Depreciation and long term value (based on mileage)

[chuckn]

I've had a Roadster for a couple years and get my Model S this weekend. I'm a bit surprised by the notion of reducing the value of the car $1/mile driven. I drive a lot, and I'll certainly hit 100K miles. I even hope to be driving it until the battery needs replacement. At that point the car would have a residual value of $0 based on the mileage based algorithm, but a new battery ($12k?) restores the car to near-new condition.

Outside of the battery, is there some other component I'm overlooking? The motor seems like it should last a long time. There's the usual things I expect to wear (and my Roadster used to eat tires) but compared to an ICE car it seems like the basic car could have a much longer lifetime. What do those of you that better understand the internals suggest?

thanks,
chuck

 

[neroden]

I've had a Roadster for a couple years and get my Model S this weekend. I'm a bit surprised by the notion of reducing the value of the car $1/mile driven.

I believe that is supposed to be a reduction in excess of the actual depreciation.

That's the planned drop in the price of the "loaner" cars. Recall that Elon's goal is to make sure that the loaners are always relatively new. That means he needs to keep them selling fairly regularly, which means they need to be priced somewhat better than an alternative Model S. I don't think he expects any of them to actually drop anywhere close to $0 before selling.

 

[bollar]

I have owned several ICE cars for more than eight years and put more than 150K miles on some of them. I have never had to replace an engine, but keeping other parts of the car working has been expensive. My my ten year old Mercedes with 60K miles, repairs this year have been related to A/C, door locks, suspension, trunk closing, and some other stuff. It's been averaging $5-7K / year of late.

Then you have the issue that the car is simply wearing out. It has rattles, smells funny, maybe systems you don't care about don't work anymore (nav for me). Or even think about technology advances. Compare the then state-of-the-art 2004 COMAND system running WindowsCE to almost anything you can buy today.

So, IMO, even though the new battery returns the range to "like new," there is a lot of other stuff going on that deflates the value. The aforementioned Mercedes was $110K new and has a KBB around $25K now.

 

[chuckn]

It's not so much the depreciation itself I'm concerned about. I guess I'm trying to figure out whether it's crazy for me to see this as a better alternative for someone that's going to pile on a lot of mileage. All kinds of things will wear out (like bollar mentioned) it just seems that there are a lot fewer complex parts to deal with here. It's so new, there's not any data to support things one way or the other, so it's a bit hypothetical.

 

[johnnyS]

We plan to keep ours for 8 years and 100,000 miles plus. It seems that most computers have a life span of 3-5 years. How long will the car's electronic systems last? After 6-7 years and 80,000 miles I think we can expect maintenance on the air suspension, shocks, cooling system, power steering, and air conditioning system similar to a traditional car. I think the service plan and extended waranty may seem like a bargain a few years down the road. At some point I am sure I will be tempted by the latest model and our current model S will be a backup car for us.

 

[William13]

The $1.00/mile is a geralization. The general wholesale price/value of a car is aproximately from this formula with variation due to demand and ongoing repair costs:

Current value=( sticker-0.15sticker)- ((current mileage/average expected lifetime mileage)x sticker)

Or if low mileage:

Current value=(sticker-0.15sticker)- ((0.08 x age in years)x(sticker-0.15sticker))

I would venture that average expected lifetime mileage is 175,000 to 200,000. This is very unknown yet.
The 0.08 assumes about 12 year life expectancy. This is about current US average car life expectancy. If one posits a 20 year life expectancy this number is close to 0.05. There are multiple other ways to calculate these numbers.
The 0.15 is the driving off the dealer lot loss. It may be as low as zero due to constrained supply. But the wait is only about 6 weeks currently in the US for performance models.

 

[jerry33]

It's not so much the depreciation itself I'm concerned about. I guess I'm trying to figure out whether it's crazy for me to see this as a better alternative for someone that's going to pile on a lot of mileage. All kinds of things will wear out (like bollar mentioned) it just seems that there are a lot fewer complex parts to deal with here. It's so new, there's not any data to support things one way or the other, so it's a bit hypothetical.

My hope is that this will be more like an airplane purchase than a car. About every ten or so years it gets an interior and instrument refresh and keeps on going. The motor and the body should last much longer than me

 

[David_Cary]

I sincerely doubt this will be close to an airplane purchase.

Obviously there are less moving parts but at 100k miles, all sorts of things need replacing to make a car as good as new. Like rear end bushings - so few cars get these replaced. The reality is that Teslas will get sold when they lose their newness. The amount of interiors that get replaced will likely be less than 5%. When a better car becomes available, the value will drop quite quickly. And does anyone really think a 85 kw battery only costs $12k? Sure prepurchase is an option but don't neglect the time value of money.

As a distant observer, I am always amazed at the rationalization for expected longevity. How many Japanese cars built since 1990 have had an engine failure? The answer is so close to zero to be irrelevant. People replace cars far before the engine dies. There are plenty of 250k miles cars. They have no value because of 1000 things other than the engine and transmission.

 

[gregincal]

I totally agree. In 10 years the Model S will look like a 10 year old car. I tend to keep my cars for 7 years (much longer than average) and then sell them to my brother, who drives them for another 7 years. They run fine, but look really old.

Actually, my guess is that the batteries will last long enough that people won't see the economic value of spending the money to put an expensive new battery in a really old car, and the number of cars that ever get a new battery installed will be low.