Surprising Announcement: Tesla Motors, Inc.'s New "Infinite-Mile Warranty"

As if the company wasn't disruptive enough, Tesla is now taking its warranty to a whole new level.

Aug 16, 2014 at 11:11AM

Electric-car maker Tesla Motors (NASDAQ:TSLA) wants to revolutionize vehicle service. The goal is to reach a point in which owners don't even need service, Tesla CEO Elon Musk has said on multiple occasions. To drive home just how confident the company is in this endeavor, Tesla just announced what it is calling "an 8 year, infinite mile warranty" on the 85-kWh Model S drive unit.

Infinite Mile Warranty Drive Unit Tesla Model S

In conjunction with the announcement of its eight-year, unlimited-mile warranty for the drive unit, Tesla updated its home page to promote the change.

Addressing concerns
The announcement was well timed. Earlier this week, Consumer Reports published an article about some problems it experienced with the reliability of the car, which noted a handful of minor issues the magazine has had with the Model S during its ownership journey. Back in July, also detailed a list of problems it had with its Model S, including a drive unit that was replaced four times.

Notably, Tesla has since provided perspective about the problems a number of owners, not just Edmunds, had with the drive unit. It has also explained that the vast majority of issues owners have experienced were limited to the early serial number cars and that they have mostly been addressed. Consumer Reports and, of course, both owned early serial number cars.

Tesla Battery Drive Unit

The Model S drive unit sits above the rear axel. The battery stretches the floor of the vehicle. Image source: Tesla Motors.

Musk emphasized during the company's second-quarter conference call that Tesla is extraordinarily confident in the maintenance profile of the technology behind its vehicles.

"And we're going to be at it hard core until that car is 10x better than any other car on the road," Musk said in reference to the company's aspirations for vehicle build quality and reliability.

More than fluff
Now, Tesla is putting its money where its mouth is, making the surprising announcement that its 85-kWh-battery version of the Model S (which Tesla says is its most popular model "by far") is going get a drive unit warranty boost, from a 50,000-mile, four-year warranty to an unlimited-mile, eight-year warranty. Even more, the warranty extension will apply retroactively "to all Model S vehicles ever produced." What's more: "There is also no limit on the number of owners during the warranty period."

Musk explained the reasoning behind the change in the blog post announcing the expanded warranty:

In hindsight, this should have been our policy from the beginning of the Model S program. If we truly believe that electric motors are fundamentally more reliable than gasoline engines, with far fewer moving parts and no oily residue or combustion byproducts to gum up the works, then our warranty policy should reflect that.

But the move will "have a moderately negative effect on Tesla earnings in the short term," Musk noted. This is because the bold move will require the company to boost its warranty reserves to reflect the change to the program. Musk, however, insists the decision is in shareholders best interest: "[B]y doing the right thing for Tesla vehicle owners at this early stage of our company, I am confident that it will work out well in the long term."

Both the battery and the drive unit for Tesla's 85-kWh Model S now have unlimited-mile warranties.

Tesla Model S Hq Twitter Feed

Model S outside of Tesla's headquarters in Palo Alto. Image source: Tesla Motors.

If Tesla's statement, "The Tesla Model S drive unit warranty has been increased to match that of the battery pack", holds true, then the 60-kWh Model S drive unit will now have a warranty of eight years and 125,000 miles (the current 60-kWh-battery warranty), a significant upgrade from the previous four-year, 50,000-mile warranty.

The unlimited warranty on the drive unit adds to a growing number of other disruptive approaches that Tesla is using in vehicle service. Other approaches include an optional fully loaded loaner car for owners when their car is being worked on at a Tesla Service Center, Ranger Visits in which Tesla technicians attempt to conveniently and rapidly repair the car at the owner's location, and the company's refusal to make vehicle service a profit center.

Musk and Co. appear dead set on proving that Tesla has what it takes to revolutionize vehicle maintenance -- even at levels that manufacturers of internal combustion vehicles may not be able to match.

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Daniel Sparks owns shares of Tesla Motors. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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