Used Tesla Values Could Be a Bubble Waiting to Burst
The National Automobile Dealers Association new electric vehicle retention list released last week has a tasty little tidbit in its roundup of value retention rates.
Tesla’s Model S, which topped the 3-year value retention rate list for EVs in the new list, also sported a better value rate for most cars on a similar list released last year for all segments, including mid-size luxury cars. That includes BMW.
But the news may not be all good, all the time.
According to the most recent NADA study, Tesla’s Model S retains 57.2 percent of its original value after three years based on dealer trade-in values. That figure is tops among mid-size luxury sedans, including BMW’s 5-series, in a study conducted last year.
Also noted in the 2015 study, there is a significant cliff after three years when most EV manufacturers’ powertrain warranties expire, meaning there’s good chance that the Model S’s value plummets after that.
The 2014 study by NADA (which examined all segments – including EVs) was comprised of only the Chevrolet Volt and Nissan Leaf — the only two cars that had been on the market for three years by the time the study was conducted. The Volt and Leaf retained 41.6 percent and 38.2 percent of their values respectively, due partly to price drops from their manufacturers and increasing competition in the segment. The 2015 study had worse news for Volts and Leafs on trade-in: those values dropped to 31.3 and 25.3 percent respectively.
As Tesla prepares to release their Model X, there’s no doubt quite a few Model S owners will be looking to replace their sedans. This could trigger a market saturated with Model S’s (or is it “Models S”?) at or nearing the end of their warranty lives — and it’ll likely have legitimate competition in the near future as well, further driving down retained values.
It’s no secret that Tesla has no significant cash flow, hasn’t turned a profit for more than one fiscal quarter in five years, and probably won’t have a cash-positive year until 2020.
That all could mean the bottom falling out for Tesla Model S values soon. Or not.
More by Aaron Cole
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"...there is a significant cliff after three years when most EV manufacturers’ powertrain warranties expire" Even some casual journalism would reveal that there are actually no EVs on the market with a three year powertrain warranty. The Volt and Leaf have eight year powertrain warranties. In CARB states plug-in hybrids have 10 year, 150,000 mile warranties. Furthermore, Tesla's warranty is eight years with the vast majority of Tesla models qualifying for unlimited mileage on both the battery pack and the drivetrain for those eight years. The precipitous drop in resale values of Volts and Leafs are mostly to do with goofy calculations necessary to account for what people actually pay for these cars and the price drops in MSRPs as the technology has advanced. A Leaf in 2011 ran about $38,000 but you can get one today for as little as $29,000. Most were delivered in California where the total of state and Federal credits is $10,000. Volts are similar in that they used to start at $41,000 and dropped to $35,000 over this period as battery costs have fallen. So the real equivalent starting point for determining a 2011 Leaf's resale value is about $19,000 and, by that metric, their resale value retention rate is similar to other cars in its class like a Focus or Versa.
As long as Tesla (and most of their customers) retains access to pretty much free (to them) money, they'll find a workaround. They're too savvy a bunch of marketers to risk Cadilacization by having a Tesla in every ghetto driveway.