Insurers Are Writing Off Lightly Damaged Teslas

Tesla’s electric cars are getting less expensive. But they remain remarkably expensive to repair. That’s leading insurers to declare Teslas totaled after even minor damage.

The problem has grown severe enough for Tesla to acknowledge it publicly. If you follow the company, you know that’s news – Tesla doesn’t acknowledge much of anything publicly. But CEO Elon Musk discussed the repair cost problem and Tesla’s approach to solving it in a recent investor call.

“Totaled” Doesn’t Necessarily Mean Destroyed

Colloquially, we use the phrase “totaled the car” to mean damaged a car severely.

What the phrase actually means is that an insurance company decided it would be too expensive to repair and sent the insured the cash value of the car rather than paying to have it fixed.

They’ve historically done that for a car so severely damaged that it would need major structural repairs. But, increasingly, they’re doing it to cars with damage that would have been cheap to repair a decade ago.

Today’s cars are loaded with cameras, radar sensors, and other sensitive electronics. They’re often mounted in positions that make them vulnerable in an accident. That means even minor fender benders can do thousands of dollars in damage.

You and I might look at a damaged car and see cosmetic problems for a body shop. An insurance adjuster might look at the same car and see half a dozen expensive electronics that need replacement.

That trend leads insurance companies to declare more cars as total losses than they did in the past.

Wrecked Cars Have Lives After Death

When an insurance company declares a car totaled, it rarely gets sent to the crusher. Most are retitled as salvage cars. They can then be resold as wrecks.

Related: Even Wrecked Used Cars Are Getting Expensive

Historically, many go to pick-and-pull junk yards that let customers mine them for usable parts. Many are bought, shipped overseas, repaired, and sold in countries with looser title restrictions. And some states allow people to buy them, repair them, have them inspected, and obtain a rebuilt title that makes them legal to drive (though very difficult to insure).

Reuters analyzed data from Copart and IAA, Inc. – two of America’s largest automotive salvage marketplaces. They found that “Of more than 120 Model Ys that were totaled after collisions, then listed at auction in December and early January, the vast majority had fewer than 10,000 miles on the odometer.”

The cars had an average retail price ranging from $60,000 to over $80,000. The straightforward math of insurance adjusting would ordinarily lead insurers to repair lightly-used cars. With Tesla products, they appear to be writing them off instead.

Reuters didn’t examine each of the cars in detail. But they did deep dives on a few. One 2022 Model Y, for instance, had modest damage to its front end from hitting another car. It had a $61,000 retail price and an estimated repair cost of more than $50,000.

A second model Y, struck from the side, had a retail price of $72,667 and an estimated repair cost of $43,814, Reuters said.

Tesla Vehicles Force Different Math

Cars growing more complex and expensive to repair is an industry-wide trend. But it hits harder with Tesla than with other cars for several reasons.

Most current electric cars use a long, wide, low-mounted battery pack that takes up much of the same footprint as the car itself. It’s the most expensive part of the car, and many accidents damage it.

Tesla also changes the fundamental design of its vehicles on the fly. A Model 3 built three years ago and a Model 3 built today can look identical but have their frames assembled differently.

The company’s stated goal is to ultimately build a car’s entire structure in just three casted parts. That could radically simplify construction and make them more rigid in an accident. But the Teslas on the road today can differ significantly from one another, which makes producing repair parts almost impossible.

So the supply chain that can easily find parts for a 2019 Chevy Malibu may be unable to find basic parts for a Model 3 of the same year.

Tesla’s Response – Its Own Insurance

Tesla has responded to the problem by launching its own insurance company. Tesla Insurance,  around since 2019, promises rates up to 30% lower than mainstream insurers.

But the fundamental idea of insurance – to spread risk through diversification – can’t work well if the insured products aren’t diverse. A giant risk pool made entirely of expensive-to-repair cars isn’t much of a solution.

So, CEO Elon Musk told investors on a conference call last week, the company is studying the accidents reported to its insurance arm and using the data to change vehicle design.

“It’s remarkable how small changes in the design of the bumper [and] providing spare parts needed for collision repair have an enormous effect on the repair cost,” Musk said. Most accidents, he noted, “are actually small—a broken fender or scratched side of the car.”

So, through changes to vehicle design, Musk says, he hopes to “minimize the cost of repairing a Tesla if it’s in a collision.”

That will take time, however, leaving millions of Teslas on the road today that insurers may write off for a fender-bender.