Tesla Motors (TSLA) Increases Drive Unit Warranty on Model S; Sees Modest N-T Earnings Impact

(Updated - August 15, 2014 4:04 PM EDT)

Tesla Motors (NASDAQ: TSLA) says the Model S drive unit warranty is now increased. The warranty is extended out to eight years, according to headlines.

The company sees a 'moderately negative' effect on near-term earnings stemming from the change.

UPDATE - Tesla Motors CEO Elon Musk posted the following to the company's official blog:

The Tesla Model S drive unit warranty has been increased to match that of the battery pack. That means the 85 kWh Model S, our most popular model by far, now has an 8 year, infinite mile warranty on both the battery pack and drive unit. There is also no limit on the number of owners during the warranty period.

Moreover, the warranty extension will apply retroactively to all Model S vehicles ever produced. In hindsight, this should have been our policy from the beginning of the Model S program. If we truly believe that electric motors are fundamentally more reliable than gasoline engines, with far fewer moving parts and no oily residue or combustion byproducts to gum up the works, then our warranty policy should reflect that.

To investors in Tesla, I must acknowledge that this will have a moderately negative effect on Tesla earnings in the short term, as our warranty reserves will necessarily have to increase above current levels. This is amplified by the fact that we are doing so retroactively, not just for new customers. 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.

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