may remain high. But Model S owners, who gave the vehicle a 99 out of 100 rating in a Consumer Reports survey, don't seem to mind. Consumer Reports says this is the highest score of any owner survey in years. Perhaps the headache of service is soothed by the fully loaded loaner cars offered while a car is serviced, and Tesla's efforts to approach service in the fashion of a Formula One pit crew, or even the occasional elf-like sneakiness of those repairs that sometimes take place without an owner even having to drive their car to a service center.

Model S. Image source: Tesla Motors

Regarding the drive unit replacement concerns and the Edmunds' Model S maintenance, Tesla spokesperson Alexis Georgeson provided The Motley Fool with this statement:

Tesla considers service a top priority, and we err on the side of being proactive to ensure the best driving experience possible. That means we are particularly attentive in addressing potential issues, even if those issues appear to be very minor or have a low likelihood of causing any future problems. We take these actions with the customer's convenience and satisfaction top of mind and strive to go above and beyond the expected level of service. In addition and as we would with any owner, we also paid an unusual amount of servicing attention to the Edmunds car because it was under warranty, meaning we were able to make the improvements and deliver a high level of service to the customer at no extra cost.

Model S body lifted with major components separated. The drive unit can be seen positioned above the rear axle and between the rear tires. Image source: Tesla Motors

Tesla will undoubtedly be working out the kinks of new technologies for some time. So, expect more bumps in the road. Further, the company's customer-focused approach to service is going to look far different than what owners with internal combustion vehicles are used to. But one thing is clear: Tesla is dead set on revolutionizing vehicle service -- and owner satisfaction seems to suggest that the new approaches Tesla is taking are working.

Tesla is confident that the low maintenance profile will shine through over time. After adding perspective about the drive unit replacements during the call, Musk boldly asserted, "[W]e're going to be at it hard core until that car is 10x better than any other car on the road."

So, should investors worry about drive unit replacements, maintenance, or service for Tesla vehicles? Not at all. In fact, these areas look poised to be aspects in which Tesla could potentially set the golden standard and build out competitive advantages.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Read/Post Comments (10) | Recommend This Article (16)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 10, 2014, at 2:43 PM, RobertFaheyJr wrote:

    Reasoning by analogy: "Gee, a drive unit? That must be the equivalent of a gas car's engine. If there's an issue there, yuck-o-rama!"

  • Report this Comment On August 10, 2014, at 2:45 PM, RobertFaheyJr wrote:

    Once again, the Model S has confused the press, which thinks by analogy, you see . . .

  • Report this Comment On August 11, 2014, at 12:33 AM, HiddenGems07 wrote:

    My drive unit was replaced 2 weeks ago - tires were dangerously worn on inner edge (rest of tread was maybe 20% worn) - the tire issue concerns me more than the drive unit, but I think there is a fundamental issue with that "instant" torque - I'd be cool with them dialing it back a bit (slower ramp to speed) if it extends the life of the drive units.

    Tire configuration / set-up has to be changed - $1K in tires every 20K miles is a bit much.

    I think Musk pretty much said "these are not the droids you seek" on the call and everyone gave him a pass - and he probably deserves it if his commitment to over-delivering on solutions stays solid. I'm pretty sure my drive unit was a remanufactured one - so it might have only been a 3-4k cost to Tesla. (REMAN was on the part description)

    I know for several people the problem is real - the issue for me is that this failure, if it happens again after 50K miles would be a $15K fix - that'll be hard to swallow. And the tires - there goes my fuel savings.

    I remember Apple products early on - they had problems too - and stuck to a 90-day warranty for years. But they were so-o cool.

  • Report this Comment On August 11, 2014, at 12:40 AM, evdanker wrote:

    1) Drivers aren't accustomed to driving a car like this.

    2) The corporate owned media, including Edmunds, may be hesitant to praise this car over a gasoline engine because of the influence of the industry. Cynical maybe, but definitely a consideration.

    3) Earlier models were still being refined. Some of those problems have been solved now.

  • Report this Comment On August 11, 2014, at 1:57 AM, DrDauger wrote:

    Musk said on the call some of the drivetrain work was only a few $100s to fix, but it was just faster for that customer to swap it.

    Model S is a high performance sedan. My M3 would go through tires every 16k miles, so going 20k each is pretty good. I apply what I learned from my M3 to my S: keep it aligned and rotate every few thousand miles. America's Tire offers free regular tire rotation with purchase.

  • Report this Comment On August 11, 2014, at 2:46 AM, btc909 wrote:

    The only way you will resolve wearing down tires is with AWD which the Model X will have and I suspect future Model S will as well.

  • Report this Comment On August 11, 2014, at 10:17 AM, CraigWPowell wrote:

    Tesla Motors is in high gear, in a good agreement with the forecast http://stks.co/f0viq

  • Report this Comment On August 11, 2014, at 12:23 PM, SkepikI wrote:

    This is EXACTLY the sort of behavior I would expect out of "good engineers" and which I have come to not expect from the automotive sector in general, Subaru, and maybe now Ford excepted.

    What I do not see is solid evidence of testing when the "bad units" get pulled out, but maybe that happens non-destructively in the re-manufacturing process. AND completely in character for good engineers to track those parts with a "reman" designation and not tell you.....

  • Report this Comment On August 11, 2014, at 12:43 PM, TMFDanielSparks wrote:

    @Skepikl,

    I think the best engineers diagnose, solve, and prevent issues from happening again. That is basically what musk claimed on the call. As I explained in the article, Tesla asserts the drive unit problem was mostly early serial number cars and that it has now "addressed the vast majority of these issues in current production cars."

  • Report this Comment On August 13, 2014, at 11:12 PM, phexac wrote:

    In talking about Tesla, people invariably confuse the quality of the car with the quality of investment in the stock at the prevailing market price.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3062093, ~/Articles/ArticleHandler.aspx, 12/21/2014 1:26:48 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement