The autotech giant has to slash down its warranty cost in order to make the current year profitable.
Tesla Motors Inc. CEO, Elon Musk has announced to the investors that the luxury EV maker is likely to put an end to burning cash and post profit this year. In order to be in line with the pledge it has taken the company has to circumvent the cost associated with the problems in the quality of the vehicles.
Since 2014, the Palo Alto, Calif. firm has been corralling its average cost of warranty –or repair cot –per premium electric vehicle. According to the analysis of the company data done by Reuters, it is still spending twice as much as Ford Motor Co. and General Motors Co. Also, the luxury electric car maker’s warranty costs exceed that of Daimler AG’s –the German based maker of Mercedes-Benz luxury cars.
Automakers including Tesla haven’t adopted the practice of segregating the warranty costs but the companies do provide in the financial statement the number of vehicles delivered and the amount spent as warranty and other accruals – which represent the money put aside for future probable use.
According to the data analysis carried out last year by Reuters based on the information provided by the company in its annual report, it was deduced that the company spent $1,403 per vehicle on actual repairs and kept $2,036 on hold for likely future repairs for the vehicles it sold in 2015.
In comparison with the auto-tech giant, General Motors spent around $400 per sold vehicle on warranty repairs and put $332 for future work. Meanwhile, German based Daimler spent close to $970 per vehicle and put $1,294 on hold.
Since the company will be stepping into the production of Model 3 sedan, next year, therefore it has to come up with ways to address the matters like quality control and warranty costs.
In February, Tesla’s Chief Financial Officer told analysts that the company’s vehicles have become more reliable which has slashed down the warranty cost for the company. He added, “That actually has a cash impact when the cars show up less at the service centers.”
Tesla Motors is scheduled to post its quarterly results on May 4 and the analysts will be closely scrutinizing whether the company managed to have positive cash flow for the year.
At the market close on Thursday, Tesla Motors stock stood at a price of $247.71. The 52-week range of the stock is $141 to $287.
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