Tesla Extended Vehicle Warranty — Is It Worth It?

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My Tesla Model Y turns four at the end of November. This week, I got an email from Tesla asking me whether I want to sign up for an extended vehicle warranty. The traction battery and drive units are covered by an 8 year warranty, but all the other stuff is on me if something goes awry after the original vehicle warranty expires. The email read:

Your Basic Vehicle Limited Warranty is ending soon.

“To maintain peace of mind and continue limited coverage for your vehicle, you’re eligible to subscribe to the separate Extended Service Agreement (ESA) — a flexible monthly plan backed by Tesla. ESA helps cover certain unexpected mechanical and electrical repair costs after your original warranty expires. Learn more about what’s covered under Extended Service Agreement.”

How Much Does The Tesla Extended Warranty Cost?

The first thing anybody who got that email would want to know is, “How much does it cost?” The answer is $60 a month, or $720 a year. This is a monthly subscription, so it can be cancelled anytime. The maximum coverage period is eight years from the original date of purchase or 100,000 miles, whichever comes first. There is also a plan for used cars and readers should visit the Tesla website for more information about that.

In my case, I do plan to keep my Tesla for another four years, so my total cost of the ESA during that time would be $2880. It’s not hard to imagine that, with a car as complex as a Tesla, a repair could easily cost that much. A plus is that the ESA includes roadside service in the event of a breakdown.

What Is Covered?

As far as what is covered, Tesla says, “The monthly ESA subscription covers the repair or replacement necessary to correct the mechanical breakdown or inability to perform the function(s) for which it was designed of most parts manufactured or supplied by Tesla during the coverage period under normal use. Coverage takes effect on the date that your original New Vehicle Basic or Pre-Owned Vehicle Limited Warranty expires. The ESA subscription also covers Tesla Roadside Assistance, which provides you with immediate roadside services, 24/7 365 days a year.”

Are there any downsides? The ESA agreement says, “The Owner’s Manual includes specific recommendations regarding the use, operation, and maintenance of the Vehicle. You must follow correct operation procedures and have Your Vehicle serviced as recommended by Tesla.” That probably leaves me out, as the last time my Model Y saw a Tesla service center was the day I drove it home.

Nothing has gone wrong with the car and the idea of taking a day out of my life to drive 60 miles to the nearest service center to cool my heels while I wait for the annual maintenance process to be completed and then drive 60 miles home didn’t make much sense to me. So I guess I am out of luck on that score. Although, Tesla might relent on that if I am willing to have the car inspected by them at one of their service centers before the agreement is activated — at my expense, of course.

The Arbitration Clause

In addition, the ESA contract states that any disputes must be submitted to binding arbitration, which means you can’t sue Tesla. To be fair, the agreement does say the arbitration process will take place near the owner’s home jurisdiction and will be conducted by the American Arbitration Association, a recognized organization with an excellent reputation.

These types of agreements used to be called contracts of adhesion, because one party has virtually no ability to negotiate the terms. To be legally enforceable, a contract should represent an agreement between two or more parties in which everyone has the power to shape the final agreement. The owner in this case has zero negotiating power, which a court could rule makes the contract unenforceable. But as a practical matter, arbitration is much less costly and burdensome than going to court and it is not like Tesla is picking the arbitrator.

Exclusions

Under General Provisions, the ESA contract states: “The ESA does not cover Your Vehicle’s HV Battery, LV Battery, and Drive Unit, among other items identified in Section F, Exclusions.” The traction battery and drive unit are covered under a separate eight year warranty. Most of the exclusions are sensible stuff and include parts that typically wear out in normal service — brakes, rotors, shocks, wipers, bulbs, and the like.

One thing owners should be aware of is language that says that if some non-Tesla part gets installed by you or a non-Tesla service center and that part leads to a failure of some other component or the car, coverage is void. Now, I understand that. From Tesla’s point of view, its cars are computers on wheels and every component must work seamlessly with the wiring and voltage requirements of those computers.

But here’s the thing: If you are 1,000 miles from home in the pouring rain and something goes kablooey with your Tesla, are you going to let the local Pep Boys or similar service operation fix it so you can get back on the road, or are you going to have your car towed to a Tesla service center three counties away and hope they can squeeze you in? If you choose the former, you may be compromising your coverage under the ESA.

If you get a wiper motor from a salvage yard and it doesn’t play nicely with the rest of the car’s wiring, should Tesla be responsible? Arguably not. Still, anyone who takes the time to read the ESA in its entirety (I did, until my eyes started to glaze over) may get the impression that there are lots of opportunities for Tesla to say, “Sorry, that’s not covered under your warranty.” If that happens, you have very little opportunity to negotiate and your options are extremely limited.

Feedback From Other Owners

I reached out to my son in law who has a Model Y that is now 5+ years old. Recently, he had some squeaks in the front suspension, so he took it to the local Tesla service center, which happens to be just a few miles from his home. It was determined that some suspension pieces needed to be replaced. The cost was less than he would have spent for an extended warranty to that point. He told me he plans to forego the ESA and hope for the best.

I also spoke with Zachary Shahan, the ringmaster of the CleanTechnica flying circus, who told me the same thing. “I thought about it a lot, wrote articles about it to get reader feedback to help make the decision, but in the end I decided to bet/hope on the car not breaking down enough to make it a smart financial decision.” Zachary did a similar piece about the Tesla extended warranty program two years ago, four months after writing about its introduction. [Extra note from Zach: Back then, it was going to cost me $1,800 for another two years of warranty and would cost someone with a longer range vehicle like Steve’s $2,000, whereas, as Steve notes, there is now the option to pay monthly and the total for Steve over two years would be only $1,440 (or $2,880 over four years). So, it is clearly a better deal now. However, the overall pros and cons are the same.]

I spent many years working in car dealerships and am somewhat familiar with extended warranties. They tend to be quite specific about what is covered. The Tesla ESA is specific about what is not covered but rather vague about what is. That seems to me to give the company a lot of power when the manager of a Tesla service center tells you your turbo encabulator is not covered.

In essence, all extended warranties are little more than a form of betting. The companies are betting they will take in more money than they pay out, while owners are betting just the opposite. I only signed up once for an extended warranty. That involved a used Honda Civic and I was able to negotiate a lower price for the coverage with the guy in the finance office. In that case, I won the bet.

I have made my decision about whether to accept Tesla’s offer to enter into an extended service agreement, but I am not going to say what it is just yet. First, I want to hear from our readers and other Tesla owners on what they would do. If it was your money, would you say yes to Tesla or keep the money in your wallet? After a few of you weigh in, I will tell you what I decided (in consultation with my significant other) with an update in the comments section.