$TSLA to offer disruptive insurance product

Christ, I wrote a wall of text. TL;DR: TSLA Insurance is a big bullish pitch for TSLA, get in now. Hinted at in a tweet from Sep 19 and this article about the full self-driving feature. In order to opt in to FSD, Tesla owners must consent to having data about their driving beamed back to the mothership. Currently TSLA uses 5 factors to rate a driver with a safety score: Forward Collision Warnings per 1,000 Miles Hard Braking Aggressive Turning Unsafe following distance Forced Autopilot disengagement Makes sense, doesn't it? The article links some sample insurance rates. Safer drivers would be getting a substantial discount from their GEICO rate (the de facto industry standard); unsafe drivers might pay double. Here's why this is disruptive and interesting: Car (and other) insurance made Warren Buffett his pile. In case you don't know, Berkshire Hathaway's core business is insurance, not just GEICO but General Re. The investible idea is 'float' - insurance premiums are paid immediately, claims are paid later. The result is that insurance companies at any given time hold a huge pile of cash money, some or all of which eventually must be paid out as claims, but which meanwhile can be invested for profit. Musk has shown he's not afraid to invest Tesla's working cash aggressively - he gets it, his prior business Paypal was also a float business - and so a source of free float would presumably be quite valuable in his hands. TSLA can rate better. Insurers have traditionally relied on 'the demos' - age, gender, occupation, income, education level, how much alcohol you buy monthly at the grocery store - all information that is available to them - in order to determine your premium. It makes some sense, older people on average crash more than middle-aged because their senses and reflexes are failing, yet younger people on average crash the most because they are stupid and reckless and have higher risk tolerance. But in those groups there will be some older and younger drivers who are a better risk and some middle-aged persons who are worse. What better way of predicting how good you are at driving a car, than by analyzing how good you are at driving a car? This gives TSLA a disruptive competitive edge over other insurers. Most competitive edges are one-way - A does something more profitably than B, A skims the extra net profit that B can't capture. But this is a two-way edge - TSLA skims off only the more profitable customers, shunting the less-profitable or even loss-creating clients to Geico, which is a one-two punch - TSLA Insurance wins, BRK/Geico at the same time takes a hit as its driver pool becomes composed of shittier drivers, causing their rates to go up and making TSLA Insurance even more competitive for the customers it seeks. This burnishes TSLA's rep/image/PR/perception. For decades it's been the same: you want a safe car and cheaper insurance? Buy a Volvo. At this point Volvos are no more or less safe than other cars on the market - the era when Volvo had a 10-year head start on safety features is long past - but Volvos continue to have fewer accidents because people interested in safety continue to buy Volvos. TSLA has an opportunity here to grab that PR crown and they are going to take it. I don't blame them - seems like every time a Tesla crashed in the last 5 years it's made the news - and the availability of TSLA-specific insurance will attract a certain kind of buyer, the kind of buyer any car company would want buying their car. And in fact, being surveilled continuously will probably actually make most TSLA drivers safer drivers, so it won't just be smoke and mirrors - it'll be true. They have a captive audience. GEICO spends a hell of a lot of money on advertising - you know who they are and you know their mascot, don't you? TSLA won't have to bother - they know exactly whom they're after and they have a channel to reach them without spending any ad dollars. They can even restrict their promotions to the viewscreens in the cars with the best drivers, if they choose. TSLA has already sold 1 million vehicles and they show no signs of slowing down - they literally make the market for this product. $120 a month on a million vehicles is $1.44 billion in float every year, by the way - it'd be worth doing even if they eventually paid out $1.44 billion in claims. And their addressable market will only grow. Apologies if you read all this and already knew about it - I haven't been hearing much about it, thought it deserved a wider distribution. Long TSLA stock and LEAPs (>12MTE calls).

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Oct 18, 2021

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$TSLA to offer disruptive insurance product

bullish

Christ, I wrote a wall of text. TL;DR: TSLA Insurance is a big bullish pitch for TSLA, get in now.

Hinted at in a tweet from Sep 19 and this article about the full self-driving feature.

In order to opt in to FSD, Tesla owners must consent to having data about their driving beamed back to the mothership. Currently TSLA uses 5 factors to rate a driver with a safety score:

  • Forward Collision Warnings per 1,000 Miles
  • Hard Braking
  • Aggressive Turning
  • Unsafe following distance
  • Forced Autopilot disengagement

Makes sense, doesn't it? The article links some sample insurance rates. Safer drivers would be getting a substantial discount from their GEICO rate (the de facto industry standard); unsafe drivers might pay double.

Here's why this is disruptive and interesting:

Car (and other) insurance made Warren Buffett his pile. In case you don't know, Berkshire Hathaway's core business is insurance, not just GEICO but General Re. The investible idea is 'float' - insurance premiums are paid immediately, claims are paid later. The result is that insurance companies at any given time hold a huge pile of cash money, some or all of which eventually must be paid out as claims, but which meanwhile can be invested for profit. Musk has shown he's not afraid to invest Tesla's working cash aggressively - he gets it, his prior business Paypal was also a float business - and so a source of free float would presumably be quite valuable in his hands.

TSLA can rate better. Insurers have traditionally relied on 'the demos' - age, gender, occupation, income, education level, how much alcohol you buy monthly at the grocery store - all information that is available to them - in order to determine your premium. It makes some sense, older people on average crash more than middle-aged because their senses and reflexes are failing, yet younger people on average crash the most because they are stupid and reckless and have higher risk tolerance.

But in those groups there will be some older and younger drivers who are a better risk and some middle-aged persons who are worse. What better way of predicting how good you are at driving a car, than by analyzing how good you are at driving a car? This gives TSLA a disruptive competitive edge over other insurers. Most competitive edges are one-way - A does something more profitably than B, A skims the extra net profit that B can't capture. But this is a two-way edge - TSLA skims off only the more profitable customers, shunting the less-profitable or even loss-creating clients to Geico, which is a one-two punch - TSLA Insurance wins, BRK/Geico at the same time takes a hit as its driver pool becomes composed of shittier drivers, causing their rates to go up and making TSLA Insurance even more competitive for the customers it seeks.

This burnishes TSLA's rep/image/PR/perception. For decades it's been the same: you want a safe car and cheaper insurance? Buy a Volvo. At this point Volvos are no more or less safe than other cars on the market - the era when Volvo had a 10-year head start on safety features is long past - but Volvos continue to have fewer accidents because people interested in safety continue to buy Volvos. TSLA has an opportunity here to grab that PR crown and they are going to take it. I don't blame them - seems like every time a Tesla crashed in the last 5 years it's made the news - and the availability of TSLA-specific insurance will attract a certain kind of buyer, the kind of buyer any car company would want buying their car. And in fact, being surveilled continuously will probably actually make most TSLA drivers safer drivers, so it won't just be smoke and mirrors - it'll be true.

They have a captive audience. GEICO spends a hell of a lot of money on advertising - you know who they are and you know their mascot, don't you? TSLA won't have to bother - they know exactly whom they're after and they have a channel to reach them without spending any ad dollars. They can even restrict their promotions to the viewscreens in the cars with the best drivers, if they choose. TSLA has already sold 1 million vehicles and they show no signs of slowing down - they literally make the market for this product. $120 a month on a million vehicles is $1.44 billion in float every year, by the way - it'd be worth doing even if they eventually paid out $1.44 billion in claims. And their addressable market will only grow.

Apologies if you read all this and already knew about it - I haven't been hearing much about it, thought it deserved a wider distribution. Long TSLA stock and LEAPs (>12MTE calls).

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