Life with Tesla Model S: beware Extended Service Agreement fine print

2013 Tesla Model S, in July 2017 [photo: David Noland]

A couple of years ago, as my 2013 Tesla Model S approached the end of its 50,000-mile warranty, I debated long and hard whether to opt for Tesla’s extended warranty, which they call an Extended Service Agreement (ESA).

At $4,000, it wasn’t cheap.  It provided four years and an additional 50,000 miles of coverage, up to a total of 100,000 miles. There was a $200 deductible for each service visit.

The problem was the length of the agreement: I wasn’t sure I’d be keeping the car for another four years.

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Mercedes-Benz and BMW offered the option of shorter two-year and even one-year ESAs, but at the time, Tesla had only one option: 4 years/50,000 miles, take it or leave it.

The folks at my local Tesla service center assured me that if I sold or traded the car in less than four years, I would get a refund, pro-rated for the unused portion of the warranty.

So I signed on the dotted line for the ESA.

2013 Tesla Model S owned by David Noland, Catskill Mountains, NY, Oct 2015

Halfway through the four-year ESA term, it looked to be a good decision. In the first two years, two door handles and the liftback latch were replaced, and an air-conditioning problem was repaired under the ESA.  

There were no charges (other than the $200 deductibles) listed on the invoices, but I was pretty sure the repairs  would have amounted to more than $2,000 without the ESA. So far, so good.

Trading up

Then came a series of unexpected events:  Tesla announced the 100D version of the Model S; a real-estate investment I’d made paid off sooner and better than anticipated; and a detached retina reminded me that bad things happen and life is short.

READ THIS: Life with Tesla Model S: out with the old, in with the new

So I traded in my 2013 S-85 for a new 100D.

The old car had about 76,000 miles on it— just over halfway through the term of  the ESA—so I expected my ESA refund to amount to just under $2,000.

I was shocked, to say the least, when the Tesla delivery rep called to report the actual amount of my refund: zero.

2013 Tesla Model S owned by David Noland, Catskill Mountains, NY, Oct 2015

The catch

Buried deep in the ESA contract, it turns out, is a very big catch to Tesla’s pro-rated refund policy: any pro-rated refund is reduced by the amount already paid off by the warranty.  

Here’s the actual contract language, on page 7, paragraph (c): 

Your cancellation refund will be calculated on a pro-rata basis, and You will receive the lesser of the unused portion of the days or mileage that this Vehicle ESA has been in effect, compared to the term or mileage of the selected Service Type, and, if applicable, less the amount of any claims paid under the Vehicle ESA. (bold type added for emphasis)

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The value of my ESA repairs, I was told, had amounted to some $4,600. That amount was therefore deducted from my $2,000 pro-rated refund

I guess I should feel lucky they didn’t make me pay back the extra $2,600.

My bad

Yes, I understand I signed the contract with this language in it. 

No, I didn’t read the entire nine-page contract in detail. Instead, I relied on what the Tesla service folks had told me. As best as I recall, they said nothing about the refund being reduced by the amount of claims paid.

2013 Tesla Model S, in July 2017 [photo: David Noland]

So, my bad: I should have read the contract.

But these were people who had treated me extremely well for a very long time, dating back the old days at the now-defunct service center in White Plains, New York. I assumed they would tell me everything I needed to know.

I assumed wrong.

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Did they know?

I don’t think the Tesla service folks intentionally misled me about  the ESA refund rules. It’s more likely they didn’t know about The Catch, either.

As an early production model that got driven a lot, my Model S was one of the very first to hit 50,000 miles and start the clock on an ESA. Back then, the whole ESA business was pretty new to everybody. 

Solar panels at Supercharger in Barstow, CA, during Tesla Model S road trip [photo: David Noland]

Many Tesla people still don’t know about The Catch.

My delivery guy for the 100D—the guy who delivered the bad news—was surprised to hear about it. So was the Tesla tech support specialist I talked to on the phone last week.

Standard practice?

The ESA Refund Catch, it turns out,  is standard industry practice, according to people I talked to at a local Mercedes dealer: their ESA refund policy has similar language.

“But we’re very careful to fully disclose it beforehand,” the dealer rep told me.

At the very least, Tesla needs to redouble its efforts to inform potential ESA buyers about The Catch.

Most of us don’t read all the fine print, and we rely on Tesla people to give us the whole truth. In my case, they failed to do that. (Again, the final responsibility was mine. Shoulda read the contract.)

Tesla Model S charging at RV Park in Biloxi, MS, during electric-car road trip [photo: David Noland]

No insurance policy catch

Industry standard or no, I think The Catch is bad policy. Would a car insurance company try to pull  a trick like that?  (Face it: an ESA is essentially an insurance pollcy, right down to the deductible.)

At the same time I cancelled my old Tesla’s ESA, I also cancelled its insurance policy.

Under precisely the same circumstances—a policy cancelled part-way through, with claims exceeding the policy premium—Geico simply credited my account with a full pro-rated refund.

Never mind the minor accident I’d had, which ended up costing them more than the policy premium. No Catch. That’s the standard in the car insurance industry.

I doubt state insurance regulators would let them do it any other way.

Tesla Model S at Supercharger site in Ventura, CA, with just one slot open [photo: David Noland]

Bottom line

In the end, I suppose my entire Tesla ESA experience was a wash. 

Over the two-years and 26,000 miles, I paid $4,600 ($4,000 for the ESA, plus $200 deductibles for each of three service visits) and got $4,600 worth of repairs done.

But from my point of view, I only got two years worth of repairs covered, not the four years I presumed I was getting.

Ironically, Tesla’s ESA refund policy is an incentive for potential trade-in customers to hold on to their old cars until the end of the ESA term. 

For Tesla, that means no profit on a new-car sale, and two years’ additional exposure to warranty repair bills.

If I had known about The Catch before making my trade-in decision, the calculus would have changed significantly. 

Tesla Model S electric-car road trip, Route 66 Museum, Elk City, Oklahoma [photo: David Noland]

My total transaction price would have gone up by $2,000, and I could have held on to my old car for a couple of more years with full repair warranty coverage at no extra cost. 

Would I have made the trade, if I’d known about The Catch? Would I have even bought the ESA in the first place, if I’d known about The Catch?

Maybe. Maybe not. Hard to say, in retrospect.

But one thing’s for sure: Tesla needs to make sure its ESA customers are made fully aware of The Catch and all its implications.

 Hopefully, my screw-up will be a lesson learned for future Tesla ESA buyers.

You’re welcome.

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