This story is inspired by a friend from my day job who is a successful Technical Project Manager. I’m known at work as the “Tesla Guy” since I rave about the car if given the slightest opportunity, so when my friend Raquel Aluisy approached me for information on the car, I was more than happy to give her a test ride and explain what makes the Model 3 so special.
After showing her the car, she sounded ready to buy it after she got a couple of things fixed under warranty on her Mercedes-Benz C300. I went on vacation for a few weeks and when I came back, I checked in to see what she had done. She had looked into buying a Tesla and found they were only willing to pay her $16,000 for her 3 year old car that she had paid $49,900 for when new. She couldn’t stomach taking that kind of hit on depreciation, so she has decided to keep the car for another few years (it can’t drop another $33,900) and decided to get an extended warranty since repairs can be very expensive on German cars.
I agreed that the depreciation should slow now, but was unsure about the maintenance costs (which I will research). I explained she can buy a Tesla in a year or two and that could be fine unless Tesla is able to get Full Self Driving working and approved by a government. If Tesla is able to accomplish what Elon is confident they can do, even though most other people (including me) are very skeptical about the time frame, Tesla prices will rise quickly. Let’s dive into the total cost of ownership (TCO) of the Mercedes-Benz C300 and see how it compares to a Tesla Model 3.
New vs Used Mercedes C300 Total Cost Of Ownership
At first glance, comparing the new vs used C300 TCO (which, since Mercedes only updates the look every 7 years, look pretty much identical to the untrained eye), there is little difference in insurance or fuel costs, but significant differences in maintenance, repairs, taxes and fees, financing, and depreciation. The good news is the taxes, fees, financing, and deprecation on the used C300 total $17,373 vs a staggering $37,441 on the new model, about a $20,000 difference.
The bad news is Edmunds estimates that the maintenance and repairs on the 3 year old C300 will be $17,580, or about $8,000 more than a new car, both due to the warranty and the fact that all of your parts are new on a new car, while on a 3 year old car, the parts are all 3 years closer to their end of life. Although you might avoid replacing many maintenance items, like brakes and spark plugs, on a new car, you will likely have the high expense of those items on a used car.
As you can can see, the cost to own the used Mercedes is about $12,000 less than the new one and nobody can really tell the difference. You can see why the Certified Pre Owned (CPO) market is so popular for these high-end cars! Next, let’s add two configurations of the Tesla Model 3 to the comparison.
Comparing The TCO Of A Used Mercedes To 2 Models Of The Tesla Model 3
I updated my Tesla Model 3 figures to adjust for the new pricing and tax credit available in the US until the end of the year. I also adjusted the depreciation to use Kelly Blue Book (KBB.com) estimates instead of scaling the Model S depreciation, but the depreciation change made little difference. We can see that the brand’s premium image is warranted, since you need to be making some money to drive this car.
Two Factors That Potentially Change Everything
The analysis above is fine as long as the next few years go along with Tesla selling well in its electric car niche and everything going as before, but are there any events that would dramatically change the situation? Below are two disruptive scenarios that I think would change this analysis drastically.
First, Tesla is able to perfect its Full Self Driving software solution and receive regulatory approval anywhere in the world to allow the car to drive itself. Elon predicted this will happen next year, and while I have expressed my skepticism with that timeline, I do think it is likely to occur in the next 5 years. As Elon presented at Tesla’s Autonomy Day in April, this will allow people who own any Full Self Driving Tesla to earn about $30,000 a year from their cars.
The demand for all Full Self Driving (FSD) Tesla cars would quickly go up to significantly exceed Tesla’s manufacturing capacity (considering they claim to be supply limited even today). Elon predicted that the price would go to about $100,000 for new and used Model 3’s. This is why he constantly refers to the cars as appreciating assets.
This price increase won’t happen all at once. It will happen gradually or suddenly as Tesla demonstrates progress, not in their lab, but in the half a million cars on the road that are FSD capable, with most needing an FSD computer replacement. So the point is, if you try to buy a Tesla too late (after Tesla has rolled out an impressive software release that convinces the public that it is close to “solving” the self driving problem), the price on the new and used vehicles will be significantly higher than today.
Second, as more companies deliver impressive electric cars, like the Hyundai Kona and the VW ID.3, the public will start to realize what most readers of CleanTechnica already know: that electric cars can meet your needs and instead of being a poorer car designed to save the environment but punish the driver, they actually are more fun to drive than other cars. If this realization comes more quickly than the existing manufacturers can secure supplies of batteries and shift production to EVs, there will be a huge oversupply of gas and diesel new and used cars.
Buyers may not be able to get the EV they want because there will be long waiting lists, but they can quit buying new gas and diesel cars and just keep their existing cars for a few years more. This would create a downward spiral in new and used gas and diesel vehicle prices. It isn’t too bad if you have a gas car that is 3 or more years old and has already taken a large amount of deprecation, but those with newly purchased gas and diesel cars take a significant risk of experiencing extreme deprecation.
So, what should you do? Well, if you are in the market for a new car and an EV meets your needs, buy an EV! But if you are still waiting because of one of the 7 reasons I listed here, keep your eyes open and your ears to the ground for the factors mentioned above. If one or both of those factors occurs before you get all your vehicles converted to either Teslas or other EVs, the cost to upgrade may be substantially higher than it is today.
On the other hand, if things progress slowly like most of the industry expects, you are better off waiting for 5 or 10 years for the price of EVs to come down and there will be no dramatic rush to buy an EV. Another factor to watch is the 2020 elections and the various proposals made by the different candidates. If climate change becomes a top-tier issue like the economy and healthcare, that may accelerate the transition to EVs. So far, climate concerns have only been mentioned briefly by the major candidates, but that may change at any time.
Use my Tesla referral link to get 1,000 miles of free Supercharging on a Tesla Model S, Model X, or Model 3, here’s the link: https://ts.la/paul92237 (but if someone else helped you, please use their link).
TCO Calculations Notes
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