Tesla Finds Another Way To Earn Desperately Needed Money

Car Insurance

The EV maker wants to stay in business by capitalizing on knowledge of its drivers’ behavior….Creepy.

It’s no surprise that Tesla CEO Elon Musk has a reputation for having his hands in many industries, including the solar hardware, solar leasing, battery-producing, spacecraft-making, and automotive industries to name just a few. And while Tesla is not just a car company - Musk houses his battery, semi truck, autonomous tech, and solar panel businesses under Tesla’s roof - he recently spoke up about another area he wants the EV company to focus on: car insurance.

CNBC recently covered a Tesla earnings call in which Musk was asked whether his company was planning to offer an insurance product. Musk replied in the affirmative, saying, "The answer is yes we are creating a Tesla insurance product and we hope to launch that in about a month. It will be much more compelling than anything else out there.”

This isn’t exactly news. The automaker previously mentioned that it would like to bundle insurance and maintenance into the cost of each Tesla it sells. And though taking a leap into the insurance industry seems like a strange move for Tesla, it isn’t exactly a ludicrous one. For one, the automaker’s financial situation has looked pretty bleak after it announced crushing 2019 Q1 results, and its latest round of fundraising only bolsters the idea that Musk’s company could be in the midst of yet another do-or-die moment.

If Tesla can roll out an insurance product for its customers and make it profitable, that could give the automaker another stream of income to help it stay alive. There’s a good reason a Tesla insurance policy would only be offered to its own drivers, though. It's the fact the company keeps track of its customers' driving behavior and therefore has a better idea of what kind of risk it will be taking on by insuring each customer.

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In fact, it already gives this information to insurance companies. "We do give some more detailed information to insurance companies to help with rates,” said Musk. "And obviously as we launch our own insurance product next month, we will certainly incorporate that information into the insurance rates.” By capitalizing on knowledge of how its drivers behave, Tesla could build insurance policies that are both affordable to its drivers and profitable for the company.

Musk claimed that Tesla has access to "direct knowledge of the risk profile of customers based on the car,” giving the automaker a significant "price sort of arbitrage or information arbitrage opportunity.” In the grand scheme of things, it’s kind of creepy to know that Tesla already keeps track of how its drivers drive and could use the information to keep an eye on both the drivers it may insure and those it won't. But it’s not much different than using tracking products many insurance companies currently offer.

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