Lifestyle

Should you buy the Tesla Pre-Paid Service Plan?

Tesla-Service-Center-TeslaClubLA-7

After counting down the days until the much anticipated delivery of your Tesla Model S another timer begins –  counting down 60 days from the time of delivery until the Tesla pre-paid service plan offer expires.

Tesla Pre-Paid Service Plan

Tesla Service Plan Choices

MyTesla portal on Teslamotors.com outlines various service plan offerings under the section titled “MODEL S SERVICE SIGN UP.” A standard annual service from Tesla Motors (not pre-paid) is $600 when paying per visit or one can opt to purchase a pre-paid service plan as follows:

  • 4 year plan – Tesla Service for four years/Up to 50,000 miles. Cost: $1,900. This represents a 21% effective discount from the base price.
  • 4 year plan + 4 year extension – Tesla Service for eight years/up to 100,000 miles. Cost: $3,800. This too represents a 21% discount from the base price.

Both plans plans include an annual inspection or an inspection every 12,500 miles. Despite having a service plan option, Tesla still makes a bold statement stating that warranty is not impacted even if you chose to never bring your Model in for service.

Tesla Service Plan Value

Tesla Pre-Paid Service PlanAlthough you’re receiving a 21% discount by pre-paying, that doesn’t take into account the opportunity cost with shelling out the money in advance. Let’s first look at the basic 4 year pre-paid service plan and assume you can earn a relatively risk-free 5% gain on an investment. Pre-paying $1,900 is effectively $2,309 in future value 4 years from now. Paying $600 per year starting a year from now for 4 years adds up to $2,586 in future value. So, accounting for the time value of money, the pre-paid plan is about 11% less expensive given the assumptions above.

Following the same model on an 8 year pre-paid service plan we get a much different picture. A $3,800 pre-pay has a $5,614 future value assuming a 5% annual rate of return. Forgoing the pre-pay option and paying $600 per year as-you-go, has a future value of $5,729 which means you’re only saving 2% with the pre-pay plan.

Also see: Tesla Model S Service Plan – Is it Worth it?

Naturally these results will vary based on the rate of return of your investment and inflation rate at the time. In times of high inflation the pre-pay option is much more attractive. But if you can get a 10% return on your investment (buy TSLA stock!) the pre-pay option is less attractive.

Mileage Adjustment

Tesla service plans are based on an annual mileage of 12,500 miles. At my current rate of driving, I’ll likely reach 32,000 miles within a year which means that my 4 year plan is more like a 2.5 year plan and the 8 year plan is more like a 5 year plan, assuming I need to pay a visit every 12.5k miles. The shorter plans reduces my opportunity cost thus increasing the value of the pre-pay service plan.

For example, if I plan on driving 100K miles in my Model S and purchase the pre-paid service plan, I’m going to pre-pay $3,800 for the 100K miles worth of services which I must perform every 12,500 miles or so. If I pay as I go and pay $600 every 25,000 miles its going to cost me $2,400. Not even considering the time value of money, paying as you go is a clear winner for high mileage drivers.

Poll Results

Tesla Pre-Paid Service Plan Poll

Nearly 60% of owners are pre-purchasing service plans. Reading through forum threads it seems that owners are doing this:

  1. Buy shortest term pre-paid service contract
  2. Decide later on extending that for a longer term (it’s not obvious but if you pre-purchase only the 4 year plan and later want to extend that to the 8 year plan, you could.)
  3. Waiting until 30 days before standard warranty expiration (4 years/50K miles) before deciding/buying extended warranty.

Summary

The 4-year pre-paid service plan, for Model S owners that have annual mileages at or under the 12,500 miles per year, works out to be an approximate 10% savings.

So,what course of action did I take when selecting a Tesla pre-pay service plan, knowing that I will nearly triple the assumed 12,500 annual mileage? The answer, thanks to Tesla service’s recommendation, is nothing. I did nothing.

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