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

[pinski]

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.

Interesting topic and interesting read through the comments. One thing to consider, that I think Chad may have been alluding to, is that ICE vehicles are generally junked after racking up so many miles, 300k in our example here. It won't just be the powertrain that fails during that time period, it'll be the interior as you mentioned, steering components, suspension components, HVAC components. Those costs will add up incrementally to the point where another Model 3 is a better option than fixing the high-mileage one.

I'd be really interested to see if Tesla is doing any torture testing for the Model 3 where it's in relative constant use 12-15 hours a day. Some components have more of a time-constraint with regards to degradation and will probably be fine during our three year example. Others, with a direct mileage correlation, probably will need either frequently serviced or replaced.

 

[HankLloydRight]

I think most of the assumptions above assume enough demand to keep the entire fleet of Tesla Network cars at full utilization. That's just not the case. There isn't infinite demand. Also, as supply increases, price will be forced lower and lower. No matter what your financial equation is, there will be people able to come in with lower costs... so from basic microeconomics, with so much supply of M3s on the network, it will get to a point where MC=MR. Maybe Tesla can keep their prices fixed, but then Uber or Lyft will lower their prices to capture the limited demand, and then to stay competitive, Tesla will need to lower their prices. So in the end, there's going to be A LOT of idle cars waiting around not generating income.

 

[Garlan Garner]

To answer part of the OP's question:

Yes, the M3 will depreciate. Everything depreciates....even people.

 

[CarlitoDoc]

1. Question: Is rain wet? Yes.

 

[jonnyg]

To answer part of the OP's question:

Everything depreciates....even people.

What about real estate? Stocks? Currencies? Precious metals?

 

[eloder]

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

That's a silly statement.

You can buy nearly any house on the market now in an urban or semi-urban area, and rent it out for more than the cost of mortgage/maintenance/etc.

Why do you think apartments even exist? They don't rent out apartments out of the goodness of their hearts.

An autonomous ride sharing Tesla will require less time than an apartment, for sure, but I wouldn't at all be surprised if it was a money maker if you let it run a significant amount of time.

Just like housing though, it's not risk-free. If demand is too low or if it's not utilized enough, you won't be making enough to cover loan costs. Though after the loan is paid off there's no doubt in my mind the vehicle would continue to be a money maker for at least 100-200k miles.

 

[number12]

That's a silly statement.

You can buy nearly any house on the market now in an urban or semi-urban area, and rent it out for more than the cost of mortgage/maintenance/etc.

Why do you think apartments even exist? They don't rent out apartments out of the goodness of their hearts.

An autonomous ride sharing Tesla will require less time than an apartment, for sure, but I wouldn't at all be surprised if it was a money maker if you let it run a significant amount of time.

Just like housing though, it's not risk-free. If demand is too low or if it's not utilized enough, you won't be making enough to cover loan costs. Though after the loan is paid off there's no doubt in my mind the vehicle would continue to be a money maker for at least 100-200k miles.

I don't understand.

Did you just compare a house to a car?

 

[eloder]

I don't understand.

Did you just compare a house to a car?

You mentioned "there is no free lunch".

That's definitely not true because you can buy buildings, rent them out, and you'll earn money by doing nothing. (You can hire full-service property management companies so that you literally do nothing except watch earnings deposit monthly into your bank account).

Likewise with a Model 3, you can earn money by doing next to nothing. Occasional maintenance/repair visit or coordination, cleaning, etc. (which Tesla Network may possibly take care of with optional fees/services, like a property management company). Thus the depreciation will be limited (exactly like housing). If you can buy a Model 3 for $5k used, and it can earn $15k a year after repairs factor in, then demand will far exceed supply.

 

[number12]

You mentioned "there is no free lunch".

That's definitely not true because you can buy buildings, rent them out, and you'll earn money by doing nothing. (You can hire full-service property management companies so that you literally do nothing except watch earnings deposit monthly into your bank account).

Likewise with a Model 3, you can earn money by doing next to nothing. Occasional maintenance/repair visit or coordination, cleaning, etc. (which Tesla Network may possibly take care of with optional fees/services, like a property management company). Thus the depreciation will be limited (exactly like housing). If you can buy a Model 3 for $5k used, and it can earn $15k a year after repairs factor in, then demand will far exceed supply.

HVAC breaks? You get sued? Need a new roof? Again if there was no risk every house for sale would be bought.

It's simple economics. This isn't complicated stuff I'm trying to say. There's literal no way you are right about model 3. Only time it would work is when there are supply constraints, but during that time full self driving will not be available. End of story.

 

[wycolo]

Why is this any different than running a small car service operation, but with only a single car? Your accounting would be the same. The IRS rules would be the same. So do your research along these well known paths. State income taxes usually track your federal results so likely no surprises there.
--

 

[number12]

Why is this any different than running a small car service operation, but with only a single car? Your accounting would be the same. The IRS rules would be the same. So do your research along these well known paths. State income taxes usually track your federal results so likely no surprises there.
--

Except it will not be self driving with gen 1 hardware. There will be tweaks and/or better options.

 

[igotzzoom]

Resale on cars is usually a steep downward ramp, or sometimes an inverted bell curve. Steep initial depreciation, followed by a period of relative equilibrium, and sometimes an upward climb after about 35-40 years once the car becomes a "classic" and is considered collectible or desirable. Obviously mileage and condition has a bearing on value as well.

Historically, European luxury models (with the exception of ultra-exclusive brands like Ferrari and Bugatti) have a steep depreciation, and often have laughably low resale values after about 10-15 years. To give an example, a 10 year-old Toyota Tacoma has about the same resale value as a same-year Porsche Cayenne, despite the Cayenne being more than double the price of the Tacoma when new. A lot of it has to do with the repair costs and their impact on resale. So far, it seems like The Model S is holding its value pretty well. We'll see how the Model 3 fares.

 

[Weezer Fan]

That's a silly statement.

You can buy nearly any house on the market now in an urban or semi-urban area, and rent it out for more than the cost of mortgage/maintenance/etc.

Why do you think apartments even exist? They don't rent out apartments out of the goodness of their hearts.

An autonomous ride sharing Tesla will require less time than an apartment, for sure, but I wouldn't at all be surprised if it was a money maker if you let it run a significant amount of time.

Just like housing though, it's not risk-free. If demand is too low or if it's not utilized enough, you won't be making enough to cover loan costs. Though after the loan is paid off there's no doubt in my mind the vehicle would continue to be a money maker for at least 100-200k miles.

It may continue to make money. I believe to drive for Uber, your car cannot be more than 10 years old. The Tesla Network will be controlling, at least somewhat, the cars in the service. You may find that at a certain age or mileage your car no longer wualifies for ride sharing.

 

[ModelNforNerd]

How about I leave all this complicated stuff to you guys.....

and I'll just get my car and enjoy it.

If my wife and I are on different schedules, the car will autonomously ferry us back and forth to the train station, otherwise, it will sit at home waiting for me.

Bad enough USAA is going to have a tough time figuring out the autonomous feature for insurance purposes....I don't need to know what carrying personal liability for every passenger in a paying service would cost me.

One of you entrepreneurial types are going to cut corners. You're going to hire your car out, and it's going to get in an accident. And then you, the person who hit your car, and your passenger will be in a room with judges and attorneys sorting it all out.

No thanks. I'll be driving.

 

[alseTrick]

I'm not holding my breath on full autonomy being approved with Tesla's current hardware or approved for anyone in the next few years.

 

[kort677]

many of you are in fantasy land.
full autonomy is years away.
how many of you are going to share your prized possession?
a new car is almost always a money losing depreciating asset.

 

[MXWing]

My economics degree tells me that the equilibrium earnings from putting your Model 3 in the network will be:

BREAKEVEN.

Break even meaning if you lent your Tesla out half the time, it would cover half of all your expenses almost exactly.

If there is significant revenue to made for the opportunity cost, Tesla would feed the system with their own cars and cut out owners. Tesla may not do this, but it would be economically inefficient do so.

 

[Red Sage]

If there is significant revenue to made for the opportunity cost, Tesla would feed the system with their own cars and cut out owners. Tesla may not do this, but it would be economically inefficient do so.

No. Tesla will be too busy cutting out Lyft and Uber.