- A new survey out shows that the Model 3
is gonna have better than average depreciation
compared to it's peers,
but there may be something that will trip it up.
In order to understand this,
first we need to take a look at what depreciation is
as it relates to cars.
Put simply, depreciation is the reduction in value
of an asset.
From an accounting standpoint, you can think of it
as reallocating the cost of that asset, let's say a car,
over it's lifespan.
As consumers, we can think of depreciation,
when it comes to cars anyway, as the difference in price
of what we paid to purchase it versus what we sell it for.
So, if you buy a car for 50,000, then five years later
sell it for 25,000, you have 50% depreciation
in that time span.
When we think about owning a car,
depreciation shows up as the largest cost, always,
in the total cost of ownership model.
This model, which is widely used by sites like
edmonds.com, and Kelly Blue Book, attempts to estimate
the total costs you'll pay for the vehicle
over a five year period.
In order to use this true cost of ownership metric
as a comparative tool between different cars,
they need to make some assumptions and consider
all the other expense categories such as financing,
fuel, maintenance, repairs, fees, and insurance.
For a typical car, depreciation starts the moment
you drive off the sales lot.
On average, cars lose 10% of their value
at this exact moment, while some lose as much as 50%
just moments after you take ownership.
Think about that for a second.
You spend all this time researching which car
is right for you.
You go online and look for different places
and who has the best offer.
You go there, you deal with sales people trying
to upsell you on things.
You make it through the finance office,
which is kind of like a gauntlet of paperwork
you have to fill out, half the time you don't even know
what it is, finally just to get the keys.
Be happy with with your new baby.
Drive off and boom, it hits you.
Before you can even blink, you've lost 10 to 50 percent
of that car's value.
It doesn't stop there either.
The truth is new cars continue to lose their value
their entire first five years in operation
with an average decline of 15 to 25 percent per year.
Most new cars will lose 60% of their total value
in this short amount of time.
So, that brand new 35,000 dollar baby that you
just took home will only be worth
about 17 and a half thousand a mere five years later.
Honestly, it's pretty sad.
Recently, autolist.com published the results of a survey
they did of 14,476 individuals between October of 2016
and July of 2017 which they used to forecast
what the depreciation for a Model 3 might be.
The data show what people's main reasons for not
buying an EV are.
Nearly 60% of the people in the survey
listed their main reasons for not buying an EV
as cost and range.
If those numbers were to hold up for the larger market,
the sky isn't even the limit for the Tesla Model 3.
With an estimated 310 miles per charge,
and a starting price of 35,000,
the Model 3 should squash any major reasons people
have for not buying an EV.
So if the Model 3 tracks similarly to the Model S
and the in brand counterparts of their competition
hold up like they have been,
the estimate for the Model 3 is that it will hold
around 70% of it's value in that five year period.
Much better than the other cars in that category.
The only issue I see here with the Autolist survey
is that they don't list how they actually selected
these people and the small size relatively
to the overall market won't necessarily be enough
for us to extrapolate out.
So, who they chose may have a bias,
which may have led to the results we see.
And, the amount of people may not be big enough
for us to reasonably estimate that the overall market
will behave the same way that these folks do.
Before we move on though, I need to mention one thing.
Looking back only four or five years,
the Model S has had really poor resale value.
Meaning, really bad depreciation.
The main reason, autopilot.
Autopilot was a game changer for Tesla and the Model S.
It kicked off all the discussion about self driving cars
coming to market and has been a huge
selling feature for folks,
especially, those of us in Southern California, for example,
that have to sit in traffic on a daily basis.
So if your car didn't have autopilot, the value plummeted.
Even my car, which I bought in 2016,
was almost 50% cheaper than it was new.
Now, this was a 2013 model with only 10,000 miles on it
at the time.
So, could there be something like this that kills
the resale value of the Model 3?
Not likely.
The cars come with the latest hardware that will one day
allow for full self driving capability.
You might even be able to send your car out
to make you money as an autonomous taxi, maybe.
The roll out strategy is going to confuse things
a little bit as well when it comes to calculating
the Model 3 depreciation.
In the US, it will be late 2018 till most people
have their Model 3.
So, until then, the demand will remain high,
possibly even letting owners of the cars
sell them for more than what they paid.
We also have to remember that depreciation
only becomes reality when you sell your Model 3.
And, who's gonna do that?
I'd like to know what you think.
Do you think the Model 3 will hold it's value
better than it's competitors,
or will it suffer a similar fate as the Model S
when autopilot came out?
Leave me a comment down below.
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Each week what we do, is we look at the tech
and the data behind Tesla to try to understand
what's really going on and how this company
is changing our world.
And lastly remember, when you free the data,
your mind will follow.
Thanks for watching.