I came up with the idea for this article after I noticed that Tesla is enabling the $10,000 Full Self Driving (FSD) capability on every Model 3 that it is selling used. I spoke to a couple of salespeople and verified that is the case (note that it could change at any time) and that you can’t lower the price by having the option removed.
Since I think that is the one feature that I like most about Tesla, I thought I would write an article on how it would affect my buying process if I was buying a Model 3 (I’m actually going to be buying a Model Y soon, but it is unlikely I can get a used Model Y and apply this same “trick” unless I wait another year for my Model Y).
You will see research that claims that Tesla Model 3 has very low depreciation, like this article that showed only a 5.5% depreciation after a year. In an earlier article, we said the Model 3 is so good, hardly anyone wants to sell it. Those articles were in February 2020 and January 2019, respectively. This fresh new article makes the point that the Model 3 is still a great car, but that a bunch of people have sold or traded in their car, and in some cases, they are a great deal.
Advantages of Buying New
- The new console, chrome delete trim, heat pump, thicker glass, increased range, and power trunk.
- Full 4 year/50,000 warranty.
- No scratches or blemishes in the interior or exterior (or you can refuse delivery or ask they be fixed if there are).
- Might last a little longer or have a slightly higher resale value.
- It’s a new car! I don’t know how to describe that, but it has value to a lot of people (including me).
Advantages of Buying Used
Well, you could use this strategy to get a Tesla today, but you could alternatively use this and start with a $6,000 lower-end electric vehicle (EV) like a Nissan Leaf, $12,000 Chevy Bolt, or some other EV. But that isn’t the point of this article. The point of this video is to show you the power of the time value of money and how saving a little money now and having a great car (but not quite a super great car) can save you a lot of money and make a significant difference in your life.
In that video above, buying a used car instead of a new car meant the person could retire 40 years later with about $5.6 million. This strategy will work even better when you save a few hundred a month on fuel, maintenance, and reduced depreciation. The total cost of ownership on a $6,000 EV is incredibly low. The problem is a $6,000 EV will have a very low range (maybe 60 miles) and could make a great second car (that range is so low that it might not even meet your needs as a second car) but a poor first car for many people.
So, if you can wait, don’t buy the used Tesla I’m going to spend the rest of this article telling you is great — instead, start with a $6,000 Leaf and gradually work yourself up to a Tesla in a few years. Of course, the risk you are taking is that if Tesla gets true Full Self Driving (FSD) working before you get one, you may never be able to afford a Tesla vehicle — because the cars might go up in value since they will be highly sought after in order to produce income for their owners. Elon says they will get FSD working and approved by at least one government in 2021. Do you believe he can do it? (We have written extensively on Tesla’s Full Self Driving, including this most recent article on subscriptions coming soon!)
- It’s cheaper.
- Tesla is offering 1 year and 10,000 miles extra warranty (past the original 4 years/50,000 miles you get with the Model 3 when new). For a Model 3 that is a couple of years old with 30,000 miles on it, for example, you will have 3 years (2 years of the original warranty and 1 year extra) and 30,000 miles (20,000 of the original warranty and 10,000 extra) of bumper to bumper to bumper warranty, as well as 6 years and either 70,000 miles (Standard Range Plus) or 90,000 miles (Long Range or Performance) of powertrain warranty that covers the expensive battery and the not-so-expensive motors.
- If the car has a few blemishes, I don’t have to be so careful with the car, “baby” it, and not run it through an automatic car wash.
- Tesla is presently enabling the $10,000 Full Self Driving Capability in all its used Model 3 vehicles (as of December 2020)! They may or may continue that policy in the future. This is a big deal if you were planning on getting the FSD option. Further, at this time, you can’t get any reduction in price by asking Tesla to remove the FSD option from the car. So, if you have no interest in FSD, you could do better either buying a new Tesla or buying your used Tesla from someone other than Tesla — since individual owners will need to give you a lower price for a car without FSD than an equivalent car with FSD. That will be a good deal for some. Another possible deal is you may be able to buy a Model 3 with FSD enabled from a dealer that doesn’t understand what they have and misprices the car to be competitive with used Tesla Model 3 vehicles without Full Self Driving. The problem with this strategy is you likely have to spend a lot of time emailing and calling the dealers and get a picture of the car’s software screen, since very few dealers are knowledgeable enough to provide that in their listing, and if they made an error under-pricing a car with FSD, you’ll want to confirm that.
If you do want a used Tesla without Full Self Driving, you can try using a regular car site like Car Gurus, but as I mentioned above, you will have a lot of trouble finding out what exactly you are getting because they waste a ton of space telling you about 100 options that are on the Tesla, such as power windows, that don’t give you any information at all (all Teslas have power windows) but frequently don’t tell you the software options that have been purchased.
I like the site onlyusedtesla, since owners and dealers who post there seem to be knowledgeable enough to tell you about the options that matter to Tesla buyers. Although you will find better prices (and you can negotiate them down from the asking price), you won’t get the extra year of warranty and it will have whatever level of Autopilot or Full Self Driving the previous owner purchased.
As you can see from the above image, you can find cars that are 42% off the new price out there (the vehicle in the picture did have an accident reported).
I find the sweet spot for used Model 3 vehicles to be ones that are about 2½ years old and have about 10,000 to 30,000 miles on the odometer. This way, you will still have the car under warranty for 1½ years (if you buy it from anyone other than Tesla) or 2½ years if you buy it from Tesla. Also, you can get the long-range RWD model that is an excellent value that you can’t buy today. If you buy it from Tesla and you can find one in your area, you don’t have to pay a large shipping fee. Overall, you can save $16,000 and still have a high-quality car that should last you a long time.
Now, if you want the Standard Range Plus model and don’t care about FSD, I think you might as well buy new (or save a little on a demo), since the savings on those models are pretty small when buying used. One other factor to consider is you will generally pay a slightly higher interest rate on a used car loan (3.99%) than a new car loan (2.49%) — from Tesla or anyone else. This 1.5% higher rate (which is what Tesla charges) is equivalent to about $1,500 in purchase price on a $45,000 vehicle. Also, if you are going to sell the car in a few years, the resale value of 2021 will be significantly higher than the 2018 car. Since I tend to keep my cars for 10 years or so, the value of each of these cars will be about the same at the end of that period, so I would prefer the used Model 3 above to the new Model 3 above.
If you decide to order a New Tesla, use a friend’s referral code to get 1,000 miles of free Supercharging on a Tesla Model S, Model X, Model 3, or Model Y (you can’t use it on used vehicles or the Cybertruck yet). Now good for $100 off either solar panels or a solar roof, too! If you don’t have any friends with a Tesla, use mine: https://ts.la/paul92237
Disclosure: I am a shareholder in Tesla [TSLA], BYD [BYDDY], Nio [NIO], and Xpeng [XPEV]. But I offer no investment advice of any sort at any time or anywhere.
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