Prices For New Tesla Model 3 & Other Popular EVs Lower Than Used Prices
October 20th, 2018 by Dr. Maximilian Holland
Join an EV reservation queue quick! High used prices of the Tesla Model 3 prove there’s good money to be made from owning an EV, and horrendous money to be lost from owning a gas car.
Remember that good old economics staple “The Law of Supply and Demand” and its influence on prices? The best EVs are seeing demand far outstrip supply, resulting in long queues and values inflating on the used market. Over a year into its production run, the Tesla Model 3 is still selling at significantly higher prices on the used market than it sells for new. Is this a joke? No, it’s real — and it’s actually the new normal for the best value EVs in several markets around the world.
Increased used pricing is also happening in parts of Europe with the electric versions of the Hyundai Kona and Ioniq, and even with the Chevrolet Bolt/Ampera-E. The gas cars that EV buyers are increasingly turning their back on are still reliably plummeting in value as soon as they are driven off the lot. Gas cars represent a painful money pit for their poor owners, on top of being much more expensive to run compared to these EVs.
Consider this article a heads-up call. This is how it ends for fossil fuels.
Tesla Model 3 Increases In Value
The Tesla Model 3 Long Range has been selling new for a list price starting at $49,000 over the past 14 months. That’s before a federal tax incentive that effectively knocks $7,500 off the list price for many Americans and additional state and local incentives (e.g., electric utility incentives) in many parts of the US that often knock off a few thousand dollars more, adding up to $10,000 or more in savings. The effective net outlay for new owners therefore typically starts in the low $40,000s, or even high $30,000s in a few places.
Now, take a look at any of the big used car websites in the US and you will notice that used Tesla Model 3 Long Range cars are selling at prices typically in the region of $52,000–56,000. That’s around $10,000 (or more) over what the car cost the original owner to buy new. Go see for yourself right now if you don’t believe me. Look here or here or here.
Even in cases where the original owner spent more on upgraded wheels, paint, and Autopilot options, the used price is still at a premium of thousands of dollars over what the car cost the owner, when taking incentives into account. If we say the average price bump is $10,000, then that’s an effective value increase of 25% over the initial ~$40,000 net outlay.
This seems crazy. We are used to a pattern of mass-produced cars depreciating in value over time by 15–20% or more per year, as they start to accumulate wear and tear and become less efficient and less reliable. Depreciation has long been the greatest cost of ownership on new cars, by far. We are now looking at zero deprecation, or even price increases of 25% or more for the most attractive EVs during the first year, whilst their fossil fuel vehicle (FFV) counterparts lose 20% as soon as they drive off the lot (see the Black Book — Fitch reports for more detail).
On the US average priced $35,000 car, that means buying a FFV will cost you — just on first-year depreciation alone — $15,750 more than buying one of these EVs. Quick takeaway: FFVs are a massive money pit, don’t buy a new one unless you have money to burn!
The Most Attractive EVs Increase In Value
The most valued and attractive EVs for the market as a whole are those that have the best combination of price and practicality. Practicality, beyond having a decent functional design, is mainly down to having great range and/or great recharging ability. The Tesla Model 3 is obviously in this category, having huge range and widely available supercharging, but so are a few other EVs.
The Hyundai Kona, with great range and pretty fast charging, is also in high demand across most of Europe (and the Kia Niro, delivering in the next couple of months, is also in high demand). The Hyundai Ioniq, with moderate range but very fast charging, is seeing very strong demand in several markets, and so is the Chevrolet Bolt / Opel Ampera-E, with its great range and reasonable charging, in many European markets. Let’s look at their value retention.
The Hyundai Kona is already selling in Norway, Germany, and the Netherlands. Norway and Germany are the largest markets for fully electric cars (BEVs) by volume in Europe, with quickly maturing used EV markets and with decent numbers of people who are no longer on the sidelines about EVs but have already jumped in. France and the Netherlands are in 3rd and 4th place for BEV volumes in Europe, but France’s volumes are 75% dominated by the local Renault Zoe and Kangoo ZE (and not yet any used Konas), whereas the Netherlands has a broader mix (and a higher per capita adoption of EVs). The UK comes in 5th by total BEV volume, again with a mix of brands.
In Norway, the Kona EV is selling used for prices that are 30–33% above the new price, even with thousands of kilometers on the odometer. In Germany, used Kona EV prices are around 25% over cost to buy new (taking the €4,000 grant into account). In the Netherlands, the used markup is around 2% to 4% over new. I wasn’t able to find a large sample of used Kona EVs in Europe outside of these 3 markets (see end of article for my methodology).
The next most impressive EV for price appreciation in Europe may surprise you, given the negative press — the Opel Ampera-E (European sibling of the Chevrolet Bolt). The price bump for used is 10–12% over new in Norway, 15% in Germany, and pretty much holding original value in all other parts of Europe where it is available. It may also surprise you that, even in the US — once we take into account incentives (of $7,500 to $10,000) that effectively reduce the new price — the Bolt is also holding value after a year of use, or even slightly appreciating in price.
The Hyundai Ioniq EV is a highly efficient EV with modest range (124 miles EPA combined rating) but extremely fast charging (around 18 minutes 10–80% on optimal charging stalls). These qualities are widely appreciated in Norway, where 1-year-old used Ioniqs are selling for 25% above their new prices. Even after 2 years (and many thousands of kilometers on the odometer), they trade for 18% price increase over new. In Germany the price increases by a more modest 15% over the first year. In the US, the Ioniq EV is also holding value well, or in some cases slightly appreciating in value used over new. In the Netherlands and UK, the Ioniq’s used prices do depreciate over new, but very gently, with 16% over 2 years, where a FFV equivalent would be in the range of 30–40% depreciation at best.
Why Are The Best EVs Appreciating In Value?
The most attractive affordable EVs are in much higher demand than supply in most markets. The high demand is mostly due to rapidly increasing numbers of people catching on to their huge economic benefits, including reducing fuel costs by 50% to 90% or more (see this example), cutting maintenance costs in half, and having better overall reliability.
Then add in all the other EV experiential advantages (smooth, quiet, relaxing, responsive, instant acceleration, … etc). The first generation of modest range affordable EVs have had a strong early adopter appeal, and are ideal for urban and suburban uses, and for typical commutes. However, their market was mostly limited to 2-car (or more) households or owners not needing to make longer journeys, or prepared to take frequent breaks on such journeys. This niche appeal has made the size of their market somewhat limited, although within this niche, their financial advantages over FFVs are clear to all of their owners.
The EVs we reviewed above are already able to serve as the only car you need, and — in markets where fast charging infrastructure is quickly becoming widespread — able to completely replace the functionality of FFVs. They are also reasonably affordable, thus appealing to a large portion of the car buying population. They have all of the EV running cost savings and performance advantages that are well established, but with none of the range compromises of the first generation. Demand is therefore off the charts.
The last remaining questions about fast charging on longer drives are now in the process of being solved in many areas of Europe and North America, making even existing EVs more capable as time goes on. Tesla has already largely resolved the charging question in much of Europe and the US via the Supercharger network, and non-Tesla networks (though not as joined up) are quickly moving towards becoming practical (e.g., northwest Europe, see detailed charger maps at goingelectric.de).
For these reasons, EV demand is starting to take off in earnest, especially for affordable and long-range (200+ mile) models. The Ioniq EV joins this group because it makes up for its more modest range with outstanding charging speeds, and the current growth in charging networks is thus helping the Ioniq more so than other modest-range EVs. Demand is far outstripping supply in almost every market in which these EVs are available. It will be the same for the upcoming standard range Tesla Model 3, for the Kia Niro EV, and later for the next-gen Nissan Leaf (no release date, likely late 2019). What happens when demand outstrips supply? Prices go up.
Is This A Short-Term Phenomenon, Or A Lasting Pattern?
More and more regions and cities are restricting FFVs through higher usage/access fees, higher annual road taxes, or outright bans on older FFVs. This is a moving wall, so even new FFVs today will be falling foul of these tightening targets in a few years time, and there will be no let-up on this trend, since EVs have now solidly proven that FFVs’ deadly pollution and climate-destroying emissions cannot simply be accepted as a necessary evil. This means that EVs are only going to be in ever higher demand as time goes on (as FFVs experience bans and declining demand).
What’s happening on the supply side? As more folks catch on to EVs, especially these fully fledged all-rounders, the proportion of the car buying public demanding EVs is quickly growing. It is going to grow much faster than the supply over the next 3 to 4 years at least. When we look at manufacturers’ production plans, it will be several years (2022–2025) until the big players start making anything approaching significant volumes of EVs.
By the time EVs have reached 5% of sales in most markets, the majority of car owners will become more aware of their value proposition and demand will only continue to more rapidly increase. On the halo end of the performance car market, EVs are already outperforming FFVs (e.g., the Tesla Model S P100D), and this pattern will accelerate over the next couple of years (Tesla Roadster, Rimac C_Two, and others). Motorsports are now quickly switching to EV.
Awareness is increasing everywhere (similar to how smartphones awareness quickly went wide within 3 or 4 years of their first appearance), even before everyone can afford one, or get hold of one. Once awareness goes wide, the main driver of demand from the mass market will be the financial advantages, not so much the glamour.
This wide demand vs. supply gap – and the high reliability and guaranteed years and years of savings — mean that these EVs will (at every price point of the new and used markets) have higher demand than supply. They will thus continue to command relatively high residual values compared to their peers, even as the peer group ages.
At the same time, FFV residual values will drop even more rapidly than they have historically. Used car lots will be full of FFVs as former owners have abandoned them for a far better and overall much less expensive EV alternative.
Think of how older film cameras, also having high “running costs,” piled up in used camera shops throughout the 2000s as everyone switched to digital. As time goes on and the superior technology achieves mass market mindshare, the previous tech quickly comes to be seen as obsolete, apart from the odd, prized collector’s piece. Only nostalgia and a narrow fan base will save a tiny number of the old timers from junk/scrap valuation.
Don’t Fall Into The FFV Depreciation Trap!
As time goes on, because of this depreciation gap, EVs will save owners increasing amounts of money (thousands or tens of thousands of dollars) over FFVs. Let’s flip that and simply say that new FFVs cost their owners huge amounts of money in comparison to these EVs. This is only going to get worse with time.
The trick for car buyers is to not get caught in the FFV depreciation trap that is the logical counterpart of the EV value retention advantage. Anyone who really needs a replacement vehicle over the next few years, but doesn’t have the up-front budget to get on board one of these fully functional EVs (new or used), should take a few steps to protect themselves:
- Don’t buy a new FFV unless you have money to burn, or unless it is very inexpensive and you can accept it quickly depreciating to scrap value.
- Think carefully about your driving needs and see if a 1st gen moderate-range EV (Leaf, Zoe, Soul EV, etc), could work for you, especially given the growth in charging networks. Perhaps you can keep your existing FFV (or borrow or rent one) if you need to make occasional long journeys. Most 1st generation modest range EVs are now becoming very affordable on the used market, can easily cover most folks’ typical commute range, and you will still get most of the economic advantages, EV reliability and other benefits.
- Consider an inexpensive 3- to 5-year-old used FFV, where the most painful value depreciation has already occurred. It will still depreciate further, but the absolute sums involved are less significant.
- Get an affordable lease FFV with the ability to hand back after no more than 3 years with no liability for the ever-growing depreciation trap.
- Combine the above options and get a lease on a used FFV (yes, these are a thing) which can offer you an inexpensive vehicle refresh and – if the vehicle is still backed by the factory warranty, or an inexpensive add-on warranty plan – guarantees of reliability, but again without any depreciation risk.
- Plug-in hybrids also fall somewhere in between – more affordable used ones like the 1st gen Chevrolet Volt could make sense for several use cases, especially if they have enough electric-only mileage to cover your (short) commute. The jury is still out on the long-term value proposition of PHEVs, since they do have archaic and fragile FFV technology on board. It is possible that by the mid 2020s PHEVs might also be looking like an old stop-gap technology and quickly shedding value, but an affordable used one would protect you from this.
- Join an EV reservation queue and arrange some financing meanwhile, and be patient. EVs save you money overall (especially if you have low-cost financing) and may even earn you money if you can be strategic about selling.
- Prefer EVs that are ready for the autonomous vehicle disruption (all Teslas) that may gain momentum in the 2020s.
There is no way back up the slippery (greasy) depreciation slope for FFVs once a good number of folks recognise the inevitable value differential compared to EVs (which is already starting in earnest as I have documented above). The differential is founded on the years of inherently lower running costs and higher reliability of EVs, along with all their other superior qualities.
To meet tightening emissions tests, the new price of FFVs (and their cost to maintain and repair) is getting more expensive with time. We covered the deprecation question a couple of years ago, before affordable and all-rounder EVs were available, and the disruptive dynamics are now starting to kick in earnestly. I’ve already warned all the folks I know about this, and so please consider this a heads-up to you and those you care about. Pay it forward to those you know. It’s soon going to become a race for the EV lifeboats as we witness the FFV ship sinking.
Research Methodology and Sources:
The only significant vehicle depreciation metric worthy of our attention is the difference in the net outlay price to the new owner, and the price they can sell it for on the used market. To calculate the effective outlay price to the new owner, I use the new list price and deduct the local incentives as outlined in the article. I track trim level and other variants when calculating the price change of new over used. Typical annual mileage of the country is taken into account when sampling used prices over one and two year time frames. The data sampling is steered towards private sales whenever available, and use price guidance (market averages, above, below) are employed to reinforce the data wherever these are indicated on the website.