Tesla Motors, Inc. (TSLA) announced that it has increased the warranty on its Model S drive unit to eight years and infinite miles. This is same as the warranty on the battery pack. Moreover, the electric carmaker has not put any restriction on the number of owners the car can belong to during the warranty period. Further, the warranty extension is being implemented on a retrospective basis to all Model S sedans.
Earlier, Tesla provided a warranty for four years or 50,000 miles on the car. In comparison, most gasoline cars offer a standard three-year/36,000-mile warranty.
The extension of the warranty reflects Tesla’s belief that electric motors are more reliable than gasoline engines due to the lower number of moving parts and absence of oily residue or combustion byproducts. The electric carmaker believes that it should have provided this warranty from the beginning itself.
Tesla also acknowledges that the move will have an adverse effect on its earnings in the short term due to the increase in warranty reserves. However, it believes that the move will have long-term beneficial effects.
The extended warranties will ease consumers’ concerns following recent revelations by Consumer Reports and Edmunds.com that Model S cars have been found to develop certain snags during long-term usage. Moreover, it will likely boost resale values of Model S, per some analysts.
Currently, Tesla sports a Zacks Rank #1 (Strong Buy). Other auto stocks worth considering include CarMax Inc. (KMX), O'Reilly Automotive Inc. (ORLY) and Fox Factory Holding Corp (FOXF). All these stocks have a Zacks Rank #2 (Buy).
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