Tesla Model 3 Depreciation Explained – Video

2 months ago by Steven Loveday 44

Though you may have to wait a long time to take delivery of your Tesla Model 3, it may hold its value much better than the average vehicle.

Without factoring anything else in, referring to any studies or surveys, or relying on traditional situations, it really comes as no surprise that the Model 3 will hold its value. It’s one of the most sought after vehicles of all time and most people probably won’t be selling theirs very quickly, if at all. The Model 3 is hard to get, will remain that way for a long time, and is sure to always have a place in the automotive history books.

Tesla Model 3

Tesla Model 3

With all of that being said, we know by now that Ben Sullins relies heavily on data, studies, surveys, and other tangible (maths stuff) to support his information. He refers to a new survey that suggests that the Model 3 will, in fact, hold its value well. For those that don’t understand the ins and outs of depreciation, Ben takes us through it with his typical, easy-to-understand delivery.

In a nutshell, when you drive a new car off the lot, it loses 10-50 percent of its value before you pull in your driveway … sad but true. Every year, your car continues to depreciate another 15-25 percent, and luxury vehicles are notorious for depreciating even quicker. It’s not uncommon for a car to be worth 30-40 percent of its original value after five years.

Based on Ben’s research, the Tesla Model 3 could retain 70 percent of its value following a five-year period. However, Ben is safe to point out that the survey is a small sample, and due to Autopilot, four-to-five-year-old Model S sedans have terrible resale value.

Video Description via Teslanomics by Ben Sullins on YouTube:

A New Survey Out Shows That the Model 3 will have better than average depreciation, but there could be one thing which would trip it up.

To understand how depreciation relates to the Model 3, a car currently not available to anyone but Tesla and SpaceX employees, we need to first look at depreciation as it relates to cars in general.

Depreciation is the reduction in value of an asset. From an accounting standpoint, you can think of it as reallocating the cost of the car over its lifespan. As consumers, we can think of depreciation, when it comes to cars, as the difference in price of what we paid to purchase it versus what we sell it for.

So if you buy a car for 50K, then five years later sell it for 25K you have a 50% depreciation rate on that car.

When we think about owning a car, depreciation shows up as the largest cost always in the Total Cost of Ownership model. Popular auto sites like edmunds.com and kbb.org use this model to estimate the total cost you’ll pay for a vehicle over a five-year period. In order to use this measure as a comparative tool for different cars, they need to make some assumptions and consider all the major expense categories such as financing fuel, maintenance, repairs, fees, and insurance.

For most cars depreciation starts the moment you drive off the lot. On average cars lose 10% of their value at this exact moment while some lose as much as half moments after you take ownership.

It doesn’t stop there either; new cars continue to lose value for their entire first five years of operation with an average decline of 15-25 % per year. Most new cars will lose 60 percent of their total value in this time short period.

Recently Autolist.com published the results of a survey they did of 14,476 individuals between Oct 2016 and July 2017 which they used to forecast what the depreciation for a model 3.

Nearly 60% of the people in the auto list survey listed their main reason for not buying an EV as cost and range, if those numbers were to hold up for the larger market, the sky isn’t even the limit for the Tesla model 3. With an estimated 310 miles per charge and a starting price of $35K, the Model 3 should squash the main reasons people had for not buying an EV. Now we obviously don’t have depreciation data for the model 3 yet, but we do have it for the Model S and its in-brand competitors.

So if the Model 3 tracks similarly to the Model S and the in-brand counterparts hold up as they have, the Model 3 will hold around 70% of its value during that five-year period.

The only issue I see here is that the size of their survey is small compared to the overall market and they didn’t list how they collected this data. So, for example, the people they interviewed may have a selection bias which resulted in these findings, and without larger and more studies it’s hard to say that these numbers will hold true. Before we go on, I need to mention one thing, however.

Looking back only 4-5 years, the Model S has inferior resale value, meaning severe depreciation. The main reason…autopilot

Autopilot was a game changer for Tesla and the Model S. If your car didn’t have autopilot, the value plummeted. Even my car which I bought in 2016, was almost 50% cheaper than it was just three years prior

So could there be something that kills the model 3 resale value?
Not likely, the cars come with the latest hardware that will one day allow for full-self driving. The rollout strategy is also going to confuse things when it comes to Model 3 depreciation. In the US it’ll be late 2018 until “most” people have their Model 3 so until then the demand will remain high, possibly even letting owners of the cars sell them for more than what they paid.

We can’t forget either, that we only realize depreciation when we sell our car, and who’s ever going to sell their Model 3?

Source: Teslanomics

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44 responses to "Tesla Model 3 Depreciation Explained – Video"

  1. wavelet says:

    Any estimates of Model 3 depreciation are extremely premature. There aren’t enough on the road for long enough to gauge long-term reliability. The TCO is a big question — Model S repair costs are high, because Tesla insists on a monopoly. They may or may not do the same for the Model 3, and customers of $40K cars care a lot more than those of $100K cars about service costs and the option to do their own servicing/repairs (*).
    A big part of resale vlaue is also the competing models — it’s too early in the game for significant data on how the competing 200mi+ BEVs will stack up.

    (*) BEVs don’t have the ICE drivetrain of course, but they still have systems for braking, suspension, steering, HVAC, infotainment, safety, low-voltage electrics as well as bodies and interiors — all those need to be checked regularly and repaired/replaced occasionally. The cost of drivetrain is <50% of the entire car.

    1. Four Electrics says:

      Another component of resale value is supply vs. demand: if the 3 turns out to be a fad, there will be many unwanted vehicles on the road, driving down prices.

      1. EVer says:

        That’s what initially happened to the Nissan Leaf except the low resale value was caused by Nissan’s policy of not supporting battery improvements. Now used Leafs, especially the 2011s are selling well because they are the cheapest EVs on the market and you can drive one for about $12,000 complete with a newly replaced battery. Many have less than 50,000 miles and are almost brand new.

      2. Anthony says:

        This is very true. I’m a Volt owner and my resale value is in the toilet because of all the leased Volts on the market. After 5 years of ownership my car lost 75% of its value after factoring in the fed rebate ($9,000 vs $37,500 fully loaded Volt). I planned on driving it for 8-10 years until I get a Model 3 so it isn’t a huge loss.

        1. ziv says:

          Anthony, did you buy a fully loaded Volt for $4,500 or were you unable to use the full credit? Depreciation ought to be calculated from what the Volt cost you, or net price, not the sales price. Going from a net price of $30k to $9k in 5 years isn’t that bad. 30% after 5 years is about the norm, I would think for a big 3 car. American cars lose 19-24% the first year of ownership and around 15% a year for years 2-4. So your number isn’t that far off the norm.
          I have a 2013 that is worth around $11k now if I sold it and I am fairly happy with that resale value because the credit made the price of getting the Volt a lot less than it otherwise would have been. Our cars are at the point where most of the rapid depreciation has already happened so keeping them is a pretty good idea. Given the reliability of most Volts, I could see keeping mine for another 4 or 5 years. Having no car payment is a wonderful way to save money!

    2. Pushmi-Pullyu says:

      “Any estimates of Model 3 depreciation are extremely premature.”

      Ya think?

      Trying to estimate resale value at this time, based on zero data, deserves nothing but a facepalm response.

  2. Carsten says:

    I for sure hope that any of today’s technology will be outdated in 5 years and I for sure think, that being able to update a 5 year old car to whatever new technology there might be out then is not possible/economical.

    1. LeafOwner says:

      If you are talking EVs, that may not be true; EVs require less maintenance and their chassis’ last longer than ICEVs. The old policies and many ideas born out of the use of ICEVs don’t apply to EVs. In many cases, replacing the battery every 5 to 10 years will keep you in transportation for a long time. And, as the price of batteries come down that will be the way to roll.

  3. Joe says:

    Luxury models hold their resell value much more than typical average car. That explains why leasing cost for German premium cars is very close to standard cars because of their high resell value.

    1. 2013VOLT says:

      LOL at this, German luxury cars have horrible resale value. Look how much a 5 year old S class or 7 series is worth. The lease rates are low because the manufacturers subsidize them.

    2. Bacardi says:

      You have it entirely backwards, some of the least depreciating vehicles are Camrys and Accords…

      1. Another Euro point of view says:

        Agreed, the cheapest car the highest resale value as compared to resale value (at least in ICE). Few are interested in luxury second hand cars due to maintenance expenses. Public for those cars have the means to buy new.

  4. Carl Raymond says:

    The bigger question is what happens to the value of non AI cars if TaaS becomes a thing. I’m buying model 3 as a hedge.

  5. Jason says:

    Model 3 depreciation can not be estimated by comparing it to Model s. Once the model 3 deliveries start, same time major manufacturers release new EVs that are better and cheaper than model 3. Why would you buy model 3 if you can buy new EV with less?

    There were a study in one European newspaper that depreciation of model S is between 45 euro cents to over 1 euro divided by kilometers driven. I would not buy Model 3 at the requested price anytime soon because the competition coming from other manufacturers are bound to lower the price.

    1. Pushmi-Pullyu says:

      “…major manufacturers release new EVs that are better and cheaper than model 3.”

      My my, look at all the FUD today! You’d think that Tesla’s stock had hit an all-time high recently. …what, just last week? Well, that explains it! Short-sellers are running very scared.

      “Major manufacturers” have had 5 years to release new EVs which are better and cheaper than the Model S. You may have noticed that to date, nobody else has even come close.

      And I’ll cry crocodile tears for all the money that Tesla shorters are losing.

    2. Pushmi-Pullyu says:

      Jason said:

      “There were a study in one European newspaper that depreciation of model S is between 45 euro cents to over 1 euro divided by kilometers driven.”

      Clearly math isn’t your strong suit. Nor is grammar, for that matter.

  6. Another Euro point of view says:

    As pointed above in the comments indeed IF competitors announcements really translate in many new EV models by 2020 then we will have a very fast moving market segment and thus very difficult to predict whatever EV resale value.
    Also I read recently that used Model S prices have varied sharply so how could we anticipate anything with a car which build quality has not been assessed yet.

    1. pjwood1 says:

      There’s been no variance. Just steady value retention that anyone can back check and compare.

      1. Another Euro point of view says:

        OK, I might be not well informed but I remember reading here(?) recently about a sharp decrease in price of used model S. A bunch of used cars on sale by Tesla. I believe it was this summer.

        1. pjwood1 says:

          If I’m thinking of the same one, it was about $130-150k P100D’s being taken down to the $110-130k range.

          I think the depreciation story is really captured by resale of the generic Model S cars. You can option them in ways that will hurt resale, but people spending 70, to just over 90k, are doing pretty well. This is who’d care about depreciation most. If we call Autopilot and AWD a “value fork”, at Q3 2014, people with those cars are still mostly above ~50k resale, where the older cars can span 30’s-50’s.

          Tesla over-builds its “P” models, which have shown up in big batches (discounts) in the past: https://ev-cpo.com/

          I agree with Tom, at bottom. We’re ~21 months from no more tax-credit on Tesla. I wouldn’t put it past Tesla to knock $3,750, then $7,500 off its cars (as the tax-credit goes away). If they don’t do that, then used values should naturally be supported.

          I’m convinced Musk has balance demand-destruction into the Model 3, to (lower) reach the sales numbers he wants. He’s been given so huge a lane to develop this thing, that he’s gone and further attempted to re-define “the car”. The point being, he won’t risk “over-supply” and can always add (fix) things to increase demand. There have to be thousands who won’t buy it, just because of the dash board. Easily fixed.

        2. Pushmi-Pullyu says:

          “…a sharp decrease in price of used model S. A bunch of used cars on sale by Tesla. I believe it was this summer.”

          Perhaps you’re talking about Tesla offering a discount on a relatively small number of demo/sales loaner Model S’s. Those are sold as new cars, but at a discount. Tesla has done that from time to time, as it wants its demo/loaner cars to have the latest and best hardware, so it sells off the old ones, at a discount to move them quickly, and puts new ones into service.

          That has nothing to do with used Tesla car prices, nor with Tesla’s clearly superior, top-notch retention of resale value as compared to similarly priced cars.

  7. John says:

    The moral of the story: don’t buy a car as an investment. Regardless if it’s Model 3 or a Dodge Neon.

    The problem is the difference between the words ‘want’ and ‘need.’ At the end of the day, cars are still simply a matter of getting you from point ‘A’ to point ‘B.’

    Sharpen your pencil- drive your used $12k Volt for 3-4 years while banking the $500-600 in saved car payments @ 5%, and you’ll have $31k ($26k in payments + $5k used Volt proceeds) to likely outright buy a gently used Model 3 with most whistles and bells. All the while you let someone else eat the depreciation. All it takes is a little bit of patience.

    If having having something “brand new” is that important, then I thank you for being the one who eats the depreciation for me!

    You’re welcome.

    1. Josh Bryant says:

      Bingo!

      I drive very little now (work from home, so ~3-5k miles per year). I have been driving a beater since my LEAF lease ended.

      But that was just to prepare for eating depreciation on a Model 3 😉

      The Model 3 will end up getting more miles. I already know my wife will be sneaking off to work in it most days, leaving her SUV in the driveway.

      1. georgeS says:

        Hey Josh,

        I don’t know how Tesla Model 3 will deteriorate. However I can add one data point (me) on depreciation of a used 2012 Model S.

        1 year ago I bot the S 5K or so below CPO’s listed on Tesla’s site. I paid 50K for it 1 year ago.

        I’ve been looking at used 90D’s and also have a rez for a Model 3 so I asked Tesla for a trade in value on my 2012 Model S.

        I looked it up on KBB and they said median trade in was around 32. Believable IMO.

        Tesla comes back on my trade in 26,700$.

        I knew Tesla gave lousy trade in value. That’s why guys try to sell them by themselves.

        ….but I really didn’t expect it to be THAT BAD.

        I don’t think I am an isolated incident either. Tesla offers squat on trade in………..and this articles premise is wishful thinking.

        1. Josh Bryant says:

          I guess I wasn’t really referring to Tesla’s price as resale value, just open market price. Like was mentioned in this video, Autopilot (and AWD to some degree) put a big dent in the value of the older Model S vehicles.

          But in the first year or so when demand was way ahead of production, resale was pretty good. That is in a relative sense though. Expensive premium/luxury cars are the worst depreciating things you can buy in absolute $$ and only better than next to consumer electronics and furniture in terms of % of cost.

          I learned this lesson the hard with with my wife’s BMW X3 SUV a few years back. The 2.5 year depreciation was almost equal to cost of the Pathfinder that replaced it.

          My expectation is Model 3 to hold about 70% of its value through year 3, and be worth about 30 – 40% of its value by year 6. So to make math easy, say $50k retail worth $35k after 3 years and worth $15k after 6. That is mostly due to the tax credit expiring in the first phase.

          1. georgeS says:

            “I learned this lesson the hard with with my wife’s BMW X3 SUV a few years back. The 2.5 year depreciation was almost equal to cost of the Pathfinder that replaced it.”

            “My expectation is Model 3 to hold about 70% of its value through year 3, ”

            It doesn’t sound like you learned your lesson
            🙂

            1. Josh Bryant says:

              Lol.

              Eyes wide open this time 🙂

  8. Counterpoint says:

    I’m surprised the #1 way to lower depreciation costs was never mentioned in the video: buy used. That’s what Ben Sullins did – bought a 2013 car in 2016 when a lot of the worst depreciation had already occurred.

    For the hundreds of thousands of people who put a deposit on a Model 3 and knew they were going to have to wait years before they get one, depreciation is something they’re not thinking about.

    1. Josh Bryant says:

      Having bought used vehicles for all but 2 purchases (and 1 LEAF lease), it is nice to have a vehicle that you know the full history on.

      I have been on the Model 3 vs used Model S fence for years now. I don’t think deprivation will slow down for Model S just because it is used. Out of warranty costs will keep the resale prices going lower into the future. I am just not willing to wait another 3 – 4 years to get back into an EV.

      I will drive Bolt and LEAF once they are available in my area. Bolt is theoretically here, but I have yet to see one. I really prefer RWD, even better would be AWD. We will see, but I am expecting a Model 3 around March.

      1. pjwood1 says:

        I see two conflicting things, against your conclusion Model S values keep falling.

        -The average S-owner probably doesn’t know “phillips” from “flat”, pressuring the fall.
        -The fundamentally reliable bones of the Model S, and its 8-10 year battery warranty, make it worth more.

        Practically speaking, your biggest liabilities could amount to replacing dash screens and air shocks. Beyond that is the horror of Tesla having no independent support. They don’t work with anybody, and give only (limited) diagnostic access to body shops.

        Above said, I don’t see a used Tesla being more expensive than a similar priced internal combustion car. It could be a lot less, because there aren’t many big ticket items assured of failure (dpf, filters, cats, multiple brakes jobs, timing chains/belts…).

  9. Stretch2727 says:

    I think the early cars will do quite good with the expiring tax credit. If the actual replacement cost rises the used cars will rise as well. We could have a situation where a low mileage well cared for car is worth more than the owners out of pocket expense due to the expiring tax credit. There will be heavy demand for used cars due to the long wait for a new ones and the expiring tax credit will make the resale quite good for a long time.

    1. Josh Bryant says:

      I was going to point this out also. The tax credit has been distorting resale values up until this point, especially for the LEAF.

      People would take the $35k starting price and not account for the $7500 tax credit when calculating depreciation. Even though the buyer is getting that value either directly or through a lease.

      The Model 3 release is going to be very unique as it will be the first vehicle to go through the phaseout process. Model S had a similar effect when Tesla started raising pricing after the first 6 months of deliveries, which created very high resale values on the early deliveries.

      So overall I would expect to see very high resale value in for the first 1 – 3 years, then it will probability start to follow the normal “vehicles are a money pit” depreciation trend.

      As a side note, we have had expectation around that there would be a legislative change to tax credit as to no penalize the early movers. Either kill the credit for everyone, or extend the phaseout window to include all. I haven’t been following this closely, but it seems that there is nothing in sight on that front. This would give a huge advantage to VW, Honda and other laggards in the 2020 – 2022 time frame when they finally have offerings.

  10. Warren says:

    This is reading chicken entrails, at this point. Nobody can say, with any certainty, whether any particular car company will be in business five years from now, let alone what their cars will be worth. There is an enormous effort on the part of business, and governments to pretend we are in “normal” times. And we are all eager to play along.

  11. Murrysville EV says:

    30% depreciation in 5 years is ridiculously low, and I don’t believe it.

    A steel car that has gone through 5 winters and suffered wear and tear on the interior for 50-100k miles is not going to retain 70% of its new value, particularly when so many will be produced, and better versions will become available.

    Time will tell, of course. However, I do believe the Model S is about to take it on the chin in terms of sales volume and resale value. Most people are concerned with an EV’s range, not track times, and I predict the Model S market will shrivel to only those people truly interested in its unique features. Until now, I suspect many Model S buyers chose that car only because it was available.

    1. georgeS says:

      “30% depreciation in 5 years is ridiculously low, and I don’t believe it.”

      Yup. It’s definitely a Tesla Fanboy’s wet dream.

      1. pjwood1 says:

        Hmm. “70%” is right up there, with:

        “the cars come with the latest hardware that will one day allow for full-self driving.”

        Elon Musk (hearts) Ben.

  12. Dan says:

    You are cheap! Bought a used model s at 50% off. But go ahead everybody,buy new model 3 and I will pick it up at 50% off at 2020. Autopilot level 5 won’t be here St least until 2025.

  13. Kdawg says:

    Depreciation only matters if you plan to sell the car later. Some of us drive ’em to the ground (or pass them off to family members).

  14. unlucky says:

    There’s no way it will retain 70% of its value after 5 years. Not unless they stop making it long before then.

    This guy is a kook.

    There’s no good way to predict actual depreciation. The best one we have is lease residuals for cars that are frequently leased. But none of use know the lease terms for a Model 3 so we can’t even use those in this case.

  15. Tom Moloughney says:

    Not a bad video, but he left out one MAJOR factor in electric vehicle depreciation, the Federal Tax Credit.

    A major reason why most electric cars have such bad resale value (high depreciation) is because the owner gets up to $7,500 back from the Federal govt, AND in some states thousands of dollars back in local incentives.

    So basically, the moment they pull out of the lot they lose the usual 10% to 15% PLUS whatever incentives is available for that car. Why would a buyer consider buying a used EV without deducting depreciation AND any incentives available for that vehicle in their respective market?

    In the case of the Model 3, since Tesla will soon reach the 200,000 vehicle limit, and trigger the gradual elimination of the credit, the Model 3’s resale value will remain higher than most competing EVs because new buyers won’t get the $7,500 credit.

    1. unlucky says:

      It’s unclear what you mean by most EVs. But GM gets there soon too.

      It’s hard to know what happens to resale at that point because it’s likely the cars get a price drop when the rebate goes away instead of just the new cars being sold at a higher price.

      EVs are supposed to become a mass market item and thus become cheaper to produce and thus sell for cheaper. They’re not supposed to suddenly become $7500 more expensive and then sell even worse than they did before.

      10%-15% drive-off depreciation seems low for any kind of car I’ve ever bought.

    2. Doggydogworld says:

      Tax credits are a big factor in used price. Who would pay $10k for a 3 year old Leaf when they could buy a new 2017 for $14k (31k – 10k Nissan discount – 7500 tax credit). But people compare 8-9k actual used Leaf price vs. 31k MSRP and get these silly depreciation figures.

      That said, the credits ALSO affect new car buying. It’s not clear new Model 3s will fetch the same price once the credit expires, especially if Tesla builds them in the quantities Musk claims. The expiring credit may help support Model 3 resale, but it won’t be dollar-for-dollar.

    3. Murrysville EV says:

      My former 12 Leaf lost 75% of its value in 3 years, and that calculation *excludes* the Federal subsidy.

      2012
      MSRP = $37250
      Subsidy taken by Nissan = $7500
      I paid $29750.

      2015 (end of lease)
      List price, used car lot = $9000
      New buyer price = $8000 probably
      Auction price = $7000 probably

      My estimate on the auction price takes into account that the reseller transported the car 3 states away, cleaned it up, and put new tires on it. Plus, they’d like to make some money.

      $7000/$29750 = 24%… ~76% depreciation in 3 years on a car with 26k miles = Yay!

      Spin the numbers as you wish, but EV depreciation is mostly linked to battery degradation and feature improvements in future models. ICEs are well understood, with a wide buying audience. EVs today have a very small market for resale, so prices will be driven by fear of the technology.

      You can’t both praise the low prices on second-hand EVs (e.g. Leaf), and then praise the high mythical resale on a different EV.

      So yes, I’m wary of EV depreciation, and completely dismiss extravagant claims of 30% depreciation for the Model 3.

  16. Nix says:

    There is such a crap shoot that anybody predicting with any accuracy 5 years out is silly.

    The only real short-term play is getting one with state and federal rebates before they end. Then resell it after the rebates are gone in your state and at the fed level.

    Meanwhile, drive it enough to save a bunch of money on gas to maximize the price difference

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