Tesla on track for US top 20 auto insurers, can go turbo on bundling

Elon Musk’s electric automaker  Tesla could break into the top twenty of US auto insurers by 2025 given its current roll-out ambitions and the likely take-up of its embedded insurance offer, a major US equity brokerage has forecasted.

Tesla could haul in about $1.7 billion in revenue from insurance by 2025 to hit the top twenty and push insurance to a 2.1% stake of  Tesla's global top line, analysts at the Wells Fargo brokerage wrote in a note to clients.  The ramp up starts from an estimated 40% conversion on new car sales in 2023 on the way to 60% by 2025.

The overall pace of premium is chiefly dependent on  Tesla's ability to roll out in new states from the eight US states where Tesla offers the embedded product today.  Tesla is pressing to ensure 80% of its auto clients have access to the insurance product.

While those figures leave  Tesla without “material impact” on the larger auto insurance playing field during the current “early stages,” the story could change on any move by  Tesla to take a deeper dive into insurance including M&A or partnerships with homeowner insurers to ensure widely-popular bundled offers.

“ Tesla Insurance should not pose an immediate risk for personal auto insurers as it is still in the early stages of expansion,” analysts wrote. “ Tesla can pose a more long-term risk to insurers if they turn to M&A to quickly build up their insurance capabilities, including partnerships with other carriers to help add bundling opportunities, which is preferred by consumers.”

Taking the offer beyond the  Tesla product to other automakers, currently available only in California where Tesla is undermined by the ban on telematics, could also power growth.

But the pace of  Tesla insurance growth is also closely tied to the Tesla value offer and how that affects views to embedded auto insurance, where only  Tesla and GM’s OnStar have ploughed inroads to-date, analysts argued. Automakers should all be tempted by the anti-cyclical nature of insurance sales, Wells Fargo analysts suggested.

Tesla safety scores are already delivering lower rates to drivers and Wells Fargo cites average savings in the 20 to 40% range. That dovetails well with Wells Fargo consumer surveys showing price as the dominant factor in selecting auto insurance, on the list for 85% of surveyed clients.

“The  Tesla product can potentially lead to lower premiums and  Tesla could potentially see higher margins due to the elimination of agents and originating the policy at the point of sale,” analysts explained.

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