Academic Exercise - Effect of the end of Federal Rebate on M3 CPO pricing

[Enadler]

I have been trying to decide whether or not to wait and purchase a Dual Motor M3 and more likely than not forego the full federal rebate or to purchase an M3 as soon in Q1 2018 and take advantage of the rebate.

This led me to think about what will happen to used M3 values in Q2 of 2019 when the rebate will more than likely be completely expired.

Will the value of these used vehicles be tied more closely to the net price paid for the vehicle or the price of a new vehicle of similar configuration?

My gut feeling is that if I choose to sell my M3, which I purchase with the full rebate in 2019, I will be able to offset most of the depreciation from the effective $7500 price increase that will occur as a result of the ending of the rebate.

Just curious as to what others think.

 

[MP3Mike]

which I purchase with the full rebate in 2019,

There will be no full rebate in 2019. The rebate will likely be $1,875 for the first half of 2019 and will then be completely gone starting 7/1/19. (Though there is a small possibility that things will happen one quarter sooner and the rebate will be fully expired at the end of 2018.)

 

[phil0909]

I think used M3 will not go up in value as the credit expires. New M3 will go down in value. And most likely, it will go down in price, as a result.

Sorry.

 

[Enadler]

There will be no full rebate in 2019. The rebate will likely be $1,875 for the first half of 2019 and will then be completely gone starting 7/1/19. (Though there is a small possibility that things will happen one quarter sooner and the rebate will be fully expired at the end of 2018.)

Agreed. I missed typed. I meant to say that I would purchase in Q1 2018 with full rebate.

 

[Enadler]

I think used M3 will not go up in value as the credit expires. New M3 will go down in value. And most likely, it will go down in price, as a result.

Sorry.

So you believe Tesla will lower the price of new M3's when the rebate expires? Don't you believe this would significantly eat into their margins?

 

[Stolz25]

So you believe Tesla will lower the price of new M3's when the rebate expires? Don't you believe this would significantly eat into their margins?

Yes, but their cost to manufacture should go down as the line gets more efficient. I think they probably are more likely to roll some of the extras into the base version of the car than they are to lower prices though. I'm betting on the software uogrades getting cheaper.

 

[Trips]

So you believe Tesla will lower the price of new M3's when the rebate expires? Don't you believe this would significantly eat into their margins?

The Long Range is priced as an expensive premium hoping that people go with a Standard Range. Battery prices will also come down. Look at how the Model X just had a price drop.

Autopilot will also eventually come down as development costs decrease.

Kind of like the previous models the early Model 3 will help pay for future orders.

 

[phil0909]

So you believe Tesla will lower the price of new M3's when the rebate expires? Don't you believe this would significantly eat into their margins?

Yes, of course. The net 'value' of the product declines as the tax break declines. And yes, of course it will reduce margins.

Tesla has two choices - lower the price, or accept lower sales volume. Probably they'll opt for a combination of the two, over a period of time as the credit phases out. It's the same with Models S and X, and electric cars from every other maker, for that matter. The laws of supply and demand are pretty much iron-clad.

 

[Baja30]

Why would they lower the price when they have more on order than they can delivery. Maybe in 2019 or 20, but not in 2018. Keep in mind, there are plenty of people looking for a 3 outside the US, where they may not have large rebates.

 

[phil0909]

Supply and demand. Inescapable.

 

[22522]

Supply and demand. Inescapable.

Tesla may be able to use the rebate window to serve the price elastic part of the market before serving the luxury market.

If they make a lot of cars with light batteries and fabric interiors and follow with AWD and "leather" they may see no drop at the first step down.

I don't know.

 

[insaneoctane]

IMO, I think Telsa will slightly decrease some of their options/bundles in response to the expiration of the tax credit. Elon has always viewed the tax credit as something that helps other mfg, but not Tesla:

"And in fact the incentives give us a relative disadvantage. Tesla has succeeded in spite of the incentives not because of them." - Elon Musk, May 3, 2017

I wouldn't expect the $35K base Model 3 to come down in price, but there might be a few options thrown into a bundle. Maybe PUP goes down to $3.5K. It's possible that what cost $55K (M3 with options) may cost $52K or so upon tax credit expiration.

Now, when you're ready for AWD, there will still be a backlog of orders which will keep the CPO value of all M3's artificially high (lots of demand). Only upon clearing the backorders would we even need to consider what happens to the value of the M3. Personally, I'm planning on keeping mine for 10 years so I'm just hoping my M3 is worth something 10 years from now (but, I'm really not expecting it)

 

[azred]

While I will certainly use the tax credit, I suspect that prices a couple years from now will decrease to offset the loss of the credit. Battery prices surely will drop a bunch.

 

[PRSIST]

I have been trying to decide whether or not to wait and purchase a Dual Motor M3 and more likely than not forego the full federal rebate or to purchase an M3 as soon in Q1 2018 and take advantage of the rebate.

This led me to think about what will happen to used M3 values in Q2 of 2019 when the rebate will more than likely be completely expired.

Will the value of these used vehicles be tied more closely to the net price paid for the vehicle or the price of a new vehicle of similar configuration?

My gut feeling is that if I choose to sell my M3, which I purchase with the full rebate in 2019, I will be able to offset most of the depreciation from the effective $7500 price increase that will occur as a result of the ending of the rebate.

Just curious as to what others think.

Why do people give a rip about whether or not they get a Federal rebate when buying the Model 3? REALLY? Did you get a Federal rebate for the last ICE car you bought....NO...but you bought it anyway. If you want the flippin car, buy it! Rebate is icing on the cake but it is NOT the cake. Come on, enough about this agonizing decision of when to buy because this magical rebate will be gone!!!

 

[liuping]

Why do people give a rip about whether or not they get a Federal rebate when buying the Model 3? REALLY? Did you get a Federal rebate for the last ICE car you bought....NO...but you bought it anyway. If you want the flippin car, buy it! Rebate is icing on the cake but it is NOT the cake. Come on, enough about this agonizing decision of when to buy because this magical rebate will be gone!!!

$49k is a stretch for many people. $7500 + state rebates makes a big difference.

 

[Zythryn]

Supply and demand. Inescapable.

Agreed. However, you are making the assumption that without the rebates Demand will drop below what Tesla can supply.
I agree that Demand will drop, but not that it will drop that low.

 

[Gen3Joe]

Why do people give a rip about whether or not they get a Federal rebate when buying the Model 3? REALLY? Did you get a Federal rebate for the last ICE car you bought....NO...but you bought it anyway. If you want the flippin car, buy it! Rebate is icing on the cake but it is NOT the cake. Come on, enough about this agonizing decision of when to buy because this magical rebate will be gone!!!

Too many, $7500 more for a car they are already stretching to get is a big deal. It's not a magical rebate. It's $7500.

 

[22522]

It seems like many people think Tesla will be happy selling a minuscule number of cars.

 

[Runt8]

$49k is a stretch for many people. $7500 + state rebates makes a big difference.

Exactly. I would never buy a $50,000 car, but $37,500 (federal + state) is much more palatable.

 

[Dynastar]

We can't know how Tesla will react to the end of the tax credit, so any answers that include Tesla's actions are speculative. Absent any action by Tesla the end of the tax credit will cause the price of a used 3 to increase.