Tesla cars lose value faster than rival models after price cuts, data shows

A Tesla Model Y on display in Culver City, California on April 14, 2022. Photo / Getty Images

The value of second-hand Tesla cars has collapsed since the electric-vehicle maker embarked on a series of price cuts for new models in the past six months, according to sales data.

The value of a new Model 3 with a long-range battery bought in January this year in the UK for £57,435 (about NZ$113,365) is forecast to fall 46 per cent to £31,300 (NZ$61,778) by January 2024, according to industry pricing agency CAP HPI.

This compares with only a 4 per cent fall over 12 months for the same model purchased in September 2021, which cost £48,435 new and was worth £46,300 a year later.

The Cap HPI data is for the UK, one of Tesla’s largest markets, but the US group’s cars have also experienced steep depreciation in other countries, according to industry executives.

Although second-hand car values have fallen this year compared with 2022, when old cars were often selling close to or above their new price, the depreciation of Tesla cars has been greater than rival electric brands.

In contrast to a Model 3′s predicted decline in value of 46 per cent, a £50,395 electric Polestar 2 bought in January will be worth about £33,000 at the start of 2024, a loss of £17,395, or 35 per cent, CAP HPI forecasts.

Financing deals affected

The steeper depreciation in Tesla models potentially makes its cars more expensive in financing deals than rivals.

This is because, under lease or personal purchase agreements, motorists have to finance the value a car loses over a leasing period.

This arrangement, which accounts for almost all new cars sold in the UK and is increasingly popular across Europe and the US, results in higher prices for vehicles that suffer steeper depreciation.

Tesla lowered prices for new cars in China in October, and then in the US, Europe and the UK in January, and again on some models in March in order to generate demand.

Chief executive Elon Musk defended the cuts earlier this year, saying: “The desire for people to own a Tesla is extremely high. The limiting factor is their ability to pay for a Tesla.”

Tesla has also struggled to increase its second-hand sales operation, meaning cars are often sold too cheaply, said Dylan Setterfield, head of forecasting at CAP HPI, and corroborated by other people in the industry.

This has also played a significant factor in the fall of Tesla’s second-hand values since last year, he added.

Tesla sets prices globally, unlike other manufacturers that use local branches or dealers, which offer discounts and incentives to help drive sales.

The brand also lacks a long waiting list for its cars, unlike rivals such as BMW, which means it is less cushioned against a widespread fall in demand as economic conditions worsen.

Tesla’s cuts sparked warnings of a price war among electric models, but so far executives from rival carmakers have said they will not lower retail prices for new models, for fear it will cause greater depreciation in the second-hand market.

“I hope that they [Tesla] continue to reduce to zero, but we will continue to protect the value of our electric vehicles,” said Renault’s chief executive Luca de Meo earlier this year. “This is destroying value for the customer, for sure, when you do this.”

Only Ford has cut the price of its electric Mustang in Europe, while Mercedes has cut the price of its electric E class in China, which it originally priced too steeply.

Tesla declined to comment on the resale data.

Written by: Peter Campbell

© Financial Times