Tesla may call warranty repairs goodwill due to lemon laundering
insideevs.com
insideevs.com
“Cars without issues repaired under warranty don't need to be reported to the NHTSA – National Highway Traffic Safety Administration. After all, warranty repairs are due to manufacturing issues and are, therefore, an OEM's responsibility. Goodwill fixes are something automakers do to please their clients.”
Seems like if they classify a repair as goodwill they can avoid a car receiving a lemon designation. There’s also a link to an article that alleges Tesla classifies warranty expenses as goodwill in order to lower their warranty accruals per vehicle, boosting profit margins.
> This would happen because warranty costs are included in financial results as "Cost of Revenue," a number that affects gross profit and net income, according to that article. Instead of naming them as such, Tesla would say they are goodwill repairs, so these expenses would appear as "Operating Expenses," which get diluted in the company's results for as long as the car is under warranty.
> If a company labels a warranty repair as goodwill, it may claim in court that it was not due to a defect, but rather to the way the clients used their cars. In short, it could not be framed as something the automaker had to fix, according to lemon laws.
Tacoma frame rot comes to mind here...
The article alleges that Tesla is repairing issues that are covered under warranty as "goodwill repairs" instead to help the balance sheet and circumvent lemon laws. As an owner, you might not care too much since the issue is getting repaired either way.
There is also a "goodwill" on the P&L of a company, which has nothing to to with warranties.
Some people claim now that Tesla is booking the costs of the these reapairs into the "goodwill" category on the P&L, because both have the same name.
It is about an as misleading claim as it sounds.
I think you are incorrect. This appears to have nothing to do with accounting goodwill, and unfortunately the article doesn't make that clear.
The article alleges that Tesla wrongly handles most warranty cases as goodwill repairs. This hits a lot of possible legal issues.
* They can avoid legislation dealing with chronic defects in cars.
* They can sidestep reporting requirements for road safety issues.
* They can fudge the books when they report repair costs.
* They can avoid labeling cars they had to buy back appropriately.
But electric cars are new, we’re still understanding some of the problems with them, and we’re still understanding how people are using them. It’s not unreasonable for Tesla to have a high rate for these repairs given how unique their product is.
Let’s say the rate is high because of how unique their product is, how does that change anything? The repairs should still be recorded correctly (not goodwill) and laws followed accordingly?
A defunct battery can be swapped. A bad electric motor can be swapped. Sensors can be changed. These are trivial to do on an electric car.
There’s an incredible labour cost to do this kind of swapping on a combusting engine. An engine swap? That takes a highly experienced mechanic for an ICU. Transmission issues are also write offs.
The bar for an electric lemon is much higher.
Personally, I think lemon laws are overall very good for car manufacturers: they give people a sense of comfort regarding the worst-case scenario in purchasing a new car. And that's especially important for cars based on new technologies. But I'd love to see whether there's any empirical support for this.
Note: this was just staying with the theme of the article and not that I agree with the accusations.
I took an out of warranty Honda Accord in for service at a Dealership and they discovered a cracked engine block. They performed a goodwill repair under the auspices that "that shouldn't happen".
Isn't it sorta weird that companies other than tesla are called "legacy"? I know that term is almost uniquely bad within software, but considering the site I'd think they know what connotation it carries for many people.
There's a whole separate discussion to be had why the word has so different meanings too.
That is the more common sense you will find, which implies the predecessor's passing. Not very positive state for the ancestor.
The underlying assumption that justifies a category of "lemon" is that needing N repairs is evidence that it is more likely than other cars of its model year to need an N+1st repair because failures are not independent.
This may have been true of earlier technology, but it doesn't match the way modern cars are made. Mainly, the granularity of subassemblies is much higher, so for example in a Tesla they replace the entire rear powertrain or entire battery pack as a warranty item.
Lemon laws should have required some periodic statistical adjustment to determine whether lemoniness actually exists in a given brand or not.
These cars go through QC - maybe some QC folks are more slipshod than others, and the main source of lemons are the ones who were inspected by terrible QC inspectors?
Or maybe the lemons are perfectly fine cars that were damaged in shipment and were repaired badly?
Regardless, the lemon laws still protect the consumer.
You can easily have a couple excess failures trigger excess service, and if you're unlucky with the quality of one episode of that rework or service, end up on a never-ending rework treadmill. Even on the brands with the best quality.
It would basically turn in to a Pigovian n^3 tax on reliability.
But I suspect that you're overstating; a drive unit may well be truly independent, but something like water leaking in to the cabin wouldn't be.
Even if 80% of components have independent failure modes, the remaining 20% will account for the vast majority of your lemon law invocations.
The author talked to an expert about a subject that few people understand, and this is portrayed as a bad thing? I guess it's better to speculate out of thin air?
Maybe you were an expert on warranty accounting before reading the article so you didn't learn anything. But I doubt it because if you were you would have had more concrete criticisms of the article. But even warranty accounting experts would probably appreciate the author working out the claims capacity ratios for almost a dozen different companies.
The article is obviously days of work from the author. It may be worthy of criticism. If so, please do so substantively.
Just a few of things I learned from the article:
- what warranty accounting is
- what warranty margins Tesla keeps
- how that compares to others in the industry
- what will happen to Tesla's financial statements in the future if Tesla adjusts their warranty margins closer to their industry peers
P.S. There's lots of good discussion about goodwill in the comments to the article.
There's a ton of text here, but the actual allegation seems to be completely unsubstantiated.
> "Tesla provides express warranties. Under state lemon laws and the federal Magnuson-Moss Act and other provisions of state and federal laws, they are required to ensure that they comply with the warranties, or provide a refund. It appears they are attempting to evade state lemon laws by claiming their so-called 'goodwill' repairs don't count toward the criteria for buying back lemons. In addition, Tesla has been requiring lemon owners to sign onerous settlement agreements that silence them and make it easier for Tesla to engage in lemon laundering: the illegal resale of defective lemon vehicles, without branding the titles or taking other steps to protect consumers."
"Appears" how? Where is the substantiation? I came away wit the same concern. I can see the "onerous" terminology in the settlement agreements, which is standard lawyer CYA in these kinds of disputes.
The article also noted a former employee is involved in a lawsuit accusing Tesla of reselling lemons.
Assuming the law said the car is lemon after x repair attempts and Tesla bought it back after x-1 so that lemon law would not apply and they could still resell it.
1. Tesla sometimes does repairs via "goodwill" accounting instead of standard warrantee service. On it's face, this sounds like a good thing.
2. Tesla bought some guys car, then resold it. Again, that's a good thing in isolation.
And the suggestion is that they did the goodwill thing so that they could scam the new owner of the car by evading lemon law disclosure. Well, OK. Did they? Show us the evidence. If there's no actual car that got sold where you can document these repairs and show they were unresolved... I just don't think there's much of a case here.
The only way this makes sense is if you start out a priori with an assumption that Tesla is trying to scam their customers, then try to find a scenario where they could do it. That works for writing novel plots, it's not much evidence in an actual court.
In what way is that possibly good?? At best its a deliberate mischaracterization that obscures the number of serious manufacturing flaws. At worst its fraudulent accounting.
> And the suggestion is that they did the goodwill thing so that they could scam the new owner of the car by evading lemon law disclosure. Well, OK. Did they? Show us the evidence. If there's no actual car that got sold where you can document these repairs and show they were unresolved... I just don't think there's much of a case here.
I linked two, and theres firsthand testimony from someone who was in the company. You're just freely making shit up
At best it's not a deliberate mischaracterization. It depends on the judgment call of whether the repairs would otherwise be covered under warranty.
The article didn't present any evidence of lemon laundering, just that it was a compelling theory for goodwill repairs while presenting unrelated incidents of unethical behavior by Tesla to establish a narrative that Tesla isn't above such shenanigans.
https://insideevs.com/news/403631/tesla-sells-used-model-3-p...
https://www.theverge.com/2018/2/21/17036426/tesla-lemon-cars...
Maybe there is a reason why these repairs relate to accounting goodwill, but otherwise, I suspect journalistic malpractice.
Tesla has really made huge progress in modernizing cars (making them electric and not terrible, getting rid of middlemen, continuous/rolling product updates, infotainment that is not slow/terrible, etc) I just really wish they would have focused on the positive parts of the future and left the negatives behind (remote lockout of features, vendor lockin for service, and generally trying to screw your customers at every possible turn...)
Ctrl+F for "tesla".
It’s admirable that a company can reach a $200 billion valuation in the USA weeks after the CEO tells the SEC to suck his cock. The issue is with investors who aren’t questioning if that’s a sign of lack of ethics.
I would agree that it doesn’t look like good judgement- but shorts are literally betting against him and his company. It’s not obvious to me where that behavior (crowing against his adversaries) crosses a line into being wrong or evil.
Maybe. But it's hard not to see the parallel between massive risks taken and massive progress made.
I never liked this argument. Partly because if you take it to its logical conclusion, any sufficiently successful individual would be paralized - which is an obviously wrong conclusion. The more successful you are, the freer you should be.
The solution is to also look at gains, not just losses. Billionaires can kill people with a tweet, but they can also inspire and, yes, save lives with a tweet.
You can be incredibly successful and not be famous. That's fine.
But if your success includes fame then... I like my social leaders to be nice to their own social group and not kill them very much.
If I save six lives, I can then kill six people?
There are roughly 3 billion autopilot miles driven [1] and we'll take your 5 deaths as a given [0]. That's 1.7 deaths per billion miles.
Overall US deaths is around 15 per billion miles driven (in 2000, before Tesla) [2] ... around 8x worse than autopilot. Is autopilot saving lives?
Expecting zero mishaps is not reasonable because all software has bugs and bugs can be reduced with effort while compute power improves with time. Humans on the other hand will not likely improve.
0. citation needed? 1. https://electrek.co/2020/04/22/tesla-autopilot-data-3-billio... 2. https://en.wikipedia.org/wiki/Transportation_safety_in_the_U...
Human miles include all conditions/situations. Autopilot disengages whenever it is convenient and human handles all harder situations.
How about comparing same type of miles?
https://crashstats.nhtsa.dot.gov/Api/Public/ViewPublication/...
There are 2 stats that could prove meaningful for this: some average of distance driven between human interventions, and percentage of driving conditions covered. Then compare this to human stats, I'd assume the average human driver might go 10000Km without incident while covering 90% of driving conditions (like everything except extreme weather or road conditions). A self driving car would have to match that.
In other words AP only has 5 deaths because those were the only drivers who left it unsupervised. I'd guess that if every car in the world today would suddenly be driven by a computer we'd see worse numbers than with human drivers one way or another (efficiency, deaths, etc.). Self driving today is great as an assist, with the human still fully in control.
Not only that, but how many times would autopilot have caused a fatal accident if the human driver hadn’t intervened? Tons of YouTube examples would suggest quite a few.
anticipating the reasonable response to this question -- i'm guessing if you own a tesla and you don't live near a service center you know what you're getting yourself into.
reno only recently got theirs, for instance, and they're just a few miles down the road from the gigafactory. but reno was full of tesla's even before the service center opened.
EDIT, cause downvoting: my point is, i wouldn't lease a toyota, with its free/included oil changes, if i didn't live near enough to the toyota dealership to show up every 10K miles easily. i may, however, buy an older used toyota if i was happy enough going to jiffy lube (or similar). applying same criteria to tesla and proximity to their repair locations.
To take an example from the IT world, PCs and their OSes stayed so open because that's how they evolved when the industry first appeared. But phones and tablets offered the opportunity to lock down everything.
So I'd say that the future path of the connected smart car is closer to that of phones today.
But I think you may be onto something. Tesla is setting a bad example for other car makers. They can point to it and say, why can they do it and we can't?
Brief jump into the future. I get to see my new BMW default skin package expire and car turn dull grey, lights losing its exclusive green sheen, and warmed leather seats fold in to be replaced by, the horror, standard seats with warmers firmly shut off. They may as well brand me cheap.
[0] https://www.npr.org/2018/01/12/577565279/tesla-faces-complai...
Musk continually pulls the same tactics that Trump does, except that Musk is applauded for it. The methods are the same: lie, confuse, insult, make grand claims.
https://www.businessinsider.com/tesla-factory-injuries-incom...