Do you worry about rapidly declining resale value?

[Matth3w]

I would suggest you don't buy one. Cars aren't normally good investments.

I quite agree. That's why I put "investment" in quotes in my original post, but perhaps that wasn't obvious to you. That was also not the point of the post. I'm only trying to establish if the purchase of a Model 3 is any more or less precarious from a value proposition than any similar purchase of an ICE car due to the rapidly changing technology and market conditions. Thanks for your non-contribution to the discussion.

 

[Matth3w]

If the resale of a $35k car is a concern, you probably are allocating too much of your budget pie for transportation.

Fair point. As I mentioned, I have some flexibility in what trim/features I intend to purchase, implying it's no great stretch. But I find it reasonable to set a level of expectation that the Model 3 will retain some "traditional" level of value when I sell or trade it in for the newest, latest, better.

 

[JeffK]

I quite agree. That's why I put "investment" in quotes in my original post, but perhaps that wasn't obvious to you. That was also not the point of the post. I'm only trying to establish if the purchase of a Model 3 is any more or less precarious from a value proposition than any similar purchase of an ICE car due to the rapidly changing technology and market conditions. Thanks for your non-contribution to the discussion.

These cars last longer than ICEs, however as technology is becoming the new paradigm in vehicles, we may see values decline quite quickly due to new tech and not due to usage or age.
As others have said don't buy a car for its resale value, buy it because it's reliable, fun to drive, safe, gets you to your destination, and lasts for decades.

A car is a tool or appliance, I don't buy my refrigerator based on its resale value... if you care about it that much then you should probably be leasing.

 

[cantdecide]

The original post has a very valid set of points in both directions.

Right now the tax credit reduces the effective price for new... Which also reduces what someone would be willing to pay second hand. The end of the credit raises the effective new price (assuming Tesla keeps margins constant) which then raises what someone is willing to pay on the used market.

I'm not too worried about the Bolt and similar cars as they don't have a supercharger network. It will take GM and others 2 years to figure out how important that is and how bad the CCS network is and another few years to build their own network. Eventually this will have an impact but not for a while.

Another positive factor is that Tesla's supercharger network will continue to improve, as will self driving... Making an old model 3 better over time.

For the issue of cars as a service... If Tesla actually does fsd with a service offering then your car will literally pay for itself... In which case why care about depreciation. Cars as a service at 50 cents per mile would have more demand than Tesla can meet even if every Tesla owner makes their cars available.

Finally cars where you pay more upfront and less per mile should have depreciation closer to linear than the standard exponential for car depreciation. Generally cars have in value every 3 years... But a highly efficient car will save money linearly over the full like of the vehicle.
For someone with a budget of $10k for a vehicle to last them 10 years it makes a big difference if one saves $5k over 10 years in fuel.

 

[Matth3w]

Have you considered leasing?

I haven't really. The higher overall cost for 2-3 years + limited mileage compared to a low-interest loan doesn't seem to make sense to me. But I do see your point. If I'm overly concerned about residual value and I'm liable to upgrade sooner than later, I could mitigate any resale value loss by paying a bit more per month for some peace of mind. Yes, something to consider.

 

[Saghost]

No new car will ever be a good investment (unless it's somehow the right limited production classic and you hold on to it for a long, long time.)

Having said that, a Model 3 is undoubtedly a better investment than any "comparable" car you might buy, because Tesla keeps improving the firmware and will eventually make the car capable of Self Driving - and because when you go to sell it, there aren't likely to be many people who want to buy an ICE car in its "class". The tipping point is going to really suck for some people when it arrives.

 

[Matth3w]

The original post has a very valid set of points in both directions.

Right now the tax credit reduces the effective price for new... Which also reduces what someone would be willing to pay second hand. The end of the credit raises the effective new price (assuming Tesla keeps margins constant) which then raises what someone is willing to pay on the used market.

I'm not too worried about the Bolt and similar cars as they don't have a supercharger network. It will take GM and others 2 years to figure out how important that is and how bad the CCS network is and another few years to build their own network. Eventually this will have an impact but not for a while.

Another positive factor is that Tesla's supercharger network will continue to improve, as will self driving... Making an old model 3 better over time.

For the issue of cars as a service... If Tesla actually does fsd with a service offering then your car will literally pay for itself... In which case why care about depreciation. Cars as a service at 50 cents per mile would have more demand than Tesla can meet even if every Tesla owner makes their cars available.

Finally cars where you pay more upfront and less per mile should have depreciation closer to linear than the standard exponential for car depreciation. Generally cars have in value every 3 years... But a highly efficient car will save money linearly over the full like of the vehicle.
For someone with a budget of $10k for a vehicle to last them 10 years it makes a big difference if one saves $5k over 10 years in fuel.

Some very good points here. Thank you.

While there obviously exists some uncertainty in how this will all play out, I'm still very confident I'm on the right side of the line buying (maybe leasing?) a Model 3 and unloading my ICE car as soon as possible (talk about accelerating depreciation, woof!)

 

[Dynastar]

I'm having a hard time finding a reference but there is historical precidence for tax credit endings causing resale value to rise. The Prius qualified for a $2,500 tax credit through 2007, and I read that when the tax credit ended used Prius costs went up. (Searching for a reference is only turning up new articles about the Prius Prime.)

Logicly this makes sense. If I'm picking between a CPO Model 3 and a new one and the base price is $35,000-$7,500= $27,500 I'm going to demand a discount on the $27,500 price to buy a CPO. If the tax credit ends I'm now deciding between a $35,000 car and a CPO.

 

[Uncle Paul]

I would worry more about the devaluation of ICE cars than for the Tesla all electric.

I saw earlier when the fuel prices spiked and there was a shortage of gas, the prices plummed on anything with a V8.

Believe the model 3 will hold it's value better than any ICE cars.

When the Tax deduction is factored in, the Model 3 might turn out to be a very good long term value.

 

[ohmman]

Tesla's Model S and X have experienced comparable depreciation to other vehicles at their price point. Tesla will market material that shows they're holding value better. Anti-Tesla forces will focus on the opposite. The truth is that it seems to be relatively in line with most vehicles. My feeling is that the Model 3 will be the same.

I've said this many times, usually in the context of people getting upset when some new feature is released by Tesla, making their car "obsolete." My over 3-year-old Model S is still the car I'd want to drive compared to every other car I pass on the road. Seriously. I'm not drooling over a P100DL. I'm not dying for AP2 (or even AP1, since my P85 was lucky to have parking sensors). I haven't seen anything from another brand that would entice me. It's a fabulous car, 3 years in. I wouldn't sweat depreciation.

 

[EinSV]

Tesla's Model S and X have experienced comparable depreciation to other vehicles at their price point. Tesla will market material that shows they're holding value better. Anti-Tesla forces will focus on the opposite. The truth is that it seems to be relatively in line with most vehicles. My feeling is that the Model 3 will be the same. <snip>

@ohmman, can you point to any studies that support the "anti-Tesla" view you describe above?

Every study I recall seeing shows Model S experiences less depreciation than comparably priced vehicles. Here is one example -- Tesla Model S retains its value better than gas-powered cars in its segment, losing only 28% after 50k miles (I'm not sure I've seen anything on X depreciation yet.)

 

[Topher]

I'm only trying to establish if the purchase of a Model 3 is any more or less precarious from a value proposition than any similar purchase of an ICE car due to the rapidly changing technology and market conditions.

The way things are going, ICE cars will soon depreciate all the way to zero. Once there are enough EVs, the gasoline infrastructure will collapse, which will nullify any residual value in the remaining ICE cars. Since the majority of the infrasctructure I need for an EV exists in my house, I can run that EV until it collapses into a pile of dust.

Drive a car until it is no longer useful as a car, and you will extract the maximum value from it. Divide that value into total cost of ownership to get the value of investment. You will note that that math has no terms for 'better technology is available'.

Thank you kindly.

 

[Reciprocity]

I'm having a hard time finding a reference but there is historical precidence for tax credit endings causing resale value to rise. The Prius qualified for a $2,500 tax credit through 2007, and I read that when the tax credit ended used Prius costs went up. (Searching for a reference is only turning up new articles about the Prius Prime.)

Logicly this makes sense. If I'm picking between a CPO Model 3 and a new one and the base price is $35,000-$7,500= $27,500 I'm going to demand a discount on the $27,500 price to buy a CPO. If the tax credit ends I'm now deciding between a $35,000 car and a CPO.

Exactly, the residual value will be similar to most cars in 2018, but you could see a phenomenon where the used Model 3 will actually go up in value during later part of 2018 and early 2019 due to expiring tax credits and new model 3s will still be somewhat difficult to get. The used model 3s would be competing with model 3s that will not have a tax credit. This will be good for people looking to upgrade from a 3 to an S/X when they fall in love with EV but want more.

The other thing that will help Model S/3/X/Y retain some of the value compared to the competition like S/E/C/GL/ML Class MB, 3-7 Series BMW is the fact that you can upgrade your car through software. I initially thought it was a bad idea to include all the EAP/FSD hardware in every car, I am now rethinking that as it is now my contention that nearly every EAP/FSD like feature will eventually be activated by one of the owners in the line of succession. If the first owner doesnt opt for the features, maybe an autonomous taxi company buys the car at auction where bidding will be based on the value of the car to those looking to buy for example. This upgradeability gives your base model car a larger market. In theory, Tesla could also deactivate those features for the CPO market and allow new owners to reactivate them. Allowing Tesla more flexibility as it relates to the CPO inventory. They might lose a bit of money on the trade in, but would make it back with mark up once its activated by the next owner.

For me, I am keeping my X at least until early 2019 for this very reason. With FSD and tax credits expired, I expect the value to bump up and allow me to upgrade to the 2170 model S/X. Sure, maybe no one will want a none 2170 model X, but my guess is that many companies and people will be wanting an FSD car and it will very hard for people just discovering Tesla to get a model 3 early in 2019. By the end of 2019, I see the volumes better keeping up with demand, much like with S/X now.

 

[Saghost]

Exactly, the residual value will be similar to most cars in 2018, but you could see a phenomenon where the used Model 3 will actually go up in value during later part of 2018 and early 2019 due to expiring tax credits and new model 3s will still be somewhat difficult to get. The used model 3s would be competing with model 3s that will not have a tax credit. This will be good for people looking to upgrade from a 3 to an S/X when they fall in love with EV but want more.

The other thing that will help Model S/3/X/Y retain some of the value compared to the competition like S/E/C/GL/ML Class MB, 3-7 Series BMW is the fact that you can upgrade your car through software. I initially thought it was a bad idea to include all the EAP/FSD hardware in every car, I am now rethinking that as it is now my contention that nearly every EAP/FSD like feature will eventually be activated by one of the owners in the line of succession. If the first owner doesnt opt for the features, maybe an autonomous taxi company buys the car at auction where bidding will be based on the value of the car to those looking to buy for example. This upgradeability gives your base model car a larger market. In theory, Tesla could also deactivate those features for the CPO market and allow new owners to reactivate them. Allowing Tesla more flexibility as it relates to the CPO inventory. They might lose a bit of money on the trade in, but would make it back with mark up once its activated by the next owner.

For me, I am keeping my X at least until early 2019 for this very reason. With FSD and tax credits expired, I expect the value to bump up and allow me to upgrade to the 2170 model S/X. Sure, maybe no one will want a none 2170 model X, but my guess is that many companies and people will be wanting an FSD car and it will very hard for people just discovering Tesla to get a model 3 early in 2019. By the end of 2019, I see the volumes better keeping up with demand, much like with S/X now.

The bump in value on a three year old car will surely be a lot less than the value of the tax credit on your brand new car, assuming you can take the tax credit.

 

[Reciprocity]

The bump in value on a three year old car will surely be a lot less than the value of the tax credit on your brand new car, assuming you can take the tax credit.

Oh im not assuming it will be a big bump, more of flattening of the value around that time period. My X will be 2 years old Dec. 28, 2018, which coincides roughly to when there will be no more tax credits left. Remember, the tax credits go from $7,500 to $3,750 to $1,875 before completely phasing out:

Best guess is either Scenario 3 or 4:
Predicting When US Federal EV Tax Credit Will Expire For Tesla Buyers

Most Luxury cars see the most depreciation in the first 2 years, well duh, but they flatten out a bit as they get older. My wife used to buy 5 series at auction and they where almost always 50% off the original sticker after 2 years. If I apply very rough numbers for my Model X, my hope is that its more like 40% less and holds up a little better then the average Luxury SUV at that 2 year mark. Of course a lot of factors play into it, like miles and condition. But I want to keep it for at least 2 years and will make the final call based on the market. I also think there will be a ton of demand created by the 3 finally being in the wild and no new reservation holders being able to get he car for another 12 months. I think this demand will tilt towards the used market due to the cost of used X/S vs new X/S and no tax incentives. I wont be to broken up if I have to keep it another year.

 

[kzod]

You're overthinking this. A car is a disposable commodity not an investment. The most important questions are can you afford to spend that much, and is it a car you want to own? As far as autonomous driving concerns and uber, you can do that right now if you don't want to own your own car. Uber some days, borrow a car the next.
Personally, I buy a car that I love and am happy to keep it around as long as it serves my needs. Buying any car and planning on trading it in 3 years later is a surefire way to burn through cash. I drove my A4 for 20 years til I finally sold it (gave it away) this year. Assuming that the car is nearly as good as expected, I'll happilly keep it fopr years to come.

 

[internalaudit]

It should depreciate less than a comparable ICE vehicle if all other components are reliable enough because with a BEV like a Model 3, the used car buyer is saving at least $1,000 (and likely more) in transportation/fuel cost per year over the remaining life of the BEV.

Not really sure how much savings can be had with the lack of the engine and transmission since it doesn't cost us a lot to do an oil change, spark plug changes and transmission flush on our Honda's and I only have the dealership do it for one of the cars because it is still under extended warranty.

If the quality of the M3 proves shoddy, that's another thing but then there's the 4-year warranty and the available 4-year ESA to take care of that.

The 8-year 2.5% interest rate here in Canada is very appealing too, if you can invest and not spend that money allotted for future year payments.

 

[ohmman]

@ohmman, can you point to any studies that support the "anti-Tesla" view you describe above?

Every study I recall seeing shows Model S experiences less depreciation than comparably priced vehicles. Here is one example -- Tesla Model S retains its value better than gas-powered cars in its segment, losing only 28% after 50k miles (I'm not sure I've seen anything on X depreciation yet.)

You know, I cannot point to anything. My post was really a recollection of threads here on TMC over the years, where people have complained about aggressive depreciation (usually on very highly optioned vehicles). I haven't searched, but I do recall that a fair number of them had at least some numbers involved. Those numbers could be subject to skew, however, because often times owners will use their trade-in offer as a "market value" which is of course unreasonable.

My P85's market value is somewhere around $65k. I paid $123,929 in March of 2014. That's a depreciation of ~48% over 38 months. Edmunds says that cars lose 15-25% of their residual value each year during the first five years. At five years, cars are worth, on average, about 37% of what you originally paid. I'd say I'm right within normal depreciation range on my P85 at this time.

 

[Reciprocity]

You know, I cannot point to anything. My post was really a recollection of threads here on TMC over the years, where people have complained about aggressive depreciation (usually on very highly optioned vehicles). I haven't searched, but I do recall that a fair number of them had at least some numbers involved. Those numbers could be subject to skew, however, because often times owners will use their trade-in offer as a "market value" which is of course unreasonable.

My P85's market value is somewhere around $65k. I paid $123,929 in March of 2014. That's a depreciation of ~48% over 38 months. Edmunds says that cars lose 15-25% of their residual value each year during the first five years. At five years, cars are worth, on average, about 37% of what you originally paid. I'd say I'm right within normal depreciation range on my P85 at this time.

15-25% is a crazy big range, they really are going out on a limb to project that. Your car could be worth 35% after 5 years or -25%.. as in you need to pay someone $25,000 to take it away, haha.

 

[ohmman]

15-25% is a crazy big range, they really are going out on a limb to project that. Your car could be worth 35% after 5 years or -25%.. as in you need to pay someone $25,000 to take it away, haha.

Well, it's a percentage of residual value, not initial value. But I agree it's a large range.