There was a thought-provoking article in the Financial Times on October 30 about the growing cost of insuring Electric Vehicles (EVs). It references how EV insurance rates have risen 40% more than ICE vehicles in the last year, how EV repair costs are significantly higher and how buyers are learning the hard way about the unexpectedly high cost of EV ownership.
We’ve looked at our claims data earlier this year and can confirm their observations. The average EV claim is indeed 25-30% higher than the average ICE claim. Total losses are a higher share of claims than those for ICE vehicles – as there are parts and labor shortages everywhere EVs are sold (more on that in another post).
What caught my eye, however, was their commentary about how easily EV batteries are damaged. They report that the biggest exposure facing EV owners and their insurers appears to occur when a rock or pothole ‘hit’ on the underside of the vehicle renders the batteries inoperable and effectively unrepairable. So, if I’m driving down I-80 to San Franciso and hit a rock, a piece of sheared-off truck tire or a wheel cover – or hit the inevitable pothole at the wrong angle – I can experience $30,000+ in damage to my battery? That’s not how my ICE vehicle works – as rocks pretty much ding the underside and my car just continues along with a dent in the oil pan for another 150,000 miles.
Do we need ‘perfect’ roads to securely drive EV’s? Good luck with that.
Another thing that occurred to me as I read this is that EV warranties appear to exclude this kind of damage – as rocks bouncing off the bottom of your car are common and expected and hence are ‘wear and tear’. I don’t want to pick on Tesla as I really appreciate the innovation and progress the company is making on a host of fronts. But there have been media reports about their warranty not covering batteries damaged by ‘normal’ events like ‘rain’ and ‘potholes’ (see the last line in the extract below)
“Tesla reserves the right to refuse warranty coverage in cases where the vehicle or its components were damaged by abuse or negligence. Other examples that give Tesla grounds to refuse warranty coverage include having the vehicle or battery serviced by non-certified technicians, using the vehicle as a power source, damage as the result of a collision, damage from nature or an act of God, or normal wear and tear.”
And finally, the NHTSB reports that EVs are highly concentrated in California, where 20% of vehicle sales and 10% of the fleet are EVs. In the rest of the US, EVs are a tiny percentage of vehicle sales and the fleet (generally <1%). That means EV claims are concentrated in California – and carriers with a small footprint there have yet to experience the full impact of an inevitable spike in EV claims costs. And it means California insurer claims experience is likely to deteriorate as the fleet grows and roads there continue to deteriorate (Highways in California are among the worst in the United States – #4 in one report). Get ready for a growing mess in California with a DOI that doesn’t seem to understand insurance is not ‘free’.
With policy makers trying to force a national, mass adoption of EV technology over the next few years – I expect this problem to get worse. Premiums will rise. Shortages of parts services will grow. Roads aren’t getting better. So, the total ownership cost of EV’s will grow faster than for ICE vehicles. And many/most auto insurers will ultimately decline to cover damage to these types of vehicles.
In sum, if manufacturers won’t warrant pothole damage to EVs – why should insurers do it for them?