Tesla’s (TSLA) used car prices have plummeted “like a rock falling into the ocean”, with social media’s most prominent car critic analyzing the reasons for the drop. But the results of his analysis are not the reasons people think.
Doug DeMuro has test-driven almost every four-wheeled vehicle you can see and can’t see on American roads: His expertise has garnered nearly 4.6 million followers on his YouTube channel, and he runs a Used car auction site Cars & Bids.
“The crazy [high] prices we’ve seen for Tesla vehicles over the past 18 months are no longer there and won’t be again. There’s no doubt about that,” De Muro warned on Jan. 15. He advised customers planning to sell their used cars to accept the price reduction, or prices could fall further.
De Muro’s business has provided him with unique access to insight into the market value of Tesla’s vehicles. Tesla Motors has been under intense pressure for the past three months. In early January this year, Tesla suddenly announced a price cut for new cars, causing controversy and reducing people’s willingness to buy used cars.
Instead, measures taken by the Federal Reserve to combat inflation have had a bigger impact on Tesla’s pricing power in the used-car market.
“Rising interest rates have had a severe impact on Tesla because of the specifics of the car buyer demographic,” De Muro said, adding that Tesla customers are in occupations that are more affected by higher borrowing costs than the general public. more serious.
The impact of rising interest rates is even more severe
For example, as far as DeMuro himself knows, a large number of users who list used cars on Cars & Bids are mortgage brokers, real estate agents, and the like.
In addition, many Tesla owners are young people who are attracted by the charm of the Tesla brand and often need to take out loans to afford Tesla vehicles. Higher borrowing rates have made it impossible for them to afford even the price of a used Tesla.
Finally, Elon Musk’s car buyers often come from tech industries as popular as Tesla, which is currently undergoing a wave of layoffs, such as Amazon (Amazon), Meta, Salesforce (Salesforce) and Coinbase. In mass layoffs, this could force people to avoid big-ticket purchases such as cars.
“These are the people who are buying Tesla cars,” De Muro said. “The mortgage lenders are being hit hard because interest rates are going up, nobody is buying a house right now, and the other group is young people who are getting rich in tech. I think that’s The factor that has had the biggest impact on Tesla’s price decline over the past three months.”
Therefore, a 2021 Tesla Model 3 Performance with 27,000 miles on the mileage would still sell for $56,000 on his platform a month ago. That’s just over a tenth of the new car’s $62,990 price tag.
By comparison, in early January, after Tesla lowered the model’s starting price to $53,990, De Muro said a 2022 model with just 3,700 miles was listed on the Cars & Bids platform. The highest bid in the auction was only $48,250, so it passed in.
“The car was built a year later than a similar model in poorer condition a month earlier, had 24,000 miles on the mileage, and was quoted $8,000 less,” De Muro said. Not surprisingly, that’s what we’re seeing with Tesla prices. No matter what you say about it, the price of Tesla vehicles has plummeted.”
While many electric car buyers told DeMuro they wouldn’t buy a Tesla because of the rift Musk sparked, a mentality that has contributed to a decline in the popularity of Musk’s car brand, the Cars & Bids boss believes, The impact on Tesla’s used car prices is nothing compared to the impact of higher interest rates.
De Muro said there are two other key factors affecting the price of used Teslas.
Supply has been able to fully meet demand
Raising the price of Tesla vehicles has been one of the ways the company has managed its once-overabundant pre-orders to avoid long wait times amid constrained supply chains and production bottlenecks.
“If you want to buy a Model Y (…) you may have to wait six to eight months, you can also buy a used car. But in fact, the cost of a used car may be higher,” De Muro said. Because there is no waiting to buy a used car, the owner of the Model Y will resell it two months later for a profit.”
The problem is, Tesla appears to have reached a tipping point where its vehicle production has now eaten away at its backlog of auto reserves. With the complete depletion of pre-sale orders, the production of existing vehicles has basically been able to meet the demand for new purchase orders. Musk had to cut prices in the three major markets of the United States, China and Europe, and reduce the business volume of the assembly line to avoid an increase in inventory.
“That puts downward pressure on used car prices. A year ago, you could buy a Tesla and resell it for a $10,000 premium, but that’s no longer the case,” De Muro explained.
Tesla’s competitive advantage disappears
Finally, De Muro said Tesla faces stiff competition.
Many rival models support semi-autonomous driving technology, competitors’ new electric vehicles have surpassed Tesla in terms of performance and driving range, and Musk’s product line is aging rapidly, the Model S has been on the market for more than a decade, and The Model 3 hasn’t been updated since it went on sale in mid-2017.
He said: “Tesla’s huge advantage is no longer there except for super charging. It seems that they have slowed down their innovation. Tesla is not what it used to be. Any technology that Tesla used to be able to stand out and be far ahead. .
That means there are plenty of affordable Tesla vehicles to choose from right now, like the 2018 M3 model with a longer driving range, which currently sells for $25,000.
“I think we’ll all be able to buy cheap Teslas in the next few years,” De Murro concluded. (Fortune Chinese Network)
Translated by: Liu Jinlong
Reviewer: Wang Hao
Tesla’s used vehicle prices are “sinking like a stone” and one of social media’s best-known car reviewers he has a theory as to why. But it’s not what one might assume.
Doug Demuro has test driven just about every four-wheeler you can find on US roads and many you cannot: not only has his expertise garnered him a subscriber base on his YouTube channel of nearly 4.6 million followers, he also runs a used vehicle auction site called Cars & Bids.
“The crazy [high] prices we’ve seen over the last 18 months for Teslas—they are gone and they’re certainly not coming back. There is no question about that,” he warned on January 15, recommending customers looking to list their vehicles accept markdown offers before they fall any further.
His business gives him unique insight into the going market value for a Tesla, which have come under heavy pressure over the last three months even before earlier January’s controversial price cuts for new vehicles abruptly lowered what people are willing to pay to model- and se .
Instead, the Federal Reserve’s inflation-fighting campaign has had a much greater effect on Tesla’s pricing power in the used vehicle market.
“This rise in interest rates really hit Tesla hard because of the specific kind of people buying the cars,” DeMuro believes, adding they often have jobs where higher borrowing costs impact them more acutely than the general population.
Disproportionately affected by interest rate spike
For example, in his experience, a large number of users listing on his Cars & Bids site are mortgage brokers, realtors and others.
Furthermore, a lot of Tesla owners are younger buyers captivated by the chic brand and often need to stretch their finances to be able to afford them. An increase in lending rates can put even a used Tesla out of their reach.
Lastly, Elon Musk’s buyers tend to also come from the same buzzy tech sectors as Tesla itself, and are now experiencing a wave of layoffs sweeping through the sector at companies such as Amazon, Meta, Salesforce and Coinbase that may prompt them to avoid the purchase of any big ticket items like cars.
“These are the people who were buying Teslas. It’s the mortgage lenders who are getting killed when the interest rates are going up—nobody’s buying homes—and then it’s this kind of young, new money tech people,” he said. “And I think that more than anything has been the biggest factor in the decline in Tesla prices over the last three months.”
Prices “falling off a cliff”
As a result, a 2021 Tesla Model 3 Performance with 27,000 miles could still exchange hands on his platform for $56,000 only a month ago. This represented a discount of just over a tenth off the then-$62,990 price for a brand new vehicle.
By comparison earlier January, after Tesla cut the entry point for that model to $53,990, DeMuro said Cars & Bids listed a 2022 version with only 3,700 on the odometer. The highest offer in the auction topped out at a mere $48,250 and the sale as a result didn’t go through.
“That car is a year newer with 24,000 fewer miles and bidding was $8,000 less than a similar car a month earlier that was not as good,” he said. “That result wasn’t some weird outlier, that’s what we’re seeing with Tesla prices. They are—use the adjective you want—cratering, sinking, falling off a cliff.”
While DeMuro personally experienced a number of cases where EV buyers told him they would not buy a Tesla because of Musk’s divisiveness, which has contributed heavily to a sinking net preference for his car brand, the Cars & Bids proprietor believed this sub was only coordinated of port. to higher interest rates.
There were two further causes playing a key role as well, in his opinion.
Supply has now fully caught up with demand
Jacking up the sticker price for Tesla models has been one way of managing its once-overflowing order book to prevent excessive wait times during periods of supply chain constraints and production bottlenecks.
“If you wanted to buy a Model Y (…) you could either wait six to eight months, or you could buy a used one,” DeMuro said. “But the used one was actually going to cost you more because there was no waiting , so what people were doing was they were buying a Model Y and then they would turn around and sell it two months later and make a profit.”
The problem is Tesla appears to have reached the point where its production has now eaten through its reserves of cars on backlog. With its order book now fully depleted and new purchases now roughly matching output, Musk has had to slash prices across his three main market of the US, China and Europe, as well as trim activity on his assembly lines, to keep inventories from inflating.
“That has really put downward pressure on used car prices. A year ago you could buy one and flip it for ten grand more than you paid, that is not the situation today,” DeMuro explained.
Tesla’s competitive lead has vanished
Finally, the competition has largely caught up to Tesla in DeMuro’s view.
Semi-autonomous driving technology is available in a large number of rival models, new competitor EVs have caught up or exceeded Tesla in terms of performance and driving range, and Musk’s product line is rapidly aging with the Model S over a decade old while the Model 3 hasn’t been refreshed at all since its launch back in mid-2017.
“Aside from supercharging, there’s not a massive advantage to Tesla—and it seems like they slowed down their innovation,” he said. “It’s not like it was, where Tesla would just drop something and kill everybody.”
That means there are plenty of bargain-rate Tesla cars now to be had such as a high mileage 2018 model year M3 sedan currently fetching around $25,000.
“I guess we can all look forward to picking up cheap Teslas over the next couple of years,” DeMuro concluded.
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