Capital One: Value of Luxury Gas Cars Getting Slammed by Tesla Model 3

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We talked at length about it years ago at a CleanTechnica conference in Berlin. The night the Tesla Model 3 was first shown to the public, it also crossed our minds. Kyle Field and I were on the test track — only sharing the road and driveway with a few Tesla employees, a black matte Tesla Model 3 prototype, a silver Tesla Model 3 prototype, and a couple of other Teslas. In the 20 minute video I shared of that extremely lucky test track experience (but not the 10 minute abridged video), I didn’t interrupt the fun sounds of the test track fog shooters and the smoothly rolling Teslas very much, but while talking with a Tesla employee near the beginning I laughed a bit out of my awe for the beautiful, super fresh Model 3 and what it would mean for the auto industry. I was picturing elite auto giants in the board room of BMW and Audi sobbing. This was a disruptor, a truly disruptive product that would transform the auto industry, starting with the luxury car market.

A couple of weeks later, at our first Cleantech Revolution Tour conference, in Berlin, we discussed a matter that seemed absolutely imminent: a crash in luxury gas and diesel car resale values. The ramifications of a disruptive new electric luxury car that genuinely embarrasses the Audi A4, Mercedes C-Class, and BMW 3 Series are manifold, but perhaps one of the biggest is that strong depreciation of these previous industry leaders could be disastrous for their parent companies and further accelerate the switch to electric transport.

Notably, a crash in resale values means leasing companies have to increase what they charge customers — otherwise, they’ll lose money on the cars over time. Raising leasing prices means that those vehicles become less competitive, which means fewer people leasing.

An employee of one of the largest auto leasing companies in Europe told me a couple years ago that the CEO of the company had already committed to a quick transition to 100% electric vehicles as a result. It would simply be bad business management to walk into a collapsing market and financial crisis. All he had to do was look the superiority of the Tesla Model 3 and reflect on where the market was headed.

Normal new car buyers may be slower to pick up on the market trends. If they didn’t put down money for a Model 3 reservation or at least jump into the crowd once production ramped up, there’s a good chance they’re simply out of touch. So, it should come as a surprise when they bring their 2018, 2019, and 2020 BMW 320i, Audi A4, or Mercedes C300 “luxury automobiles” to auto dealers or the private used car market and find they lost far more value than the consumers anticipated. Nonetheless, that is what’s going to happen, and that is what’s starting to happen.

No, this is no longer just CleanTechnica saying so. It is not simply Teslarati and Teslamondo saying so. It is Capital One saying so. As the non-analyst tweeting above highlights, Capital One now says that the Tesla Model 3 is “wreaking havoc” on the used luxury car market — that is, the used luxury gas and diesel car market. To Tesla owners, the most confusing part of that some people still consider those cars luxury cars. They have horrible, non-luxury drive quality compared to a Model 3. They have horrible, non-luxury tech compared to a Model 3. The don’t meet the safety level or performance of a Model 3. The interiors or cluttered with old technology, knobs, buttons, and an antiquated interior design. Perhaps we’re Tesla fanboys and fangirls, but there are many reasons for that, and the fan population is growing fast.

Nonetheless, it’s both surprising and exciting that such a mainstream, establishment company like Capital One is publishing the news. It does not mince words. Here’s the headline and summary statement:

The report also notes that 22.2% of Tesla buyers are trading in European luxury vehicles when buying their Teslas.

The searing reflection of market trends, perhaps written by a Tesla owner, sounds more like something you’d find on CleanTechnica than in Capital One’s Learning Center:

“The decisions car-buyers make are increasingly on the side of technology—or more specifically, Tesla’s version of it—than the traditional luxury cars that have long been industry benchmarks. What does that mean? Tesla’s sales successes are wreaking havoc on the pre-owned luxury car market. Once-strong demand for European luxury brands like Mercedes, Audi, and BMW is evaporating as buyers that used to spring for premium luxury sedans now want a Tesla. Any Tesla.”

But it’s absolutely true.

Not only are European luxury vehicle owners trading in those cars for Teslas, but the Tesla Model 3 is setting a whole new frame for what is possible from an entry-level luxury car. It is demolishing previous sales records in those markets and competing in the mainstream car market with the likes of the Toyota Camry and Honda Accord — as it should. Good luck, Audi. Good luck, BMW. Good luck, Mercedes.

The Capital One report is about the US market, but the Model 3 is the #1 best selling automobile (of all classes and vehicle types) in the Netherlands and Norway this year. The base version of that car just started getting delivered to many of those markets, and the higher trim is just starting to make its way to Australia, Japan, South Africa, etc. The disruption is just beginning. The signs are clear, and Capital One has even felt compelled to coin a term around this transition:

“In particular, Tesla’s Model 3 went from zero to over 140,000 units faster than any other luxury vehicle had before, and the demand for new Teslas is, in a very real sense, driving the used car market. With buyer after buyer trading in a still new-ish luxury vehicle for a brand-new Tesla, traditional luxury brands appear to be traded-in more frequently than all American and Korean manufacturers combined.

“Tesla now gets European vehicles as trade-ins 22.2% of the time—more than double the industry average of 10.9%. Because of this uptick, the market is becoming flooded with more affordable cars from Mercedes, Audi, BMW and the like—without a corresponding increase in demand.

“We’re calling this The Tesla Effect. It’s strong enough to cause prices to plummet, because the market has an excess supply of used luxury cars.”

It is a great article and analysis from Capital One, even if it comes a few years after CleanTechnica was blasting this message out from microphones and keyboards around the world. Of course, they needed to wait on some proof and robust figures, not in the same market of forecasting and speculation we are sometimes in. The good news is that we are arriving. A short stop for some Supercharging and I’m sure we’ll be back with more exhilarating analysis and fast-paced note-taking.

In the meantime, we should perhaps recognize that Capital One wasn’t the first to use the term “Tesla Effect.” Almost exactly one year ago, Paul Sankey of Mizuho Securities used the term on CNBC while talking about oil stocks. Without a doubt, “Tesla effect” will mean different things to different industries. We’ll keep you updated as recognition of that effect soars.

If you’d like to buy a Tesla Model 3 instead of a BMW, Mercedes, Audi, Lexus, Acura, or Volvo, and you’d like to get 1,000 miles of free Supercharging in the process, feel free to use my referral code: https://ts.la/zachary63404.