Tesla Motors Inc (TSLA)’s Infinite Mile Warranty on Model S Drivetrain Reassures Consumers: Brad Erickson


Tesla Motors Inc (NASDAQ:TSLA) has increased the warranty period for their Model S drive unit to match it with the battery pack’s warranty. This announcement was made by Tesla’s CEO, Elon Musk, on August 15. So, the Model S has now eight years or infinite mile warranty on both their battery pack and the drivetrain. Brad Erickson of Pacific Crest talked on CNBC about the Tesla’s extended warranty on Model S vehicle.

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Erickson pointed out that this announcement might potentially increase the sales of their Model S cars. He talked about the drivetrain issues and replacements carried out by Tesla Motors Inc (NASDAQ:TSLA) on few Model S cars and he thinks that the extended warranty might give more assurance to their customers.

“[…] We take the opportunity to remind investors that despite its market cap, Tesla is still a start-up, and occasionally start-ups have to do things like this in order to reassure their customers around products. There has been a lot of controversy around the drivetrain replacement, particularly […],” Erickson said.

If a consumer is indecisive on purchasing a Model S car, Erickson thinks that this extended warranty might push the consumer to buy it. Many analysts are bullish on Tesla Motors Inc (NASDAQ:TSLA) and keep raising their target price. Erickson has an ‘Outperform’ rating for Tesla stock.

Erickson thinks that the automobile software value is increasing drastically, but Tesla Motors Inc (NASDAQ:TSLA) is more keen on investing in the hardware component of the vehicle. He feels that the Tesla might gradually shift their investments towards software components as the other auto makers.

“[…] when you look at the hundreds and millions of lines of code up to that point now that are going into the cars, just conceptually, the value really is shifting to software […]. So Tesla leveraging this ability to exploit effectively the convergence of data and connectivity and being able to do things like update that software over the air, we think that offers a really compelling cost argument over time,” Erickson added.

One of Tesla Motors Inc (NASDAQ:TSLA)’s shareholders is Andor Capital Management, led by Daniel Benton. The hedge fund holds around 1.25 million shares of the company.

Disclosure: None

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