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Do you worry about rapidly declining resale value?

Discussion in 'Model 3' started by Matth3w, May 24, 2017.

  1. Matth3w

    Matth3w Member

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    I'm a committed Model 3 reservation holder, Tesla investor and Elon Musk acolyte and mission believer.

    However, I'm just a little concerned by three technological and market forces that may influence my purchase (not a lease) in light of future resale value:

    1. Rapidly improving battery capacity and density.
    2. Confluence of new EV market entrants.
    3. Transition to a shared autonomous transportation economy.

    Expanding on each of these:

    1. While we know Elon has clearly stated Model 3 has a 75 kWh max battery capacity limit due to physical space constraints, that's obviously based on present battery technology/density. The time will come when battery form and chemistry will improve on that density and a larger capacity (not physical size) will inevitably be available in a future Model 3 (just look at the evolution of the Model S). Tesla obviously wouldn't highlight this as they are already highly sensitive to the Osborne Effect. When such an improvement will be achieved is anyone's guess, but I would propose it will have a negative impact on early Model 3 resale value since I would argue that range will remain a top-tier consideration for shoppers. Should they see a 300+ mile capacity in a base Model 3 in 2021, for example, would they not think twice about a 215 mile capacity used model? Especially in light of...

    2. A confluence of new EV market entrants will soon attempt to undercut Tesla's model for the masses, by offering models for sale in the $25k - $30k before incentives (and probably with greater than 215 mile range -- see Chevy Bolt for example). This has two effects. By the time these entrants enter the market, Tesla buyers will no longer be eligible for any federal tax incentives, likely prompting Tesla to eventually price compete against automakers who are still eligible for the tax credit. At the same time, potential buyers for these newer entrants will remain eligible for the tax credit for a significant amount of time. Both conditions put downward pressure on the purchase price of a new, comparable EV, therefore putting downward pressure on the value of used models. This may be a time-constrained bubble, but one that may impact at the time in which I might look to sell my Model 3.

    3. With the continued growth of a shared transportation economy (Lyft, Uber, etc.) intersecting with autonomous technology, the economic and social viability of private ownership will decline. I put this last as this will likely take the longest to have a material impact on the used value of a 2017/18 Model 3, but the prospect is still there and liable to accelerate faster than any of us anticipate. The upshot remains: fewer private buyers -> softer resale market, lower prices.

    In light of the above, I'm grappling with which Model 3 configuration to buy. Do I economize and go with a decently equipped, but base configuration 55 kWh single motor, minimizing my "investment" and therefore minimizing my losses (and get mine sooner)?

    Or do I stretch a little for perhaps a less highly equipped but more capable 75 kWh dual motor with the hope it remains more competitive with later Model 3s and late market entrants, thus maximizing its resale value?

    I expect to own this Model 3 for about 5 years, but would not rule out being enticed by the Model Y some 3 years from now.

    Some forces from the opposite direction, sustaining used Model 3 prices:

    1. Demand for EVs is only just ramping up. We'll soon reach the tipping point where millions of buyers will be excited to join this glorious revolution, eager to start their journey in a modern classic, the Tesla Model 3. Since I'm an early reservation holder, I'll have some supreme bonus feature that will make my car an instant collector's item (ok, yes, optimistic, but you get my point).

    2. Current high resale value of Model S demonstrates strong demand for Teslas in the secondary market, even though Tesla rapidly improves their models/features/capabilities. It's not all about the EV, but the Tesla name and build quality (ahem) that will help maintain a high resale value.

    3. Supplement income/payment in shared economy. My Model 3 will (hopefully) be capable of autonomously participating in the shared transportation economy. Maybe after 3 years the newness of the car will wear off enough I'll be comfortable sharing it with higher quality riders and by then I won't want to sell it, driving up the value of all of your Model 3s on the market.

    4. EVs *should* have a longer life-span, greater long-term reliability, fewer moving parts, less friction, no microexplosions and heat dispersion concerns, yada yada, which should sustain higher value over the still-present ICE cars on the market.

    I'm no economist or battery engineer, but these are the thoughts that cross my mind as I enter into this fascinating, unpredictable new world of EV ownership. Are you concerned about future resale value, or does your enthusiasm override future considerations? (also guilty)
     
  2. BluestarE3

    BluestarE3 Active Member

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    TL;DR
    I keep my cars for double-digit number of years, so resale value never enters into the equation when buying a car.

    As a highly technological product, Tesla cars will see rapid advances in both hardware and software. It's like worrying about your computer's resale value or that its components will no longer be the latest-and-greatest. Like your computer, at least the Tesla's software can be upgraded in many instances (which is more than can be said for other makes of cars).
     
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  3. Dynastar

    Dynastar Member

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    Sure, Tesla will continue to improve their cars, but:

    • Model S held value pretty well, especially for a luxury car
    • Model 3 demand will outstrip supply for the foreseeable future
    • Comes with self-driving hardware (eventually, we hope)
     
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  4. NikeWings

    NikeWings Active Member

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    no
     
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  5. Dynastar

    Dynastar Member

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    The end of the federal tax credit should also give values a boost.
     
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  6. Matth3w

    Matth3w Member

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    In spite of your tl;dr, you make a good additional point. "Cars" are becoming more like computers, disposable commodities. I don't consider a computer's resale value when I purchase a computer, but do expect a 10 year functional life-span with software upgrades. Is that where we're at with the Model 3? The concept of automobile ownership and value is shifting. Are we literally accounting for that?
     
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  7. BluestarE3

    BluestarE3 Active Member

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    #7 BluestarE3, May 24, 2017
    Last edited: May 24, 2017
    Since the tax credit doesn't figure into the sales price of the car, the end of this credit for Tesla should not improve* the car's subsequent resale value. However, it does reduce some of the "sting" of depreciation for the seller who received the credit on his/her taxes.

    *EDITED for clarification.
     
  8. EricUSC

    EricUSC Member

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    I don't think the depreciation rate will be too different from that of a Model S or a BMW 3. Most new cars (except for some extremely limited production Porsches and such) depreciate significantly in the first 3 years. The tax credit for reservation holders will soften the loss in value.
     
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  9. BluestarE3

    BluestarE3 Active Member

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    With the advent of ride-sharing services and the prospect of autonomous vehicles, there will be changes not only in the concept of automobile ownership but also in what an automobile is meant to be. In terms of future automobile valuation or how manufacturers and dealerships will adapt to that remains to be seen. Certainly, there will be disruption in the industry and Tesla is and will be one of the disrupters.
     
  10. jelloslug

    jelloslug Active Member

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    The tax credit most certainly does figure into the resale value.
     
  11. BluestarE3

    BluestarE3 Active Member

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    Negatively, perhaps. But how would it prop up or enhance its resale value as suggested?
     
  12. patrick40363

    patrick40363 Member

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    I would suggest you don't buy one. Cars aren't normally good investments.
     
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  13. McRat

    McRat Active Member

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    If the resale of a $35k car is a concern, you probably are allocating too much of your budget pie for transportation.
     
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  14. Az_Rael

    Az_Rael Supporting Member

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    My experience is the tax credit has a one for one negative impact on resale values right now. So the car depreciates instantly by $7500 + your state rebate + normal new car depreciation.

    It depends on what happens after the tax credit expires, though. If sales go down because the car is perceived to be "too expensive" for what you get without the $7500 credit (ala the Bolt), then Tesla might respond with a price decrease. Then resale values take a corresponding dip as well.

    It's all going to come down on how the public perceives the car. I got burned pretty badly on my Volt, which was an amazing car, but was viewed as a super expensive Cruze by the public. I am fully expecting to take a fairly big hit on my CPO S when I sell it as well since it will be out of warranty, be 3 generations behind, and have 100k miles at that point.

    I have no idea what will happen with the 3, but if resale is a concern for the OP, I would wait and see how it plays out over a few years.
     
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  15. roguenode

    roguenode Member

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    Have you considered leasing?
     
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  16. RayW

    RayW Member

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    Because the M3 will be produced in significant quantities it seems like incremental improvements in the M3 will also accelerate depreciation in all comparable cars. In other words, if Tesla rolls out some improvement for the M3 which causes all previous M3s to lose value, shouldn’t all the competitors also loose comparable value? So, it really doesn’t matter what car you buy because Elon will cause it to lose value as a result of his awesome technological advances.

    Of course, there’s probably someone here who knows more about this than I.
     
  17. 206er

    206er Member

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    I'd recommend considering leasing, since the tech will be more advanced 36 months from whenever you get your 3, or, if you purchase and get all or some of the tax credit, just take solace in subtracting that number from the price you paid. Either way, you should feel better about your acquisition.

    The thought of how quickly tech innovation is going to continue, especially for Tesla, and other manufacturers' response vehicles to the Model 3, really makes leasing appealing - just upgrade to a new mobile computer/entertainment system in 36 months.
     
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  18. BluestarE3

    BluestarE3 Active Member

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    #18 BluestarE3, May 24, 2017
    Last edited: May 24, 2017
    Yes, I should have been more precise when I said "affect". What I meant was that the end of the credit will not positively affect (improve) the car's value as suggested by the post I quoted. I've edited my post.
     
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  19. Waiting4M3

    Waiting4M3 Active Member

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    As long as the M3 is a better car compared with BMW 3-series, Audi A4, MBZ C-class, then the resale value will remain above those cars, especially considering that the M3 running cost is lower due to electricity and less maintenance.
     
  20. S'toon

    S'toon Knows where his towel is

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    #20 S'toon, May 24, 2017
    Last edited: May 24, 2017
    No.
     
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