In this article, I look at depreciation data for the Tesla Model 3, Toyota Camry Hybrid, and BMW 3 Series. After this deep dive, I need to update the TCO (total cost of ownership) estimates I made about a year ago.
Reasons Why Tesla Pricing Has Been So Volatile Over The Last Few Years
- The Covid pandemic and the response to the pandemic produced a lot of disruptions to the supply chain. This caused supply of new cars to be reduced, and manufacturers and especially dealers took advantage of this market dynamic to increase profits per vehicle. This is now reversing as supply is returning to normal. One of the best free sources of data on the current state of the US auto market is Cox Automotive Monthly Industry Updates. You can consume the info in either a 15 minute video or a downloadable presentation.
- Tax credits have changed over this period. In 2018, Tesla buyers qualified for a $7,500 credit. This phased out because Tesla hit the 200,000 milestone, which triggers a slow phaseout. Then, in 2023, many Tesla models got the $7,500 credit again, but … some versions of the Model 3 have been reduced to $3,750 recently. This credit could change again, either through congressional action or as Tesla moves production of more batteries to North America. I think Tesla will work hard to get the all Model 3 vehicles eligible for the full $7,500 credit by moving the supply change to North American and increasing the percent of cars leased. Leasing helps in three ways. First, it provides an immediate benefit to the consumer, since they don’t have to wait up to a year to get the tax credit. Second, it provides the full $7,500 credit on vehicles, even if the battery doesn’t meet the domestic content requirements of the Inflation Reduction Act (it’s a loophole). Third, it provides the full discount to people whose income is too low or too high to get the full tax credit.
- Tesla raised prices a lot last year (both because demand greatly exceeded supply and because material prices went up a lot). Then, this year, the company dramatically lowered them (Model Y prices have been especially volatile). Note: Aldrich Bautista (@AldrichBautista) maintains a Tesla Car Price History Tracker.
Looking At Tesla Model 3 Depreciation
Why am I looking at Tesla Model 3 depreciation and not depreciation of the Model S, X, and Y? The Model S and X are higher-end cars and have less impact on the future of the company. Elon has said they are just being produced for sentimental reasons. The Model Y is relevant, but just hasn’t been around long enough to have much data. Traditionally, you could just look at the depreciation of a vehicle in the past and then use that data to extrapolate into the future. There are several reasons that hasn’t worked out over the last few years and may not work on in the future.
Let’s look at the 2019 Model 3 Standard Range Plus (SR+) and the 2018 Model 3 Long Range All Wheel Drive (LR-AWD), since those are vehicles that were available 4 to 5 years ago and are available to order now (the LR-AWD is orderable now, but not available till next month).
For the 2019 Model 3 SR+ …
- I averaged all the selling prices in 2019 and got $38,980.
- The tax credit for Tesla in 2019 was $3,750 for the first half of the year and $1,875 in the second half of the year. The Model 3 SR+ wasn’t available till the end of the first quarter, so doing an average of the tax credit and the months available gives us an average credit available of $2,438. So, the net price of the 2019 SR+ (without options, but most people bought these with minimal options) was $38,980 minus $2,438, which equals $36,542.
- The price of a similar Model 3 today is $40,240 minus the $3,750 tax credit, which equals $36,490. A decrease of $52. Wow!
I looked at EV-TSLA.com to get all the cars for sale right now from Tesla. I found the SR+ sold for an average price of $32,963 and has an average mileage of 29,000 miles. So, they have depreciated an average of $3,527 (10%) from the original 2019 purchase price, and $3,579 (10%) from the 2023 purchase price. You should add a couple thousand dollars (5%) to adjust for the options (paint and wheels on some). So, to summarize, it has depreciated about 4% a year (I realize trade-in values are lower).
I also went to CarGurus.com, but didn’t use that info since I didn’t figure out how to separate the different versions of the Model 3. But this site is very useful for looking at trends. Its Used Car Price Index tracks list prices of used cars.
Notice that the price of a used Model 3 started out costing almost triple the price of the average used car and now is only $8,002 (27%) higher.
For the 2018 Model 3 LR-AWD …
- I averaged the selling price in 2018 and it was $53,667.
- The tax credit for 2018 was $7,500, so the net price of the 2018 LR-AWD (without options) was $53,667 minus $7,500, which equals $46,167.
- The price of a similar Model 3 today is $47,240 minus the $3,750 tax credit, which equals $43,490. That’s a decrease of $2,677. We can see that Tesla has been lowering the price of the longer range models as compared to the standard range models, probably as the company has been able to reduce the cost of the battery somewhat. The Model 3 Performance has come down the most. It started at about $70,000 (after credit) and is now available for $45,740 (after credit).
I looked at TSLA-EV again to find 2018 LR-AWD prices, but this becomes skewed because Tesla adds either Enhanced Autopilot or Full Self Driving to these cars to increase their selling price. These cars sold for an average of $38,000 and have an average mileage of 34,000 miles. So they have depreciated an average of $8,167 (18%) from the 2018 purchase price, and $5,490 (13%) from the 2023 purchase price. You should add about $5,000 (~11%) to adjust for the options (enhanced AP/FSD, paint and wheels). So, to summarize, the Model 3 LR-AWD has depreciated about 6% a year from the original price and 5% from the new price.
Looking At Toyota Camry Hybrid Depreciation
I picked the Toyota Camry Hybrid since it is one of the more commonly compared vehicles to the Tesla Model 3.
- For the 2019 Camry Hybrid, I selected the SE model, which is in between the low-end LE model and the more luxurious XLE model. The MSRP was $30,100 and there’s no tax credit.
- The similar car today starts at $31,190, only $1,090 (4%) more, but it is likely many dealers now add several thousand dollars in dealer markup, and that was pretty rare in 2019. We can tell that, because the used 2023 price is $5,005 higher. So, to adjust for this, we will use a new price of $37,000, a $6,900 (23%) increase.
I looked at used prices on cargurus.com and saw that there is a good mix of LE, SE, and XLE models available for sale. The average listing price now is $26,645. So, they have depreciated an average of $3,455 (11%) from the original 2019 purchase price, and $10,355 (28%) from the 2023 purchase price. You should add a couple thousand dollars (6%) to adjust for the options. So, to summarize, it has depreciated about 4% a year from the purchase price, but 8% a year from the cost of buying a new model.
Looking At BMW 3 Series Depreciation
I picked the BMW 3 Series, since it has similar performance and is one of the more commonly compared vehicles to the Tesla Model 3.
- For the 2019 BMW 3 Series, I selected the 330i xDrive model, which is in between the low-end rear-wheel-drive model and the higher-end M models. The MSRP was $42,250 and there’s no tax credit.
- The similar car today starts at $45,800, $3,550 (8%) more, but it is likely many dealers now add several thousand dollars in dealer markup and that was pretty rare in 2019. We can tell that because the used 2023 price is $5,340 higher. So, to adjust for this, we will use a new price of $51,000, a $8,750 (21%) increase.
I looked at used prices on cargurus.com and the average listing price now is $31,417. So, they have depreciated an average of $10,833 (26%) from the original 2019 purchase price, and $19,583 (38%) from the 2023 purchase price. To summarize, the BMW 3 Series has depreciated about 7% a year from the purchase price, but 10% a year from the cost of buying a new model.
More analysis of the raw data will be coming in a future article, but it looks like there is very low depreciation on the Tesla Model 3. This is likely for 5 reasons.
- Tesla allows existing cars to get most new features of the newest cars with over-the-air software updates.
- Tesla batteries have a good reputation and warranty.
- The Tesla Model 3 requires almost no significant maintenance costs (except tires). This is similar to Toyota gas vehicles, and in stark contrast to BMW vehicles.
- Tesla hasn’t changed the styling (except changing chrome to chrome delete). This point may change with the coming release (sometime in the next year) of the Project Highland Model 3.
- Even 2017 Model 3 vehicles will be able to achieve Full Self Driving, according to Elon Musk. Now, whether that is true is an open debate.
Resale value, or depreciation, is a key component of the cost of owning a car. If this lower-than-average rate of depreciation can be presented to banks and investors, Tesla buyers should be able to get loans with longer terms with lower monthly payments, or leases with higher residual value, which would lower the monthly lease payment for consumers and help accelerate the world’s transition to electric vehicles.
If you want to take advantage of my Tesla referral link to get Reward Credits, here’s the code: https://ts.la/paul92237 — but as I have said before, if another owner helped you more, please use their link instead of mine. If you want to learn more about Tesla’s new referral program, Chris Boylan has written an excellent article on it.
Disclosure: I am a shareholder in Tesla [TSLA], BYD [BYDDY], Nio [NIO], XPeng [XPEV], Hertz [HTZ], and several ARK ETFs. But I offer no investment advice of any sort here.
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