Brand new Model S 90D bought today -- estimated value in 3 years?

[JimmyMcNulty]

Yes, this is yet another "Lease vs buy" thread, albeit slightly disguised.

First, back story: On 10/23 I placed an order for a very lightly optioned new AP2 hardware 90D, confirmed on 11/1. Although, I'm not activating EAP yet. Silver metallic and sunroof, that's it. Going with textile seats, which I hear are nice enough.

I still don't have a delivery date although I was being told "before Christmas", and I was getting anxious as I do need a car in about a week – turned in my leased Volt today.

So, in addition to keeping an eye on inventory, I've been pestering my DS & OA about inventory cars that are close enough to my not-so-common build. Lo and behold, I got a call yesterday, telling me that there's a brand new (50mi) 90D just like mine, that came fresh out of the factory, except it has... wait for it... gray leather next gen seats! That's really my favorite leather seat color, and it's being discontinued, so I jumped on this one and locked it in. There was a $100 "showroom discount" to boot. I'll take delivery in about a week.

Long story short, I did the math, factoring in the tax credit for buying, interest on the loan, etc:

The difference between buying with a loan (2.24 Alliant 78mo) vs leasing 3 years with 15k mi/yr comes down to roughly $40k.

What do your crystal balls tell you about how much this car will be worth in 3 years? Do you see any major developments?

Thanks in advance for your ideas, and apologies to those who didn't care for all the details of my process. I honestly wanted to mention the gray next gen bit, and wanted to build up the story to it. : )

 

[calisnow]

You already bought it. My best advice is to put out of your head what your car may or may not be worth in 3 years. It will be worth very little compared today. That's reality and life with 6 figure luxu-barges.

Speculating about this will only cause you anxiety - you made the decision so now spend your time doing something else lol.

Three years from now we will be on third generation autopilot systems, batteries of 120 Kwhr or more, augmented reality windshields, a higher quality interior, a new more advanced suspension system. Possibly fold-away steering wheels and reclining airline style front seats with leg and foot rests.

Your 90D will be very old news. Only being harsh to be kind - easier to face the truth. I suffer from the same anxiety and for that reason to be honest I would not be willing to buy a 90D right now. I am close to pulling the trigger on a second Tesla but it would be a 60 with cloth seats for the specific purpose of suffering hundreds less dollars per month of depreciation when I want to trade it in on a *truly* self driving car three years from now.

 

[JimmyMcNulty]

You already bought it. My best advice is to put out of your head what your car may or may not be worth in 3 years. It will be worth very little compared today. That's reality and life with 6 figure luxu-barges.

Speculating about this will only cause you anxiety - you made the decision so now spend your time doing something else lol.

Fully agree, zero regrets, I'm ecstatic – but still trying to decide whether I should buy or lease.

 

[calisnow]

Oh sorry - as for your lease vs. buy question - to do the math properly you need to build a spreadsheet with two separate NPV calculations - both using assumptions for the discount rate you demand to find your opportunity cost of capital and also for the predicted value of the car at end of term.

This is an impossible calculation to perform and an essentially useless exercise. In your case I'd lease so that I could buy three years from now whatever magic sauce Tesla is selling.

 

[calisnow]

@JimmyMcNulty - if you enjoy spreadsheets however, it can be a fun little exercise and is not difficult. If you want to do the math anyway - open a spreadsheet. Create two columns. "lease" and "buy." In each row under the column headers put the sum of the cash flow for one year under the two different scenarios.

Year 1 lease value = The sum of cash flows for year 1 = Cap reduction + all monthly payments + tax credit.
Year 1 purchase value = The sum of cash flows for year 1 = Down payment + all monthly payments + tax credit.

Continue this exercise down the rows until you get to year three - which is where the fudging comes in. You have to predict what the car is worth at that point. So do it. Plug in a number.

Year 3 lease value = The sum of cash flows for year 3 = all monthly payments
Year 3 purchase value = The sum of cash flows for year 3 = all monthly payments + the value of what you sell the car for + the value of the loan pay-off.

To make a valid comparison you must assume that on the purchase option you sell the car at year 3 whereas with the lease you would simply walk away because the term is up.

Remember in these calculations make the cap reduction and monthly payments negative values but the tax credit is a positive value. The sales price of the car is positive and the value of the loan pay-off is negative.

Underneath these columns use a simple Excel formula for internal rate of return. Type "=IRR(C1:C3)" and then for the next column "=IRR(D13)"

C and D assume you are using columns C and D on the spreadsheet and rows 1-3. Adjust if you use different cells.

You will see a value pop up after hitting "enter" on those IRR cells - it will have a percentage value. The more negative percentage value loses.

Now I need to go look up some formulas because I may have steered you wrong - you'll get a more accurate value if you use something called "MIRR" - modified internal rate of return, which accounts for the rate at which you could invest your cash into alternative investments.

I've also never done a negative IRR calculation - you may need to do an NPV calc instead - "net present value" - I'll look it up and get back to you. I'm rusty sorry.

 

[DIL]

it is liberating to not worry about what the car will be worth in 3 years. that's why I'm planning to lease.

 

[JimmyMcNulty]

@calisnow Haha, no worries. While I very much appreciate the trouble you took to type this all up for me, I doubt I would come to a crazy different conclusion. Roughly speaking, buying will cost ~$95k, and leasing for 3 years will cost ~$55k.

 

[calisnow]

Not to be a boring pedant - but if you do not think of finance much - lease vs buy vs mutual fund vs apartment complex vs. a share of TSLA stock are all exactly the same thing. They are cash flows through time of different amounts and value (positive or negative). If you buy one share of TSLA today and sell it in 3 years you have a cash flow which you can directly compare to leasing a Tesla if you use formulas designed to compare lumpy cash flows.

IRR, MIRR, NPV, PV are all specific uses of the more fundamental concept of "time value of money" which is a Finance 101 Day 1 concept that states money in the future is worth less than money today because you don't have the freedom to use the money today if you don't have it.

So, people often say the lease vs. buy comparison is hard to make - it actually isn't mathematically - it's just another set of cash flows you write down and then run the formulas on - the hard part is predicting the depreciation and settling on a discount rate (the rate of return on your investments you demand).

This is why I say it's an "impossible calculation" - because it requires you to theorize about something you cannot possibly know - what your car will be worth in three years - and then plug that nonsensical BS number into a mathematical formula which gives this BS the veneer of truth.

 

[calisnow]

However, you CAN do the following - pick a range of possible values for the car's worth at a given mileage in 3 years, then run the comparisons a few times. Obviously if the car is worth only one dollar you'd be much better off leasing. If the car illogically goes UP in value then you should have purchased it. The truth will be somewhere in between.

 

[calisnow]

@calisnow Haha, no worries. While I very much appreciate the trouble you took to type this all up for me, I doubt I would come to a crazy different conclusion. Roughly speaking, buying will cost ~$95k, and leasing for 3 years will cost ~$55k.

Lol no worries. But your sentence contains a huge mistake - buying for three years will absolutely not cost $95K. You don't have to build a spreadsheet but if you buy the car, take out the loan, drive it for three years and sell it - there is no way it will cost you $40,000 more than the lease would have. That's completely false.

 

[JimmyMcNulty]

Yes, that's exactly the million $ question: if I buy with a loan and sell at the 3 year mark, what's a realistic amount I can sell it for?

 

[calisnow]

@JimmyMcNulty - can you elaborate on your planned length of ownership? The only way we can help you make a valid comparison is if you pick a number for how many years you want to use this vehicle before selling/trading it.

If you only want it three years then obviously you could sell it in month 36 and pay off the loan - and then calculate the cost of ownership. If you want it all 78 months then to make a valid cost comparison you have to calculate the lease for three years, and then calculate a lease cost for three more years of the exact same car (maybe through some company which would be willing to keep leasing the car to you for three more years). Then sum up the cash flows and make your comparison.

But the ownership length must be the same for your lease vs buy calculation or even your rough estimations on which costs more will be entirely meaningless.

 

[calisnow]

Yes, that's exactly the million $ question: if I buy with a loan and sell at the 3 year mark, what's a realistic amount I can sell it for?

Wait, so if you don't already have a guesstimate on what the car is worth three years from now how did you come to the conclusion that one option would cost $40,000 more than the other?

 

[JRMW]

Very informative calisnow

I rarely see people elucidate the inherent problem of using estimates in mathematical formulas

 

[JRMW]

The other problem with making a lease vs buy calculation is figuring out how to "value" certainty.

There is value in knowing exactly how much something will cost.

If you KNOW you only want the car for 36 months: With a lease you can figure out exactly how much you will spend to own the car for 3 years. With a loan, it all depends on the resale value, which you must guess.

However, if you'll continue to need vehicular transportation after year 3, then a loan has more certainty as you can keep the car forever, and don't have to estimate the future cost of the next lease.

certainty is why a Treasury bond has lower yield than a junk bond (although finance people will word it differently)

And certainty is why I pay everything up front in cash, (including Tesla, house, etc) even though I MIGHT get a higher return if I financed and put that money elsewhere. I'm risk averse and thus value certainty very highly (making most financial folk aghast)

 

[ReddyLeaf]

@calisnow Haha, no worries. While I very much appreciate the trouble you took to type this all up for me, I doubt I would come to a crazy different conclusion. Roughly speaking, buying will cost ~$95k, and leasing for 3 years will cost ~$55k.

That's right around my rough guess as well. So unless you've got another easy $50k in three years for another lease, where do you get off this horse? I've never leased and still have all the vehicles that I have ever purchased. They all still serve a purpose and get used.

 

[Cloxxki]

In 3 years time, an AP2 car with large battery and unlimited supercharing will be a bit of a unicorn to encounter. It needs adefining term, really. Full Tesla Experience? FTE cars?
Not only where they sold a very short time, also by then some 1.5 million Teslas will be on the road. Only some 20,000(?) FTE cars will however be built. And those who own them are less likely to sell theirs for the hassle of getting on board with SuC credits, budgeting it, etc. Your neighbor with a little Uber business on the side will be all over you to sell the car to no-one else but them. Tossing Model S 150D brochures in your mailbox. And a map of Superchargers you could be able reach starting from home.
It may not appreciate unless the local currency tanks, but it will have a decent value if you take good care of the car and service history log.

 

[nagypite]

your miles/year is also an important factor

 

[182RG]

Yes, that's exactly the million $ question: if I buy with a loan and sell at the 3 year mark, what's a realistic amount I can sell it for?

https://ev-cpo.com/

Look at CPO 2013-2014 with options and mileage close to your expected use and options. Forgetting for a moment about cost of money, tax differences, etc, current models are not depreciating $55K in 3 years.

 

[JPUConn]

If you are worried about resale/depreciation % then go for bare bones minimum to no options and wherever possible buy a demo car for a discount.

Having AP2 hardware is a good advantage. Unlimited supercharging is a nice to have in my book - I have it and doubt I use over 400/yr anyways.

If I were in the new market I'd likely lease as a hedge against the future and put the down payment into more TSLA shares.

Disadvantages to buying right now:
- 90 battery when it will likely be discontinued and replaced with 100. Will a sub 300 mile range car be archaec/unwanted in 3 yrs?
- Model 3 is around the corner as are all the new goodies others have mentioned that will make their way into the S
- Model 3 buyers less likely to spring for a pricy used S once the 3 hits full production ramp. Said differently folks with a $45-50k budget will be able to buy the Model 3 with latest tech/gizmos vs 3 yr old S. I see the 3 being a cliff used for S values so don't bank on resale % you see today for 2012-2014 vehicles as they are inflated due to lower market demand and lack of supply.