Residual Value - Using Tesla's New Leasing Option

[lencap]

Greetings -

Like many others I've wondered about resale value for my M3, and frankly don't expect high value retention given the constant changes in list prices/configuration options, vanishing Tax Credits, and Tesla's tendency to make "special pricing deals" at times when they need to generate extra revenue.

I looked at Tesla's lease options, made available yesterday, to see how Tesla views this. I used a LR AWD model, now with the new "standard" autopilot included, in basic black color with no other options. Tesla specs that car at a price of $49,500 (pre transportation/doc fees, exclusive of state taxes/fees - as do other manufacturers). The lease requires a $3,000 down payment and 36 payments of $674. Tesla also notes that there is no option to buy the car when the lease ends (and I assume that there is therefore no tax benefit to lessees).

So, the 36 payments total $24,264, adding in the $3,000 down payment, the total payments are $27,264. To make the math easy (there are time value of money considerations, implied financing, etc. - none of which I'm considering) that means that Tesla expects the car to be worth $49,500 less $27,264 when the lease ends (again, they expect it to be worth more if you allow for implied financing and various carry costs).

Given the simple example above, Tesla believes the car's residual value will be approximately 45% of the new price at the end of three years. Again, lots of things to add to the calculation - tax credits among them, at least for now as Tesla will get them as the manufacturer.

So if Tesla expects the cars to drop in value by roughly half in three years, it seems that none of us should expect residual values to be dramatically higher than Tesla's own estimates. Their residual estimates don't surprise me, and aren't all that different from European brands. It just confirms what many have said before - Tesla is a unique car that many of us enjoy fully, but they are not investments, and shouldn't be expected to have lower depreciation than competitor cars.

 

[run-the-joules]

Uh CLEARLY you aren't keeping up on the news. They're appreciating assets now!

https://electrek.co/2019/04/12/tesla-vehicles-appreciating-assets-self-driving-elon-musk/

 

[woodisgood]

A car can't be an investment. It has a finite lifespan and every moment it is used is another moment spent moving towards an inevitable demise.

Until it is proven that these cars have a lifespan that is significantly longer (both in terms of their ability to continue operating - battery, motor, etc. - as well as desirability/aging) than other vehicles, the rules that apply to any comparable luxury sedan will also apply to Model 3. It is possible that the battery tech and OTA updates WILL increase the lifespan of these cars in the market relative to others, but until that is really known you can't do anything but treat the Model 3 as a regular car in terms of depreciation.

 

[run-the-joules]

A car can't be an investment.

I know what you mean here but that's not *technically* correct. It's more that "with few exceptions, cars are not generally investments"

 

[woodisgood]

I know what you mean here but that's not *technically* correct. It's more that "with few exceptions, cars are not generally investments"

Now I'm curious. What else ya got in yer garage?

 

[run-the-joules]

Now I'm curious. What else ya got in yer garage?

Sadly, not a 911R

 

[Blitz3RS]

A car can't be an investment. It has a finite lifespan and every moment it is used is another moment spent moving towards an inevitable demise.

Until it is proven that these cars have a lifespan that is significantly longer (both in terms of their ability to continue operating - battery, motor, etc. - as well as desirability/aging) than other vehicles, the rules that apply to any comparable luxury sedan will also apply to Model 3. It is possible that the battery tech and OTA updates WILL increase the lifespan of these cars in the market relative to others, but until that is really known you can't do anything but treat the Model 3 as a regular car in terms of depreciation.

I bought an R32 Nissan Skyline GT-R (1990) for $13K in the UK while I lived over there in 2014. I drove it for 3.5 years, doing routine maintenance, (some of it preventive), fueled it and insured it. This was before prices became inflated and it being eligible for importation into the USA.

I shipped it back to the USA last summer when I came back home for work, and I sold it labor day last year for close to $25K. Cars can certainly be an investment if you choose the right one and take care of it.

Just look at anything for sale on bringatrailer.com as an example.

 

[woodisgood]

I bought an R32 Nissan Skyline GT-R (1990) for $13K in the UK while I lived over there in 2014. I drove it for 3.5 years, doing routine maintenance, (some of it preventive), fueled it and insured it. This was before prices became inflated and it being eligible for importation into the USA.

I shipped it back to the USA last summer when I came back home for work, and I sold it labor day last year for close to $25K. Cars can certainly be an investment if you choose the right one and take care of it.

Just look at anything for sale on bringatrailer.com as an example.

Alright alright alright! My phrasing was not accurate. A car as widely available as the Model 3 can't be an investment.

Caveat: Unless it's a carefully chosen VIN 000001.

 

[ewoodrick]

Or maybe going through leasing is just a PITA for them. They really don't want to do it, but some people think that leasing (i.e. paying too much) for a car is the only way to go. So, they came up with a solution. It provides options for Tesla and it solves the leasing problem.

Leasing isn't ever the cheapest way to buy a car.

 

[happyzod]

A car can't be an investment. It has a finite lifespan and every moment it is used is another moment spent moving towards an inevitable demise.

Sorry but that is wrong. An investment does not need to have an infinite lifespan. What's a good definition of investment? One generally accepted definition is an asset that generates cash flow where you have a reasonable expectation of a return on investment. In that case, there are plenty of opportunities to use a vehicle to generate cash flow.

 

[woodisgood]

Sorry but that is wrong. An investment does not need to have an infinite lifespan. What's a good definition of investment? One generally accepted definition is an asset that generates cash flow where you have a reasonable expectation of a return on investment. In that case, there are plenty of opportunities to use a vehicle to generate cash flow.

Fair enough. It may not be the correct definition of investment but hopefully you understood I meant a car is a “depreciating asset” rather than something that may intrinsically increase or hold its value.

My apologies to everyone in this thread who I have disappointed with my incorrect and inaccurate usage of words. I’ll try harder...or something.

 

[Uncle Paul]

Tesla has a great program. They will let the lease person pay for roughly 1/2 of the car, then take that car and put it into its rental fleet. Most of the depreciation is gone and the car will still be as good as new for rental purposes.

Then they can begin to generate additonal $$$ by renting it out on a gig basis. Great cash flow.

 

[OCR1]

Greetings -

Like many others I've wondered about resale value for my M3, and frankly don't expect high value retention given the constant changes in list prices/configuration options, vanishing Tax Credits, and Tesla's tendency to make "special pricing deals" at times when they need to generate extra revenue.

I looked at Tesla's lease options, made available yesterday, to see how Tesla views this. I used a LR AWD model, now with the new "standard" autopilot included, in basic black color with no other options. Tesla specs that car at a price of $49,500 (pre transportation/doc fees, exclusive of state taxes/fees - as do other manufacturers). The lease requires a $3,000 down payment and 36 payments of $674. Tesla also notes that there is no option to buy the car when the lease ends (and I assume that there is therefore no tax benefit to lessees).

So, the 36 payments total $24,264, adding in the $3,000 down payment, the total payments are $27,264. To make the math easy (there are time value of money considerations, implied financing, etc. - none of which I'm considering) that means that Tesla expects the car to be worth $49,500 less $27,264 when the lease ends (again, they expect it to be worth more if you allow for implied financing and various carry costs).

A couple of things about your post:

1) The “due at signing” amount for the LR AWD lease is $4,369. This may include the $1,200 dest/doc fee but it doesn’t spell it out so I’m not sure.

2) When you try to place an order for this lease, it requires a $2,500 deposit due today. So between the $2,500 deposit and the $4,369 due at signing you are really putting down $6,869. It’s possible the $4,369 might include the first month’s lease payment but again it’s not spelled out. The wording on their lease pricing is far from being transparent.

This is typical Tesla. Elon probably came up with this stuff in the middle of the night and threw it all together without thinking through the details, and now the sales team is left trying to figure out what he really intended to offer.

 

[Daniel in SD]

Tesla also gets the tax rebate. This is a great deal! (for Tesla)

 

[MP3Mike]

Tesla also gets the tax rebate. This is a great deal! (for Tesla)

Because Tesla has so much profit that they need to offset the taxes on?

 

[MP3Mike]

So, the 36 payments total $24,264, adding in the $3,000 down payment, the total payments are $27,264. To make the math easy (there are time value of money considerations, implied financing, etc. - none of which I'm considering) that means that Tesla expects the car to be worth $49,500 less $27,264 when the lease ends (again, they expect it to be worth more if you allow for implied financing and various carry costs).

The biggest problem is that you are assuming 0% financing costs. But that would mean the residual is higher than what you are estimating.

 

[happyzod]

Fair enough. It may not be the correct definition of investment but hopefully you understood I meant a car is a “depreciating asset” rather than something that may intrinsically increase or hold its value.

My apologies to everyone in this thread who I have disappointed with my incorrect and inaccurate usage of words. I’ll try harder...or something.

Most physical assets are depreciating assets. Businesses may use up those depreciating assets to generate cash. Exceptions are areas where supply and demand scarcity dominate compared to their ability to generate cash i.e. collectibles. When you mention intrinsically holding or increasing value, I assume you are talking about the price and not value.

 

[Ludalicious]

I could see this.

Let's look at it in this perspective.

Tesla no longer offers vehicles for sale and only as leases only. Kinda like a fleet return with an infrastructure that's already been built.

Weird way of looking at it but could be very lucrative for Tesla

 

[run-the-joules]

I could see this.

Let's look at it in this perspective.

Tesla no longer offers vehicles for sale and only as leases only. Kinda like a fleet return with an infrastructure that's already been built.

Weird way of looking at it but could be very lucrative for Tesla

If they pulled that move, it'd mean my future vehicle purchases would be from other brands.

 

[whitex]

Greetings -

Like many others I've wondered about resale value for my M3, and frankly don't expect high value retention given the constant changes in list prices/configuration options, vanishing Tax Credits, and Tesla's tendency to make "special pricing deals" at times when they need to generate extra revenue.

I looked at Tesla's lease options, made available yesterday, to see how Tesla views this. I used a LR AWD model, now with the new "standard" autopilot included, in basic black color with no other options. Tesla specs that car at a price of $49,500 (pre transportation/doc fees, exclusive of state taxes/fees - as do other manufacturers). The lease requires a $3,000 down payment and 36 payments of $674. Tesla also notes that there is no option to buy the car when the lease ends (and I assume that there is therefore no tax benefit to lessees).

So, the 36 payments total $24,264, adding in the $3,000 down payment, the total payments are $27,264. To make the math easy (there are time value of money considerations, implied financing, etc. - none of which I'm considering) that means that Tesla expects the car to be worth $49,500 less $27,264 when the lease ends (again, they expect it to be worth more if you allow for implied financing and various carry costs).

Given the simple example above, Tesla believes the car's residual value will be approximately 45% of the new price at the end of three years. Again, lots of things to add to the calculation - tax credits among them, at least for now as Tesla will get them as the manufacturer.

So if Tesla expects the cars to drop in value by roughly half in three years, it seems that none of us should expect residual values to be dramatically higher than Tesla's own estimates. Their residual estimates don't surprise me, and aren't all that different from European brands. It just confirms what many have said before - Tesla is a unique car that many of us enjoy fully, but they are not investments, and shouldn't be expected to have lower depreciation than competitor cars.

The problem with your calculations is that these things you are ignoring, tax credit, interest rates, can make a significant difference in the residual calculations. The federal rebate alone is another 10%, so 35% not 40%. Add interest and the residual may be 30%, which is significantly lower than 45%.