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Xcelerate brings extended vehicle warranties into the electric age
Posted on August 30, 2019 by Charles Morris
Electric vehicles may require far less regular maintenance than legacy vehicles, but they aren’t invulnerable - things can and do go wrong. In fact, the fear that something will go expensively wrong with a car that relies on new and innovative technology probably holds many drivers back from buying a Tesla or other EV. It’s a valid concern, especially if you’re considering a pre-owned vehicle that may no longer be covered by the original warranty.
That’s where Xcelerate comes in. In addition to offering leasing, financing and fleet management services, the Texas-based company provides extended warranties for Teslas and other EVs. Milad Davoodi, Xcelerate’s VP of Sales & Sales Operations, recently spoke with EVANNEX about the challenges of creating an entirely new category of warranty product.
Davoodi worked for Tesla from 2011 to 2018. He was there for the tail end of the Roadster era and the advent of Model S, and played a role in setting up Tesla’s early retail operations. “We hired the VP of Real Estate Operations for Apple, George Blankenship, and he kind of spearheaded the gallery locations,” Davoodi told EVANNEX. “The idea was to get into the high foot traffic areas, the malls, go to the people rather than waiting for them to come to us. Educate, educate, educate about what electric vehicles are.”
When Davoodi helped open Tesla’s third retail location, in Houston, it was uncharted territory. “Texas has all these [restrictive] laws, where you can’t sell directly as a manufacturer, so, we had to deal with this from scratch,” Davoodi explains. “There was no playbook - our legal team really had no idea what we could or couldn’t do. My idea was: we don’t know where the line is, until we cross it. We really just pushed the boundaries until we were told to scale back.”
“In 2014, we started delivering Model S, and now we were dealing with a lot more vehicles. We kept hearing from customers, ‘How can I buy this car if I can’t give you my old car? I need to trade it.’ Tesla didn’t have a trade-in program, so the answer was, ‘Sorry, we can’t do anything to help you, go and sell privately.’ That obviously was not incentivizing sales.”
Davoodi moved to Chicago and helped start up Tesla’s trade-in and used vehicle department. “It was the first time Tesla had ever started purchasing assets from customers and crediting that towards the new vehicle purchase,” he says. “In October of 2014, when dual-motor was announced, that was one of the biggest days we ever had, because that’s when everyone that already had a Model S wanted to trade in for the new dual-motor model, which came with Autopilot.”
Youtube: Xcelerate Auto
“That was when we started thinking, okay, if we’re going to take in a lot of our own cars, let’s resell them. Let’s figure out how to price them, let’s figure out an entire certification program. How are we going to refurbish these cars? Where are we going to store them? We started in North America and then I helped expand the program into Europe, and we learned how to buy and sell cars in about 38 countries.”
“For four years, there were still very, very few of the cars [on the used] market,” says Davoodi. “We did that on purpose - we wanted to control how many vehicles were out there because that also betters our own brand. But, obviously, that wasn’t going to be sustainable, because eventually people were going to go through dealers. Things happened very quickly. When I left there were very few cars, maybe like a couple of hundred, in the market, and then all of a sudden it shot up to about 1,000. The last I saw, there were like 3,000 to 5,000 [used Teslas] in the independent market - about a third of all of the used EVs in the marketplace.”
Davoodi left Tesla to join Xcelerate, but he remained interested in the California carmaker, and closely followed its progress. “What I started noticing was that dealers didn’t necessarily know how to sell [Teslas] very well. Tesla customers are very different than your traditional buyers that just go into dealers and get sold on a car. Teslas are unique, it’s more difficult to know what type of options there are on the car because they’re not very visible [and] there are so many changes that have happened over the years.”
“So, what our thought was, let’s focus on how to build value in the independent marketplace. How do you help dealers sell these cars? Because if they don’t, the valuations will start dropping, and eventually, that will hurt the brand, which I don’t want to see because this is still my mission, something I care about very deeply.”
A warranty product for used vehicles was badly needed. At the time, people who bought a used vehicle from a dealership (rather than from Tesla) couldn’t buy an extended warranty. Xcelerate created an independent third-party warranty that car buyers could purchase, no matter who they bought their car from.
“It took us a long time to develop this - probably a full year of constant work,” says Davoodi. One challenge was finding the right partners. “We couldn’t just do this on our own, because that’s not going to make anyone feel comfortable. So, we partnered up with Endurance Dealer Services - they’re one of the largest suppliers that are selling warranties in the entire motor industry. They have 3,500 dealerships under their belt, they’re very well known. And our underwriter is AmTrust Financial, a major insurance bank, a publicly traded global company.”
Figuring out how to create a claims process that Tesla would work with was another challenging problem. “Tesla wouldn’t accommodate normal third-party warranty companies, so we had to create a claims process that works specifically for Tesla only,” says Davoodi. “We had quite a bit of data from our commercial leasing clients, so we had a general understanding of what some of the largest component failure items are, and how to understand risk and pricing. We got our partners to take this jump and and we created a contract from the ground up. We’ve been live now for a little bit over six months and it’s been a wild ride.”
The customer stories Davoodi hears remind him why Xcelerate created the program. “Most people I speak to don’t even own a car yet. They say, ‘I want to find a car where I can get a warranty,’ and we give them the list of all of our dealers. We’ve been partnering up with dealers that are actually trying to establish sales programs around EVs and around Teslas. And that’s what excites us. We’re not looking at dealers who have just one or two EVs, and really know nothing [about them], but dealers that are showing 30 to 50 of them, and establishing a business model around that. And they’re willing to learn. They call me every day saying, ‘Hey, I have some questions about some options, do you mind helping?’ Absolutely. We are more than just a supplier of a warranty, we’re really trying to help everyone in this particular space become stronger, because I believe it strengthens the brand overall.”
“Tesla’s pretty sensitive with the word ‘partner,’ so we don’t say we’re partners with Tesla,” Davoodi explains. “We are completely independent. We don’t work directly with Tesla - we were able to create something that works around Tesla. A lot of third-party warranty companies require an inspection of the car when it goes into service. They require the technician to call the contract supplier and work out what parts need to be ordered - they work directly with the service technician and the service manager on the phone. That requires a lot of back and forth and a lot of inefficiencies that Tesla will not do, and we understand that.”
“We put a lot of trust in Tesla’s service, because we know they’re not trying to rack up the cost of repair like your traditional dealerships,” says Davoodi. “They’re just trying to get the car fixed and out the door as quickly as possible. So with that level of trust, we don’t require Tesla to call us. The customer calls us, we start the claim and everything else happens normally. And then, instead of the customer paying the bill, we just pay Tesla directly right before the car is handed over to the customer.”
Creating warranty contracts for all 50 states involved costly and time-consuming paperwork. “In this industry, when you write up a new contract, you have to get that approved independently by every state before you can sell it in that state,” says Davoodi. “We had to create a completely new contract that didn’t include any components that are part of legacy vehicles. Most companies, even if they do cover EVs, have a contract that has a bunch of gasoline components, so it gets very confusing for the customer: ‘Wait a second...alternator, spark plug, these components don’t even exist. All these oils, maintenance...this has nothing to do with my car.’” Obviously, this doesn’t give the customer confidence that the service provider understands EVs. “‘What happens if my Autopilot system goes out, my electronic control module, my MCU? Are you going to cover it? Do you even know what that is?’ We had to completely redesign the contract and make sure it’s specific for the EV owner, and we had to get it approved by every single state. That took about a year.”
The market for used Teslas has exploded over the past few years. Teslas are now available at auto auctions as well as from trade-ins. “One thing about Tesla vehicles is the production cycle is really high because newer options are released pretty frequently, especially for Model S and Model X owners. You see a two- or three-year ownership timeline, and then they want to get a new one. Model 3 owners, it seems like that’s actually very different - I think it’s going to be more like eight or ten years, because we’re selling a lot of eight- and ten-year warranties for Model 3 customers.”
Tesla provides two manufacturer warranties. The four-year/50,000-mile bumper-to-bumper warranty covers everything except the battery and drive unit. “That’s all of your electrical components, your MCU, your sensors, your door handles, suspension.” A separate eight-year/100,000-mile warranty covers the battery and drive unit.
“We function very similar to Tesla’s ESA,” says Davoodi. “We’re the only extended service agreement for Model 3 out there. We’re covering mostly everything outside of the battery and drive unit. The normal wearable items like weather strips, things that are supposed to go out over time, like light bulbs - those are the things that are not covered under a warranty. But if the AC goes out, the screen, the sunroof, air suspension starts leaking - really all the high-ticket items, those are the things that we cover.”
Xcelerate offers warranties not only for Teslas, but for all battery-electric vehicles. How is a warranty for an EV different from that of a legacy vehicle? “The biggest difference is that there are fewer components that can actually fail. So, we cover wear and tear [for some components]. For example, door handles, they have little gears inside that eventually go out and that’s the reason why they stop popping out. That is considered wear and tear, and we do cover that.”
The price of an extended warranty for an EV is usually a bit lower, because an ICE vehicle has a lot more components that can wear out. “Generally speaking, if you were to compare an extended warranty for Model S with [for example], the BMW 5 or 7 series, [the latter] would be significantly more expensive, because there are many more components that endure wear and tear, and more components in general that are making the vehicle move and tick and function.”
Davoodi probably knows as much as anyone about Tesla reliability issues. Has the reliability been getting better? “I think we saw a pivotal moment for the quality between the end of 2014 and the beginning of 2015, where cars were being made better. Just like any company, repetition makes you much better over time. As you’re building more and more cars, you learn the intricacies, you tweak it over time and it becomes better. And that’s true for any car, not just Tesla. If you look at any new vehicle that’s produced, the first couple of years certain things can go wrong, then eventually, they get better.”
“Being a brand-new company, there are obviously different types of problems,” says Davoodi. “They’re new components, not necessarily the same ones that people are used to dealing with. At the very beginning there was some shock about some things that went wrong, but if you look at the grand scheme of things, I think these vehicles are incredibly reliable.”
“I’m on my second Model S,” says Davoodi. “My first Model S was in 2014 and I bought another in 2015. I haven’t had too many issues - very small things and always under warranty. I’ve never had an MCU go out, fortunately. I had a suspension issue, but that’s about it. Overall, I would say these cars are phenomenal - if I didn’t think so I wouldn’t be promoting them, and I wouldn’t be driving one myself. There are a few components that can go wrong, but when they do, they’re covered.”
Logically, EVs should be a lot more reliable, simply because there are fewer things to break down. But after all, they haven’t been around very long. Is EVs’ vaunted greater reliability a proven fact? The resale market seems to accept it as such. “For Model 3, it’s hard to say because it’s still very new, but let’s look at Model S. You have a comparable vehicle, a BMW 5 or 7 Series - if you just add up the major costs over a five- to seven-year period, I highly doubt that a Model S is going to be anywhere close to that of a 7 Series. That’s the reason why you can get a [used] 7 Series for about half the cost of a Model S.”
The lower maintenance costs are part of what contributes to Tesla’s strong resale value. BMWs and other luxury sedans have lower resale values because people know that they’re going to have higher maintenance costs. “It’s a lot more comfortable to buy an EV with higher mileage than a gas car,” says Davoodi. “You don’t have to worry about the engine and the transmission.”
It’s important to understand the difference between maintenance and component failure. Xcelerate’s extended warranties protect you against the latter. “Just because these components are not meant to go out, doesn’t mean that they can’t,” says Davoodi. “There’s really nothing you can do to prevent an MCU from going out. You can roll the dice and see if it happens to you or if it doesn’t, or if you want to make sure you have that peace of mind, that’s what we’re here for.”
Maintenance, on the other hand, is something EV owners don’t need to worry about much, as Davoodi explains. “Maintenance is getting your oil changes, getting your fluids flushed, getting tune-ups, your 20, your 40, your 50, your 75,000-mile maintenance points. Those are things that you simply don’t have to do with EVs. You can go 80,000 miles on a Model S and just replace tires. You literally have to do nothing else."
Written by: Charles Morris