Do Teslas Hold Their Value?


Do Teslas Hold Their Value?

Tesla released its first vehicle over a decade ago, leading some to wonder whether these innovative cars hold their value. Most consumers associate Tesla with Elon Musk, the co-founder and CEO who oversees product design, engineering, and manufacturing of the company’s vehicles. However, the Tesla company was founded by a group of engineers who believe that all-electric vehicles are a way to move towards sustainable energy and away from the harmful reliance on fossil fuels.

So, do Teslas hold their value? Overall, Teslas do hold their value. This means that they depreciate less in value among their competitors and that they depreciate more slowly across time. There are many factors that influence the current trend as far as Teslas holding their value, including the automobile market, unique features of Tesla cars, and car buyer patterns. As of now, Tesla vehicles are considered low in depreciation and, therefore high in retaining value.

Though Tesla cars may be a good investment as an environmental choice and compared to competitor manufacturers, their initial cost is quite expensive. In addition, Teslas are not immune to the inherent depreciation of cars in that, like all vehicles, once a Tesla is purchased, it transitions from a new to used car. However, Tesla vehicles hold their value better than most of their competitors at this point, resulting in lower depreciation.

The Demand for Teslas

What makes Tesla Motors and its vehicles unique is the production of its own all-electric cars. In 2008, Tesla Motors released its Roadster model, which became the world’s first highway-legal electric car.

The closest that other auto manufacturers in the industry have come to these all-electric vehicles are hybrid cars that run on both gasoline and batteries. Traditional car manufacturers such as Ford, General Motors, and so on, have not taken on fully electric car production due to its high costs. These costs would be priced out to consumers, resulting in very expensive vehicles that may not sell.

All-Electric Vehicles

An all-electric vehicle is one that runs on electricity only. These cars are fueled by one or more electric monitors which are powered by rechargeable battery packs. All-electric vehicles are considered to have many advantages in comparison to their conventional, gas-powered counterparts:

  1. Energy Efficiency: these electric vehicles convert a higher percentage of power from electrical energy than conventional vehicles do from energy stored in gasoline
  2. Environmental Friendliness: electric vehicles don’t emit any pollutants as individual cars, though some power plants may emit them in production of the electricity
  3. Performance Benefit: electric motors generally allow for quieter, smoother operation of the vehicle as well as stronger acceleration and less engine maintenance across time
  4. Reduced Energy Dependence: since electricity is considered a domestic source of energy, all-electric vehicles reduce dependence on fossil fuel energy sources

Of course, many would point out the drawbacks of owning an all-electric vehicle as opposed to a gas-powered car. For example, though the driving range of these cars is improving, electric vehicles have a shorter driving range (on one charge) than most conventional vehicles. The distance an electric car can travel is dependent on the charge and car model.

Another drawback may be the time it takes to recharge the battery pack, which can take anywhere from 3 to 12 hours. Some models have a “fast charge” available up to 80% vehicle capacity, but that usually takes over 30 minutes. In addition, though batteries for electric vehicles are designed for an extended life, they tend to last between 12 to 15 years in moderate climates while only lasting 8 to 12 years in severe climates. Battery pack replacement for electric vehicles is very expensive.

Demand for Tesla Cars

Tesla cars are, in fact, quite expensive to buy new—upwards of $70,000. However, they are very much in demand. In fact, the sales records and waitlist for Teslas is growing. This is partly due to the fact that Tesla motors is not at the capacity level like their manufacturer peers to meet the current demand immediately. Therefore, economically, because the demand for their vehicles exceeds the available supply, the price increases.

Aside from limited current supply, another explanation for why Tesla cars are in demand is the green energy movement. All Teslas are electric. Therefore, they don’t run on gasoline, which has been shown to emit greenhouse gases as well as directly produce carbon dioxide. This electric option, as opposed to fossil fuel, appeals to those who want to make a conscious choice in avoiding as much of a carbon footprint as possible.

The aesthetic, performance, and driver interaction with Tesla vehicles also increase their demand. Here are some of these features that greatly appeal to car drivers:

  • Sleek and modern design
  • High-tech driver interface with digital touch-sensitive dashboard display
  • High performance and acceleration
  • Full charge allows for up to 200 miles in driving
  • User-friendly recharging
  • Silent noise level when driving
  • Expanded product line, including family-friendly SUV

In addition to improving and expanding their range of high-performance vehicles and the capacity to manufacture them, Tesla Motors is participating in research and development to enhance batter technology—particularly working towards making the cost of battery power storage comparable with gasoline. In time, this may moderate the price of Tesla cars, but it’s likely to elevate the demand for them as well.

Do Teslas Depreciate in Value?

Teslas do depreciate in value in the sense that, as a rule, most assets experience a reduction in value across time and with natural wear and tear. This is especially true for vehicles since at the moment of purchase, the car turns from new to used. Therefore, new cars are likely to depreciate by thousands of dollars and/or nearly 20% within the first year of ownership.

Teslas, however, do not depreciate as much in value or as quickly as their competitors. In holding their value at a better rate and for a longer period of time, Tesla vehicles are currently considered a good investment when it comes to luxury vehicles. 

Tesla’s Luxury Status and How It Impacts Depreciation

There is no fundamental definition for what makes a luxury, or high-end as it’s termed today, vehicle. Traditionally, luxury vehicles were identified by their glamor or brand. In the current market, technology and comfort are more determining factors for high-end automobiles. This would include navigation systems, entertainment features, heated seats, and other design or interior details.

Another aspect now associated with luxury cars are high-end dealerships. Such dealerships intend to offer the customer an “experience” while buying a car, with complementary services and stylized showrooms. Even mainstream auto manufacturers produce high-end vehicles for almost all vehicle types. 

When it comes to Tesla, their sales strategy is to give buyers the option of purchasing vehicles online or in company-owned showrooms. This means that Teslas are not available through any conventional dealer networks. Tesla’s embrace of e-commerce strategy allows buyers to customize their vehicles and order them online without having to enter a showroom of any kind.

Ironically, the more a car is considered luxury or high-end, the higher the markup becomes for buying it new. This results in much greater and more rapid initial depreciation among luxury cars than any other vehicle classification. In other words, if a buyer spent $80,000 on a high-end car and the average rate of depreciation is 20%, that car would be worth less than $65,000 within a year. 

Tesla cars, at this point, are not experiencing as great or rapid a depreciation value as their high-end competitors. Thus, they are holding their value at a greater monetary rate for a longer period of time than other comparable or even higher-end vehicles. Though the depreciation of cars is dependent on many influences, as of now, the low depreciation value of Teslas makes them a good vehicle investment.

Car Depreciation: How It Normally Works

Most new car buyers are told that their vehicles lose value as soon as they are driven off the lot. This rapid depreciation when it comes to cars is due to several factors within the automotive industry and among car buyers themselves, and Teslas are not any different.

Here are some of these reasons for car depreciation:

  • Dealership Mark Up: For the most part, automotive dealerships sell vehicles from just a few manufacturers, from which dealers pay the wholesale price. Therefore, the prices aren’t competitive across dealerships when comparisons are made for the same vehicle, causing quick depreciation in value after purchase.
  • MSRP (Manufacturer’s Suggested Retail Price): In general, the MSRP is also known as the “sticker” price. For new cars, this price is higher than the invoice price by a significant percentage, resulting in greater loss of value after purchase.
  • New Model Year: If a new model year of a vehicle is produced, the previous models drastically lose value. This is due to the new model’s potentially updated features and functions as well as buyers seeking the most current version of the vehicle.
  • New Becomes Used: Since cars go from new to used at the moment of purchase, the value of a just-purchased car is reduced. This is due to the potential buyer pool narrowing to dealers and used car buyers, neither of which would be likely to pay anything near the purchase price.
  • Market Forces: Market forces, such as supply and demand, also have an impact on the rate and amount of car depreciation. Therefore, it’s important to do market value research in order to choose vehicles that hold their value as much as possible for investments.

Overall, cars depreciate due to the fact that they are assets that wear out over time. With vehicle use, owners incur maintenance costs and the probability of future costs increases. Therefore, the value drops. However, the value of cars doesn’t diminish to absolute zero. Even vehicles that don’t function have some “scrap” value because of metal and other raw materials.

Depreciation Studies and Tesla Statistics

Exact depreciation for a vehicle is determined and varies by market forces, mileage, physical condition, and the purchase price. In general, depreciation statistics are in reference to new cars and based on the sticker price, or MSRP, which may not be an individual buyer’s initial price due to special manufacturer options or consumer negotiations. Therefore, there are several conditions that influence the depreciation and resale value of cars.

Yearly depreciation for a vehicle is generally about 15-20% each year, based on average driving conditions and wear and tear. The fastest rate of vehicle depreciation occurs in the first year. Future and/or unexpected market values when it comes to resale also affect a car’s depreciation and value. One way to determine a new car’s immediate depreciation is to assess its value as a used car through an appraisal service.

A study based on an Autolist survey and conducted by Loup Ventures gathered millions of data points between January 2012 and August 2016. The depreciation value among the following comparable vehicle makes and models at or beyond 50,000 miles were as follows:

  • Tesla Model S: 28%
  • Lexus LS 460: 32%
  • Mercedes S-class: 36%
  • Porsche Panamera: 37%
  • BMW 7 Series: 40%
  • Audi A8: 40%
  • Jaguar XJ: 41%

Researchers acknowledge that during the time period of the survey, Tesla supply was limited. This may have “artificially” allowed Tesla cars to maintain high resale prices, thus generating low depreciation. Loup’s study, therefore, examined the same survey list of models and constructed a means of predicting depreciation percentages based on model year, miles driven, and MSRP by studying listings of certified pre-owned vehicles and accounting for differences between Tesla cars and competitors.

Again, researchers acknowledged flaws in the study that limited precise or exact calculations. However, the Loup study also concluded that the Tesla Model S depreciates at almost a 7% lower rate than its class competitors. In addition, there is anecdotal evidence based on buyer demand that Tesla cars currently hold their value. 

Overall Findings

The overall findings when it comes to the depreciation of Tesla vehicles and the level of value they hold are consistent across their available models and in comparison to rival makes and models.

Here is a summary of overall findings regarding Teslas:

  • Tesla Model S and Model X hold resale value better than their gas-powered competitors
  • Model S depreciation is on average 27% post 50,000 miles, whereas the overall classification of comparable vehicles depreciated by an average of 36%
  • Model X depreciation is on average 23% post 50,000 miles, whereas the overall classification of comparable vehicles depreciated by an average of 33%
  • Model S resale values continue to be stable even with greater inventory (supply)

Competition

In a sense, with the development, production, and sale of Tesla’s Model 3 all-electric and affordable sedan, the company grew its own competition with the much higher priced models. In turn, many established automakers have indicated production plans for all-electric vehicles, which will institute direct competition for Tesla Motors in the all-electric car marketplace. 

However, despite facing such internal and external competition, Tesla’s Model S and Model X vehicles still manage to hold their resale value better than their gas-powered competitors and lower-priced Model 3 competition. In fact, the depreciation gap between Model S and Model X Teslas and comparable manufacturer brands is growing.

This immunity to both internal and external competition, at least for now, reveals that resale demand for Tesla Model S and Model X vehicles is strong and steady, as is the value Teslas hold.

Conclusions

Overall, the fact that Tesla vehicles are holding their value at this time is good news for Tesla Motors. As a rule, the level of demand for manufactured vehicles is influenced by their resale value in the used market, and a higher demand usually indicates lower depreciation. 

This is especially significant for Tesla as higher-end cars generally depreciate at a greater and more rapid rate. In addition, “plug-in” cars have traditionally experienced greater and more rapid depreciation than gas-powered models. This is due primarily to yearly improvements in technology and tax incentives for new plug-in vehicles. However, Teslas show a lower and slower depreciation value by far than comparable plug-in models.

Another reason for the depreciation gap between Tesla vehicles and their competitors may be due to the company’s reputation for innovation and technology as a whole. Tesla’s mission, as stated by the company at its founding in 2003, is to enable the transition from fossil fuels to a future of sustainable energy. Since then, Tesla has launched the Roadster sports car, Model S sedan, Model X SUV, Model 3 mid-range car, and Tesla Semi—all of which have earned safety, efficiency, and performance ratings.

In addition, Tesla Motors is known for its safety rate among employees, even as it expands and increases the production of vehicles. As Tesla produces more affordable all-electric car models, its products will be more accessible to a wider range of consumers—many of whom are seeking to support the implementation of clean transport and energy production.

Therefore, in addition to holding value and a lower depreciation percentage among competitors, Tesla has managed to combine cars, batteries, and renewable energy generation. This may increase demand for Tesla cars and their value for the long-term.

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Greg

Hi, I'm Greg. My daily driver is a Tesla Model 3 Performance. I've learned a ton about Teslas from hands-on experience and this is the site where I share everything I've learned.

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