Will model 3 depreciate (it's an income producing asset)?

[Omer]

Once the Tesla Network is established, all Tesla's will be income producing assets. Income producing assets are usually valued based on some multiple of the income. Since a 5 year old Model 3 and 2 year old Model 3 earn the same amount, will the depreciation only be the difference in the expected maintenance costs (which is very little)?

Assuming that a Model 3 can average $2/hour working in the Tesla Network with available demand for 15 hours/day after electricity costs. That would mean $900/month if someone bought the car just to keep in the fleet and never enjoy for personal use. That number should stay the same for a used Model 3 so how will depreciation work? I think it's very likely these cars will see VERY little depreciation, only enough to match additional maintenance and wear/tear costs. Think if a $45k Model 3 suddenly sold after 3 years for $25k, the investment return on buying them purely to put into the Tesla Fleet would be too great and demand would drive up the price.

 

[number12]

El oh El

1st generation model 3 working for you?

Must not follow Tesla much, or the US government much.

 

[Garlan Garner]

Once the Tesla Network is established, all Tesla's will be income producing assets. Income producing assets are usually valued based on some multiple of the income. Since a 5 year old Model 3 and 2 year old Model 3 earn the same amount, will the depreciation only be the difference in the expected maintenance costs (which is very little)?

Assuming that a Model 3 can average $2/hour working in the Tesla Network with available demand for 15 hours/day after electricity costs. That would mean $900/month if someone bought the car just to keep in the fleet and never enjoy for personal use. That number should stay the same for a used Model 3 so how will depreciation work? I think it's very likely these cars will see VERY little depreciation, only enough to match additional maintenance and wear/tear costs. Think if a $45k Model 3 suddenly sold after 3 years for $25k, the investment return on buying them purely to put into the Tesla Fleet would be too great and demand would drive up the price.

Let me make one small correction in your first sentence.

Once the Tesla Network is established, "some people will allow" their Tesla's to be come income producing assets.

Some of us - like myself - will not allow their M3 to become part of the Tesla Network. I will however allow my mom and dad and a number of people from my church to be escorted to medical treatments or back and forth to the bank and grocery store...however that will be done for free. I'm looking to please others with my car...not make money from them. That's just me.

 

[Garlan Garner]

El oh El

1st generation model 3 working for you?

Must not follow Tesla much, or the US government much.

What does that mean?

 

[Omer]

El oh El

1st generation model 3 working for you?

Must not follow Tesla much, or the US government much.

I follow both. There will be States that won't approve the legislation for a very long time. There's also States that are competing to be the first to allow self driving cars. This isn't about convincing everyone or even some. This is about the time the most aggressive city/state in America will approve it. Probably a state with lax regulations and few ties to the manufacturers / oil industry (Florida?). Oddly in this scenario, initial timing will be decided by the biggest proponents not the biggest detractors.

As for Tesla, they seem to be more focused on timing for Model 3 than previous launches but even if it's delayed a year, the software will still be learning starting in 2 weeks when the first AP 2.0 reaches consumers. So delays in Model 3 release shouldn't actually delay release of Tesla Network much. Based on the miles driven and learning speed for their network, full self driving car share should launch somewhere by end of 2019.

 

[Omer]

Let me make one small correction in your first sentence.

Once the Tesla Network is established, "some people will allow" their Tesla's to be come income producing assets.

Some of us - like myself - will not allow their M3 to become part of the Tesla Network. I will however allow my mom and dad and a number of people from my church to be escorted to medical treatments or back and forth to the bank and grocery store...however that will be done for free. I'm looking to please others with my car...not make money from them. That's just me.

Thanks for the reply, I totally understand that many people will be buying the car for personal use and don't want to share with strangers. But the price of an item is determined by the marginal buyer. So even if you don't plan to share we can still calculate depreciation based on all cars being available to share since the marginal buyer will consider the income value. For someone that doesn't plan to share, to purchase a used Tesla they would need to outbid a buyer that will reap the rewards of the sharing system. So calculating depreciation based on the Tesla Network will give us a minimum value. My hypothesis is that minimum value will have the lowest depreciation rate of any car ever. The reason the marginal buyer will probably employ Tesla Network is that once the option becomes available, many outside buyers will pour in and as a percentage non-sharers will be in the minority.

Think about a great band that no one knows. Most people in line want to see the band and when the band becomes popular, most fans will say they won't sell their ticket and no one they know will sell their ticket because you all care about the music. But as the band becomes much more popular and there is suddenly a ton of money to be made by reselling the tickets, unless the band finds a way to protect its fans with exclusive offers that prohibit scalpers, scalpers will begin to far outnumber fans when tickets go on sale.

If a base Model 3 can earn $2/hr (after electricity) for say 15 hours/day that's $900/month. Assuming it costs $45k. If a buyer pays $10k down and finances $35k for $500/month plus $150 month insurance, the buyer would be left with $250/month which is $3k/year on a $10k investment. That's 30% return assuming only $2/hr and 15 hr/day.

Obviously we don't know the numbers but if it's profitable, you can rest assured that investors will flock to buying Tesla Model 3's. Additionally, because of the earning potential and reduced depreciation, the model 3 might become the cheapest car in the entire market. In that case the most price sensitive buyers in the market would all buy Model 3's (instead of all new and used cars that are nominally cheaper). Those buyer's would certainly want to maximize earning potential. The opportunity cost of foregoing rent is the cash you would have received. So foregoing $2/hr is the same as paying $2/hr. The majority of the population is not in a financial position to effectively pay $2/hr for a car to sit idle in their driveway while they don't use it.

BTW the above analysis is why Elon has said they don't intend to make a future model below the Model 3. They simply don't need to because the earning capacity of M3 makes it cheaper than a $10k used car.

 

[Garlan Garner]

Thanks for the reply, I totally understand that many people will be buying the car for personal use and don't want to share with strangers, the thing is that once the Tesla Network option becomes available, many outside buyers will pour in and as a percentage you will be in the minority.

Think about a great band that no one knows. Most people in line want to see the band and when the band becomes popular, most fans will say they won't sell their ticket and no one they know will sell their ticket because you all care about the music. But as the band beomes much more popular and there is suddenly a ton of money to be made by reselling the ticket, unless the band finds a way to protect its fans (Pearl Jam) with exclusive offers that prohibit scalpers, the majority of buyers at time of ticket sales becomes scalpers looking to earn a profit.

If a base Model 3 can earn $2/hr (after electricity) for say 15 hours/day that's $900/month. Assuming it costs $45k. If a buyer pays $10k down and finances $35k for $500/month plus $150 month insurance, the buyer would be left with $250/month which is $3k/year on a $10k investment. That's 30% return assuming only $2/hr and 15 hr/day.

Obviously we don't know the numbers but if it's profitable, you rest assured that investors will flock to buying Tesla Model 3's. More important is not just pure investors but teenagers and anyone that is very price sensitive (most of the population). At $2/hr, during an 8 hour shift the car would earn $16. So anyone at a job earning less than $16/hr could get paid an extra hour/day. The people who let finance drive their decision (no pun intended) far outweigh the wealthier portion of the population that can afford the luxury of not using an income producing asset. Everything has an opportunity cost and if the rent of your car is $2/hr then by not renting it you are foregoing that amount. You need to be in a financial position to do so. Most of the population do not have the financial freedom to spend $2/hr for a car to sit outside their house while they are inside watching TV / working / sleeping (foregoing rent is the same as spending it).

Now if your numbers are correct...I wouldn't mind buying a bare minimum of what I need for L5 AP and putting it out on the Tesla network exclusively. $900 per month would certainly pay the car note...if not more. That's assuming that your numbers are close to being correct.

 

[Omer]

I don't have any idea what they will rent for, but say $3/hr would wipe Uber out completely. Even if Tesla kept 30%, that would net $2/hr after electricity.

 

[number12]

I'll respond ins with later, but short answer is supply and demand.

No such thing as a free lunch. If it works or so brilliantly, people smarter than me and you will take advantage of system with fleets.

You can't buy a car for $800/mo and rent for $900 /mo

If it was I would buy every tesla made

 

[Omer]

I'll respond ins with later, but short answer is supply and demand.

No such thing as a free lunch. If it works or so brilliantly, people smarter than me and you will take advantage of system with fleets.

You can't buy a car for $800/mo and rent for $900 /mo

If it was I would buy every tesla made

I fully agree. Long term equilibrium will be a normal profit on cost with maximum useage. However, short term inefficiency caused by supply constraint will probably allow for there to be some extra profit. Once the model has been proven most self driving cars will be bought by investors (either individually or through a debt vehicle by a major lender supplied to Tesla directly) until there are enough cars on the road where the cost/mile drops to a stable level. At that point there would be no need for individuals to buy cars because your cost should be the same if you buy a car and put it in the pool when you don't use it or if you just pay to order a car from the pool when you need it. In the first scenario you are foregoing the market rent during the hours you use the car and in the second scenario you are paying the market rent when you use the car. Both scenarios are equal cost so there would be no benefit in owning a car besides psychological/emotional.

 

[Red Sage]

I'm wondering if I'll have to set up an LLC for my car, or a Fictitious Business Name instead? Future Testament LLC or RED5AGE...? Will Tesla be issuing a 1099 for tax purposes? So many questions...

 

[McRat]

Yes, machinery is depreciated, including automobiles and trucks. That's for businesses, not personal use.

Food does not get depreciated even though a week old burrito is certainly worth less than you paid for it. After two weeks, it's a Free Lunch, but you can't keep it down long.

 

[Garlan Garner]

I'll respond ins with later, but short answer is supply and demand.

No such thing as a free lunch. If it works or so brilliantly, people smarter than me and you will take advantage of system with fleets.

You can't buy a car for $800/mo and rent for $900 /mo

If it was I would buy every tesla made

Why can't I? Or are you saying that I shouldn't?

What do you think cab drivers / companies do? Volunteer to lose money on a daily basis? No, they obviously make more money than what they pay for their cars.
Or how about local city buses? Or Limo services?

 

[number12]

Why can't I? Or are you saying that I shouldn't?

What do you think cab drivers / companies do? Volunteer to lose money on a daily basis? No, they obviously make more money than what they pay for their cars.
Or how about local city buses? Or Limo services?

It's arbitrage.

Cab drivers need drivers... why wouldn't everyone buy two or three cars and let them pay for first car? @Omer is exactly right.

Supply constraints might provide an opportunity, but by time regulation allows it... supply will not be an issue. So either car prices will go up or revenue will go down.

 

[Garlan Garner]

why wouldn't everyone buy two or three cars and let them pay for first car?

.

Neither of you are answering any of my questions...you are just asking questions.

Yes, why wouldn't they? If you are able to drive enough people every day, then you may make enough money to pay your car note. That's simple. You guys are using your big words, but the idea is simple. Buy a car and then uber enough....you will make your car payment.

That's why uber has sooooo many people driving. They aren't participating in uber for free. They are making money. period.

How to Make Money Driving for Uber - The Simple Dollar

 

[ChadFeldheimer]

Taxis are fully depreciated after 300k-500k miles. The interior and exterior are in poor condition, the suspension components are worn, and the engine and powertrain need to be rebuilt. On an EV, the same would be worn out, except with a worn out battery pack, motor, etc in lieu of a worn out gasoline engine and powertrain.

Suppose the car averages 20mph for the assumed 14 hours a day. After 3 years, that's 300k miles and a (car) lifetime of wear and tear. Your 50k mile bumper to bumper warranty expired after only 6 months. The car will be near fully depreciated by 3 years. Taking the depreciation into account, you'll wish you had a lot more than that $2/hour.

Generally speaking, UberX and Lyft are cheap because its drivers are willing to share their personal cars at below actual cost - plus work for below or near minimum wage. I expect the same to be true for autonomous cars: some owners will also share their personal cars at below actual cost.

So I look forward to riding in others' shared autonomous cars (Model 3 or otherwise). But for a variety of other reasons, I'm not holding my breath that this is happening within the next 3 years.

 

[Omer]

Taxis are fully depreciated after 300k-500k miles. The interior and exterior are in poor condition, the suspension components are worn, and the engine and powertrain need to be rebuilt. On an EV, the same would be worn out, except with a worn out battery pack, motor, etc in lieu of a worn out gasoline engine and powertrain.

Suppose the car averages 20mph for the assumed 14 hours a day. After 3 years, that's 300k miles and a (car) lifetime of wear and tear. Your 50k mile bumper to bumper warranty expired after only 6 months. The car will be near fully depreciated by 3 years. Taking the depreciation into account, you'll wish you had a lot more than that $2/hour.

Generally speaking, UberX and Lyft are cheap because its drivers are willing to share their personal cars at below actual cost - plus work for below or near minimum wage. I expect the same to be true for autonomous cars: some owners will also share their personal cars at below actual cost.

So I look forward to riding in others' shared autonomous cars (Model 3 or otherwise). But for a variety of other reasons, I'm not holding my breath that this is happening within the next 3 years.

In my initial post i mentioned that it won't depreciate except wear/tear and maintenance costs which is very different from depreciation based on model years. Because people will pay a premium for a new car when it is for personal use, a one year old car must have a substantial discount and then a 2 year old car must have a further discount to a one year old car etc. That leads to usually about 50% depreciation in 3-4 years.

When depreciation is based on wear/tear and maintenance, it's very different. In your scenario the car is fully depreciated after 3 years but that assumes 300,000miles driving. If the Tesla Network is available in 2019, 3 years later would be 2022. By then a 60kwh battery replacement probably doesn't cost more than $6000. If you replace the battery every 300,000 miles as you suggest, that's 2 cents/mile. Re-upholstoring the seats and fixing wear items shouldn't cost much more than that so probably an additional 3 cents/mile. In total that's 5 cents/mile. Using your assumption of 20mph average, that's $1/hr to cover all those costs. Add in electricity and Tesla's percentage and I think it's quite doable to initially net $2/hr after accounting for all that. Even at a gross price of $4/hr, the Tesla Network would be 1/4 the cost of Uber.

 

[ChadFeldheimer]

At $6000, a battery replacement would be equivalent to a replacement gasoline powertrain. Yet gasoline cars are junked all the time - even those that could continue to help make money for its owner (e.g. livery). Why do you think that is?

 

[Zythryn]

To answer the question posed in the thread title, yes, the model 3 will depreciate.
There is no question about that, all machinery depreciates.
Taxis, buses, etc.

Now, if the question is, "how much will the model 3 depreciate", that is more interesting.
The answer depends a lot on how reliable and durable the Model 3 is. And to that, we have nothing beyond wild speculation.

 

[Red Sage]

At $6000, a battery replacement would be equivalent to a replacement gasoline powertrain. Yet gasoline cars are junked all the time - even those that could continue to help make money for its owner (e.g. livery). Why do you think that is?

I think it is mostly two reasons: 1) People want to avoid future mechanical problems they foresee/expect to come that will 'not be worth it' to fix, even without evidence they are forthcoming; and 2) People are largely brainwashed to replace a car after a specific number of miles and/or years regardless of its condition. A third possibility, possibly related to the second, is that people want to keep their 'best foot forward' by succumbing to a perceived sense of 'planned obsolescence' and always having a 'NEW' car in their driveway/garage for the sake of appearances, or 'Keeping Up with the Joneses' or whatever.