Tesla raises warranty on Model S to 8 years, 'infinite' mileage

UPDATED: 8/16/14 9:32 am ET - adds details, reactions

(Reuters) -- Electric carmaker Tesla Motors Inc. said the drive unit warranty for its Model S sedan has been increased to match that of the battery pack and will now be covered for eight years and "infinite" miles.

The company also said in its blog Friday that the warranty extension will have a "moderately negative" effect on its earnings in the short term.

There is no limit on the number of owners during the warranty period, Tesla CEO Elon Musk wrote in the blog.

"This is amplified by the fact that we are doing so retroactively, not just for new customers," Musk wrote. "However, by doing the right thing for Tesla vehicle owners at this early stage of our company, I am confident that it will work out well in the long term."

The warranty extension will apply to all Model S cars produced till date, the company said.

Consumer Reports last week criticized the Model S for having "more than its share of problems," including a variety of electrical issues. 

The magazine last year gave the Model S top marks for its "smoothness, effortless glide and clever, elegant simplicity." It purchased the car in January 2013 for $89,650. Tesla fixed the problems on the magazine's Model S under warranty.

In July, automotive data and pricing company Edmunds also reported glitches with its Model S after more than a year of heavy driving. The entire vehicle, including drivetrain, previously had a warranty for four years, or 50,000 miles.

“This obviously addresses concerns owners and potential owners may have had after those reports,” said Alan Baum, an auto analyst at Baum & Associates in suburban Detroit. “The bigger issue is have they resolved the manufacturing issues that led to these problems?”

Tesla’s so-called infinite warranty also may help boost Model S resale values, said Baum and Karl Brauer, senior industry analyst for Kelley Blue Book in Irvine, Calif.

“Eight-year, unlimited coverage on the warranty is going to help when someone sells the car after three or four years,” Brauer said. Musk has “made it as painless as possible to deal with unexpected service issues.”

In hindsight

Musk wrote in the blog of the longer warranty: "In hindsight, this should have been our policy from the beginning of the Model S program."

If the company believes that electric motors are more reliable than the gasoline engines used in most conventional cars, he added, "then our warranty policy should reflect that."

Many current conventional gasoline-powered cars have a standard three-year/36,000-mile warranty.

Korean automaker Hyundai Motor Co., its affiliate Kia Motors Corp. and Japanese automaker Mitsubishi Motors Corp. offer U.S. buyers some of the longest new-vehicle warranties, including standard vehicle coverage for five years or 60,000 miles and powertrain coverage for 10 years or 100,000 miles.

Company gains

Tesla stock, which has been trading at or near its record high, closed at $262.01 on Friday on the Nasdaq and was down slightly in after-hours.

The company said on July 31 that its warranty reserve at the end of the second quarter was $84.4 million, up from $36.9 million a year earlier, reflecting the expansion of vehicle sales.

Tesla has a target to deliver at least 35,000 cars this year, up about 60 percent from 2013. Production is accelerating at its Fremont, Calif., plant to a 50,000-unit pace by the end of the year, and is to double to a 100,000-unit rate by late 2015, Musk said last month.

Bloomberg and Automotive News contributed to this report.

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