In addition, you’ve mentioned in the past how much less money Tesla spends on warranty and recall costs because they don’t have the marked-up labor rates of dealerships. I remember bringing in my car for service at BMW and they were happy to tell me that my car had 3 outstanding recalls.
So that 5%-7% advantage may be higher.
Absolutely, although I think the warranty cost advantage is now being derived more from changes in manufacturing and component elements that we were less informed about a year ago. My current ranking of warranty cost expectations is:
1. The 'Gigapress' phenomenon and all it implies. The primary emphasis has been on manufacturing cost savings, properly so. Eliminating hundreds of parts in Model Y from front and rear will certainly act to reduce weight and complexity, both major pieces of warranty costs, plus drastically increasing overall rigidity, which reduces many squats, rattles, body and chassis problems that are often difficult to diagnose and repair.
2. The Octovalve and all it implies. After a few startup problems the Octovalve approach has eliminating many defect-prone hoses, connectors and other components which also tend to be sensitive to vibration and temperature changes.
3. The evolving paint shop revisions, notably commencing in Grùneheide. Probably third are the various paint-related problem areas typical for new vehicles. Many fo those are repaired in factory, many others by point-of-sale when shipping damages are noted. Others happen later. These are invariably expensive to repair, particularly with labor costs. Better paint shop process control makes the entire vehicle less susceptible to those defects.
4. Changing battery chemistry and improved pack construction techniques. The total number of fasteners and connectors in the newest cells is much more robust than in earlier ones, further a majority of vehicles is being delivered with lithium-iron-phosphate (LFP) chemistry. The fewer connectors, the fewer warranty claims due to connector failure. LFP is also less sensitive than are the higher-performance chemistries, so probably will also have fewer failures. Between these issues is also the evolution to structural packs, which itself will drastically reduce failure areas.
5. Because of OTA monitoring Tesla is now regularly diagnosing problems before they cause vehicle failure, requiring emergency service. That is a giant step t reducing costs, not because of repair frequency but because of repair severity. Proactive replacement of 12v batteries, for example, costs perhaps about a twentieth of the costs of emergency replacement.
6. Then comes the effects of dealer warranty repair enthusiasm and high labor and parts markups. Obviously related is the dealer required maintenance which increases user costs and provides opportunity to discover 'warranty repairs'.
Thus the relentless search for more efficient manufacturing and distribution ends out creating a virtuous cycle of cost reduction, most of which directly reduce warranty costs too. Until we began seeing:
1. the Shanghai quality improvements,
2.the OTA improvements (imagine what the Model 3 brake issue would have been and they not managed to do it through software, so a simple update) and,
3. the Grüneheide fair.
I did not realize how important all these things were in warranty cost reduction.
All that became quite visceral for me when I took delvery of my new Model S Plaid. There were numerous complaints for other buyers about various issues. When mine arrives it was impeccable and has remained so. That never happened before, there were always problems. Now it seems Tesla is determined to deliver pristine products. After all it is much cheaper to do it right before delivery. Those lessons are, it seems, being applied in many areas.
Netting all of that I fully expect warranty reserves to gradually decrease on a per vehicle basis for all vehicles. Clearly Shanghai, Grüneheide and Austin are almost certain to have lower warranty cost impacts than will Fremont, but Fremont will continue improving as they improve manufacturing process to allow for higher production rates, Elon says by 40%. That same process will also bear better quality control in Sparks.
Warranty reserves are set by world class conservative actuarial processes. The cost of under-reserving is much higher than for over-reserving, at least for the actuaries. Thus, since they are historians by nature (past claims will continue to be equal to current levels) they district anything new. Thus with Model S and Model Y becoming better established, even without all those improvements above, the actuaries will gradually reduce required levels.
The giant question is "how much?". I do not expect dramatic reductions immediately but I do expect substantial reduction as a percentage of sales as demonstrated improvement, continue to be proven.
