Tesla’s Ace Up Its Sleeve? Certified Used Cars

3 years ago by Eric Loveday 34

Tesla Certified Pre-Own Roadster Program Has Been Around For Quite Awhile Now

Tesla Certified Pre-Own Roadster Program Has Been Around For Quite Awhile Now

Tesla’s certified pre-owned (CPO) program for the Tesla Roadster sprang to life eons ago (2-plus years), so imagine how shocked (not shocked at all, actually) we were when Tesla announced that the Model S would be added to the CPO program.

Per Automotive News:

Tesla is developing a program to sell the Model S secondhand, Automotive News has learned, in a bid to lower the cost of entry for the $71,070 sedan and unlock the earnings potential of Tesla’s factory-owned retail network.

Tesla’s vice president of communications, Simon Sproule, confirmed that the company is developing a certified pre-owned program to compete with those offered by luxury brands such as BMW and Mercedes-Benz.

“With the Model S fleet now heading toward the first cars hitting three years old,” he wrote in an email, “we are looking at CPO and how best to structure.”

Roadster CPO Info

Roadster CPO Info

Nothing surprising there, but this statement by Automotive News caught our attention:

“Elon Musk, in his quest to transform Tesla Motors from a scrappy electric-vehicle startup into a mature, profitable automaker, may have an ace up his sleeve: used cars.”

Automotive News points to profit as the driving force behind the Model S CPO program.  It’s believed that Tesla could pocket up to $10,000 in pure profit per CPO Model S sold.  However, we sort of disagree.

At present, Tesla is not set up to deal in volume on the used car market.  Most of its stores have next to no space to park these CPO Model S sedans.  Additionally, Tesla would have to not only expand its current stores or open new ones, but the automaker would have to hire additional employees too.  There are significant costs here associated with a large-scale CPO program.  Tesla would likely see no profit from this for years and years to come after the first CPO Model S EVs are sold.

The CPO program will be a loss leader for a good long time at Tesla, but it’s necessary.  Eventually, Tesla will see profit from this, but that $10,000 per CPO sold will be just a dream for years and years to come.

David Whiston, an analyst at Morningstar Inc., tells it like it is:

“This is going to cost Tesla money upfront.  You’ve got to get more staff, and you’ve also got to get real estate because you need to have somewhere to service and store these cars. But if [resale] values continue to hold up, they will be in a very unique and advantageous position.”

Money-losing for now…but money-making in the distant future.

Source: Automotive News

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34 responses to "Tesla’s Ace Up Its Sleeve? Certified Used Cars"

  1. David Murray says:

    Why does Tesla need more showroom space? They could sell them online just like they do the new cars, and have it shipped to your nearest dealer.

  2. Anthony says:

    “At present, Tesla is not set up to deal in volume on the used car market. Most of its stores have next to no space to park these CPO Model S sedans.”

    How cost-effective is it to ship the car from wherever it is traded in to a new regional used car facility? Put one in California, Texas, Chicago and New York. When a Model S is traded in, ship it to the regional facility to do all the work and hold it there until it is sold. Ship it out to the customer for the final test drive and inspection and sale (if allowed in the state).

  3. Doug B says:

    Not sure if your argument holds. Cars are already serviced at Tesla locations, CPO cars would be given a somewhat more intense service, but with all the software data available they likely know exactly what work is needed. Storage is a non issue compared to trucking cars around the country. Staff would just be allowed to offer more options during the sale.
    What would you choose, a new loaded BMW i3 or a 60kWh Model S, used but CPO, for similar cost?

  4. MDEV says:

    I got a Jaguar from CARMAX 2 moths ago and was shipped from CA to DC, I saw it online and pay the shipment $900. The car arrived in Virginia CARMAX store, I went to see it and it was as I saw in the photos, like new. I bought it.
    Tesla can sale in the same way, online. One more thing I got it from CARMAX because I hate to deal with the salesman at the dealership, Carmax in fix price not hassle.

  5. MDEV says:

    I like the idea of CPO, I will hope Tesla will take my S85 as a trade-in one year from now and get the P85D.

  6. David Stone says:

    And they would not need more service centers.
    I doubt the current ones are running a full capacity. Repairs and check-ups for regular owners would and should still have priority.
    The wait time on a sold used car would definately be less than for a new one for some time to come, even if the certification had to wait.

  7. Dr. Kenneth Noisewater says:

    Build a large automatic parking garage out in the middle of nowhere with good highway and rail access and sell ’em over the internet with local delivery (dealer or home). Problem solved, profits ensured.

    Hell, top the garage with solar panels to boot.

    1. Nuno Santos says:

      Spot on!
      Cheap storage facility, good ground conections for the US/Canada market and a port for the rest of the world, online sales and 30k off in each 3 year old Tesla would bring many people aboard.
      And Nissan, BMW, Mercedez, VW would have a real hard time selling their 80 mile range EV’s!!!

  8. pjwood says:

    New unit sales, or used profits? I think this will be a pivot point for Tesla prices. If they achieve what they want, their cars will be sinking in value by their own doing. People get trade quotes, then try on their own plus 5 or 10k, if unhappy. Some Tesla trade quotes, on TMC, are being shared as 20-30k hits on the 2013 “P” models (those most focused on the “D”). Even if they “gotta make 10k”, per car, there is a developing trail of folks being offended, and, at that, this would be nowhere near the gross margin of a new sale. No more “I’ll get the 60, or the ‘S’, if the ‘P’ is out of reach”. They’ll go used, and the margin will go too. This isn’t about “3 year old” cars. It’s one-year old cars, that you can go buy, then bring to Tesla for warranty service. I think they are being a little optimistic, but it was inevitable.

    1. JRMW says:

      I see this as a win-win for Tesla.

      The Traditional Tesla buyer won’t buy used, because they’re not Used Car sort of people. I don’t think many will take a 3 year old used Tesla P85+ instead of a new Tesla S60.

      MOST (almost all?) Tesla owners will buy a new Tesla or keep their current Tesla as the lease comes up. I don’t think many of them will sell their Tesla and buy a non-Tesla. Tesla really has a lock on that market.

      Selling used cars does two very positive things. First, it opens up Tesla to people who see it as out of reach. Secondly, it allows current Tesla S owners to get rid of their old Tesla allowing them to move up into the D or into the X; increasing new car sales which will keep the Tesla Factory busy and the Markets Happy.

      Thus I see this as Win Win for Tesla, regardless if they sell the used car at a mild loss.

      Obviously, much of this depends on the price of the used Teslas.

    2. Josh Bryant says:

      Remember until they sell 200k vehicles, the $7500 tax credit (plus any local incentives) will tilt the scales toward buying a new Model S over a used one.

    3. Nix says:

      pjwood — what you have just described is the perfect situation for Tesla to increase their per-unit profits on each of the new units they sell.

      With budget-concerned buyers focusing on CPO units, the remaining new car buyers will be less budget conscious, and more apt/willing to purchase vehicle with more options.

      Options are where the profits are at in new cars. The more options, the more per-unit profits.

      Ever wonder why it is so hard to find a base BWM or Audi without any options? Profit margin. The base price is to draw you in, where they then sell you a car with more options, at a higher price point and higher profit margin. Having a CPO option for price conscious buyers simply allows Tesla to allocate more new units to buyers who aren’t as price conscious and who will buy units with more options.

  9. JRMW says:

    It’d be interesting to know what the pricing on these would be.

    3 year old luxury cars tend to hover around the $30-45k range, depending on their original list price, condition, etc.

    I would think a Tesla S60 and S85 would sell easily if priced near there.

  10. ggpa says:

    It would be interesting to see this program at work in Norway. There are many Teslas and with their winter climate I guess many of those folks will trade up to AWD.

  11. Stimpacker says:

    As explained by the above comments, both the Morningstar analyst and this article appear to be off somewhat. Tesla is not going to be your traditional used-car dealer where people have to walk the lot to browse for a car.

  12. TomArt says:

    Agreed with the above comments in general: this will be lucrative for Tesla almost immediately. They won’t need the extent of the real estate and staff assumed by the analysts. The analysts are still thinking old-school.

  13. Tim says:

    Why couldn’t they just partner with an existing CPO like CarMax? Take a fixed amount per resale until later when Tesla might want to invest the effort to establish their own infrastructure?

    Used Teslas are gonna hit the market. That’s just inevitable. CPOs just allow manufacturers to get a piece of the used car market for their models, and I suspect Teslas will continue to hold their value pretty well.

    Interesting to me is how access to the Superchargers will be handled? Additional fee on top of the sale price? Or is SC access transferable with the car from the original purchase? But if Tesla purchases the car back, then they can remove this transferability.

    1. MDEV says:

      SC is transferable for the life of the car.

      1. Tim says:

        I meant that if Tesla buys the car back, they could remove this “lifetime” benefit then charge again for it.

  14. Aaron says:

    Since there aren’t any protectionist laws about used car dealers, couldn’t Tesla corporate open used car dealerships nationwide?

    1. QCO says:

      Absolutely.

      In fact, I think everyone in Texas should get an opportunity to buy a 1 month old used Tesla with 25 miles on it. Let’s see if Rick Perry’s cronies can stop that!

  15. Chris O says:

    Starting a used car business is a loss leader for a long time? Never realized that starting a used car business was like starting a car company that way. Probably because it isn’t.

  16. Josh Bryant says:

    Tesla basically already has the CPO system in place with the way they sell inventory and loaner vehicles.

    I think the process will be contact a Tesla rep with the features you are looking for. The rep will search through the databases for all the ones that match and send a fixed price quote for each one. If you like one, they ship it to your local service center for pickup (probably after a small deposit).

  17. Lad says:

    What you see here is Tesla controlling the sales and prices of their car and who they let drive them, from the first to the last sale. How? Simply by refusing to activate the cars that don’t conform to their rules.

    We have learned lately that Tesla controls who they let repair and drive scrap titled cars by the activation process; this is a second move to control the used car market for their cars.

    And, it begs the question: “To who does the car belong?”

    1. LuStuccc says:

      This one particular car was salvaged from scrap.
      Do you have any links to help us understand your second point?

    2. Nix says:

      Lad — that story was debunked. There was no special switch that Tesla needed to turn on. They bought a car with damage to the passenger front wheel well. Exactly where part of the charging system is located.

      The car won’t charge because it has damaged parts, not because Tesla won’t flip some mysterious switch that the owner claims to exist.

  18. James says:

    Agree that this is only the natural progression to ad to Tesla’s revenue stream. They’ve had the CPO Roadster program for years now.

    Nicely timed for S owners to upgrade to the D and many more will be able to afford a used one whilst having that certainty the car is not trashed.

    I can see the northernmost regions really benefitting, as just in Norway – lots of S owners will want the AWD model.

  19. Dr. Kenneth Noisewater says:

    I reckon Tesla will make bank on CPO, especially after working out whatever powertrain kinks have been plaguing folks who’ve needed/gotten multiple drivetrain swaps. My prediction is that warranty service will end up being so much lower than that of traditional ICE cars that Tesla will be able to offer pretty nice warranty extensions for CPO vehicles, especially 85kWh and up. Perhaps bundle warranty extension into the annual service plan subscription.

    As far as various time/volume-limited subsidies reducing the appeal of CPO, I find that pretty unlikely. For starters, a certain amount of those subsidies are going to be factored into resale value anyway (depending on demand) and for folks who don’t have enough tax liability to claim the whole subsidy why not have it depreciated out first?

    Looking forward to seeing affordable Model Ss show up, especially Signatures with moah powah…

    1. Tim says:

      I don’t think any subsidies apply to used car sales.

      1. Dr. Kenneth Noisewater says:

        Yes, but may impact resale prices and residuals.

      2. Nix says:

        The only tax incentive I know of that applies to used EV’s, is Colorado’s state incentive. The only limitation is that you must provide a Carfax report proving you are bringing in an EV from out of state that has never been registered in Colorado.

        The tax incentive is basically the sale price of the used vehicle, times the battery size as a percent (or $6,000 dollars, which ever is smaller).

        A used Leaf that is $20K dollars is eligible for a $4,800 dollar income tax incentive ($20,000 X .24 = $4,800).

        This incentive is only for Colorado full time residents. (Please nobody don’t ask if somebody in Colorado can do a deal for you, that is illegal — go to your own state legislature and get your own folks to provide your own program) It can be applied as a refundable tax credit.

  20. QCO says:

    Dealers usually make much more on used cars than new cars. Helps when they collectively underprice trade ins.

    So while eliminating new car dealers, why not pickup the used dealer profits as well. The actual profitability will be based on how much they control the trade-in/resale spread.

    However I think they will do themselves a severe disservice if they try any “exclusivity” tricks by de-authorizing cars or reselling SC access. Or if they try to turn Tesla into a service company by selling usage instead of actual cars.

    It will be interesting to see how low they will go in the used car food chain. The bottom feeders make money by leasing and repossessing the same old beaters 10 times over to the exploited class. Or will they simply refuse a trade-in after a certain point. Or withdraw and recycle vehicles after a certain age/mileage.

  21. Nix says:

    OMG!! What a horrible problem to have! They are going to have to expand their business at a very, very rapid pace!

    Thank god gas car companies aren’t having to suffer from these kind of problems…

    /sarc

  22. Nix says:

    “you’ve also got to get real estate because you need to have somewhere to service and store these cars”

    Tesla doesn’t service their cars at their retail sales locations. Service is done at a service location that are located elsewhere.

    And forget needing to store these cars any time soon. This isn’t some VW or Honda lot with 100+ days worth of inventory sitting stacked up waiting for buyers. Tesla doesn’t even have NEW cars sitting on lots waiting for sale. Used CPO Model S’s won’t sit around on lots waiting for buyers any more than new Model S’s are today.

    I’ve watched Tesla’s CPO site ever since it went live. Those cars don’t last that long there, despite having asking prices that are now $20-$30K dollars HIGHER than they were when Tesla started their CPO program 2 years ago. Instead of depreciating $20-30K or more below their prices in 2012, Roadster prices (especially CPO ones) have gone up instead.

    Heck, I could only DREAM of rows of used Tesla’s being available to pick from in some big lot.

    This guy is still thinking that Tesla is just like every other car company, with a string of private dealerships that gum up the sales pipeline with their own petty games. No service at the retail shop gumming things up. Tesla just can’t be analyzed the way this guy is doing it.