Contrary to Musk's Prediction, Tesla Cars Depreciated in Value

In 2019, Elon Musk made a bold statement about Tesla vehicles. He stated that instead of decreasing in value, Tesla cars would actually increase in value over time.

This is because of Tesla's advanced full self-driving technology. Musk mentioned that with just a few software updates and regulatory approval, current Tesla vehicles will soon be able to operate fully autonomously. He reiterated this exciting possibility as recently as June 2023.

In the company's third quarter earnings call of 2023, it was mentioned that every car with full autonomy capability that we sell or produce could potentially be worth five times its current value in the future.

Elon Musk also shared his prediction that not only would the price of a used Tesla increase, but he also foresaw a future where Tesla's driver assistance suite, known as "Full Self-Driving," could have a value of $100,000 on its own.

With regulatory approval, your self-driving Tesla could potentially operate as a taxi for you, allowing you to earn money while you relax.

However, four years have passed since Musk's prediction in 2019, and the average price for a used Tesla Model 3 is now around $29,000. Unfortunately, regulatory approval for Full Self-Driving (FSD) has not been granted yet, as the company continues to make gradual improvements to the software.

Used cars typically do not increase in value, except for a brief period in the early 2020s when automotive production was severely impacted, causing almost all cars to appreciate for a short time. However, aside from this unique market situation, Elon Musk's predictions have not been accurate.

In the case of used Teslas, their value has significantly decreased over the last year or two. This decline can be attributed to Tesla's struggle to maintain its dominant position in the market for new electric vehicles. By aggressively reducing the prices of their new cars and SUVs, Tesla has also influenced the decrease in the values of other electric vehicles on the market.

A domino effect

In 2020, Tesla made 80% of all EVs sold in America, according to Cox Automotive. By 2022, its EV market share had fallen to 64%. Last year, it fell further to 55%. =

As more competitors entered the market, car shoppers now have a variety of EVs to choose from including Ford, Hyundai, Kia, Audi, Volkswagen, and others.

In response to the increased competition, Tesla decided to implement aggressive price cuts to prevent losing more of its EV market share. According to Cox Automotive, the sticker prices for new Teslas have dropped by about 21% in the past year.

Over the past year, the price of a used 2021 Tesla Model 3 sedan has decreased by around 29%, dropping from $40,522 in January 2023 to $28,700 in January 2024, as reported by Edmunds.com. Similarly, all types of 2021 used vehicles decreased in value by approximately 19.5% during the same period.

It is worth noting that Tesla typically does not provide responses to media inquiries and chose not to comment on its pricing tactics.

Price fluctuations in new vehicles directly affect the prices of used vehicles of the same make and model. Typically, individuals anticipate paying a lower price for a preowned car compared to a new one. Consequently, when the cost of a new car decreases, it also drives down the value of used versions of that particular model.

Considering this, why would someone opt for a used car when they could potentially purchase a brand new vehicle for a similar or even lower price?

“What were the most depreciated vehicles in the industry? It’s Tesla,” said Ivan Drury, an auto pricing analyst with Edmunds.com. “It’s an exorbitant amount of money.”

Lower resale value

Brayden Wall, a Colorado resident, purchased a pre-owned 2020 Tesla Model 3 for $51,000 approximately two years ago. He recently decided to trade it in at a Tesla dealership and was disappointed to receive an offer of only $22,000 for it.

Despite the low trade-in value, Wall mentioned that he does not regret his choice to buy a Tesla, but wishes he had made a different decision regarding the timing of his purchase.

He mentioned in a text message that he understands vehicles depreciate in value and are not considered as investments. However, experiencing a significant decrease of more than 50% in value on a $50,000 purchase within just 18 months was quite a shock.

The quick decline in the value of used Teslas played a significant role in Hertz's decision to sell 20,000 electric vehicles, with the majority of them being Teslas, in January. Rental car companies rely on selling cars in the used market after a certain period, making resale values crucial to their business. The plummeting resale value of Teslas negatively impacted Hertz's financial performance.

Deploying Teslas has become more costly recently. Hertz CEO Stephen Scherr mentioned during an earnings call that the manufacturer's suggested retail price decrease led to lower residuals and higher depreciation for the vehicles.

This decrease in Tesla's car values has sparked price competition in the used electric vehicle market.

"Tesla is making a big impact in the EV industry," Drury explained. "Their actions are causing significant changes that affect the entire market for used electric vehicles."

For example, the price of a used 2021 Ford Mustang Mach-E has decreased by almost 37% in the past year. The Mach-E is a direct competitor to the Tesla Model Y in terms of size, price, and specifications, and it has also experienced a price drop of 31% during the same period. On the other hand, the average price of all other used 2021 EV models has decreased by about 34%, although this number may vary, according to Drury.

This is what happens in the EV market when Tesla makes a move because, although it’s less dominant, it still has an outsized impact.

Editor's P/S:

The article reveals a stark contrast between Elon Musk's bold predictions and the reality of Tesla's used car prices. While Musk envisioned a future where Teslas would appreciate in value due to advanced self-driving technology, the market has not supported this claim. Instead, used Teslas have experienced a significant decline, largely due to Tesla's aggressive price cuts and the increasing competition in the electric vehicle market. The article highlights the importance of realistic expectations in the automotive industry and the challenges faced by companies seeking to innovate in a rapidly evolving landscape.

The article also raises concerns about the future of self-driving technology and its potential impact on the value of cars. While Musk remains optimistic about the transformative power of autonomous vehicles, regulatory hurdles and ongoing software development challenges continue to hinder widespread adoption. The article prompts readers to question the long-term viability of self-driving technology and its implications for the automotive industry and consumers. Overall, the article provides a thought-provoking analysis of the current state of Tesla and the broader electric vehicle market, cautioning against unrealistic expectations and highlighting the need for ongoing innovation and adaptation in the face of industry-disrupting changes.