The Tesla Model 3 is a vehicle that has reset the bar in its segment. Now outselling not just the rival cars in the segment, but at times outselling the entire brands of cars that reside in its segment, the Model 3 is a massive success for Tesla. Fans love the Model 3 for many reasons. Of course, its green vehicle aspects are important. So too are its performance and drivability aspects. However, these factors don't get to the root of why the Model 3 is so expensive on the used market. The answers are not very difficult to understand if you step back and consider why the Model 3 is so expensive when used.
Used Tesla Model 3 Cars - Limited Availablity and Timing
The biggest reason why used Tesla Model 3 cars are relatively expensive compared to other used cars is the timing and the availability of the Model 3. Yes, Tesla enjoys a high rate of sales (for the segment) for its Model 3. However, that is true only in the past year or so (Check out Inside EVs sales charts for details). Although it went on sale in July of 2017, Tesla barely sold any in calendar 2017. Around 2,000 cars total made their way to owner driveways, and those driveways were all in one state. Sunny California.
Tesla's big sales spike didn't come until a year later when in July of 2018 Tesla's production SNAFUs were mostly resolved. Tesla's biggest sales month didn't come until December of 2018, less than one year ago (using month-end as a timestamp).
Almost all of the Tesla Model 3 cars built, by a percentage of the population of Model 3 cars, are less than a year old. The majority of the oldest ones are all in one place. California. Used cars that are all in one place, where the weather is kind to cars, don't tend to have huge discounts.
Used Tesla Model 3 Cars - Tesla Discounts
Speaking of discounts, remember that Tesla didn't discount any of the original Model 3 cars it built. Why bother? Owners had been waiting a long, long time to take delivery and Tesla had a massive backlog of pre-orders to fill. When a car sells at above its MSRP (don't forget the destination fee) and its average transaction price equals its sticker price, the used market reflects that. GM discounts its most popular model (Silverado) by 15% routinely. So, of course, the used trucks all cost at least 15% less than MSRP. Tesla only started to discount Model 3 cars in March of this year.
Used Tesla Model 3 Cars - Updates, Duh
Another unique feature of Tesla cars is that they are frequently updated. Some analysts see OTA updates as Tesla's top strength. This means that there are relatively few features that the new cars have that the used ones don't. So used ones compare well to new. The discounts we see in most used car segments are partly because the older models are not as advanced or as well-equipped as the ones on the showroom floor. With Tesla's cars, that is less true.
Used Tesla Model 3 - It Earns Its Value
There are other models that sell at very close to the price of new. The Toyota Tacoma, Jeep Wrangler, and Toyota FJ Cruiser are examples of vehicles that used car shoppers are willing to pay very close to new prices for. The reason is the owners LOVE these vehicles. Generational changes can disrupt this cycle, but for the most part, these vehicles are highly cherished by shoppers. Consumer Reports says that the Model 3 is the car with the highest owner-satisfaction rating. And the price reflects that. There has been no generational change for the Model 3 yet, and there won't be one for many years. The Model 3 is much-loved by owners and shoppers, so it earns its used car price.
Tesla Model 3 Cars - When Will Use Prices Come Down?
We see two factors that will help the used Model 3 market. The first is simply time. About 4 years after Tesla has built the Model 3 in high volume it will begin to sell for less in the used car market. So, look ahead by about 3 years. Next, other Tesla Models are coming. The Model Y, in particular, may impact the used Model 3 market. In fact, we predict that it will reduce Model 3 sales overall. There is no telling when Model Y crossovers will be available in big numbers, but they will be here three years from now for sure. So, we see two big factors that will change the market meaningfully for the Model 3. Both about 3 years away.
Did you buy a Model 3 used or shop for one? Tell us about it in the comments below.
John Goreham is a life-long car nut and recovering engineer. John's focus areas are technology, safety, and green vehicles. In the 1990s, he was part of a team that built a solar-electric vehicle from scratch. His was the role of battery thermal control designer. For 20 years he applied his engineering and sales talents in the high tech world and published numerous articles in technical journals such as Chemical Processing Magazine. In 2008 he retired from that career and dedicated himself to chasing his dream of being an auto writer. In addition to Torque News, John's work has appeared in print in dozens of American newspapers and he provides reviews to many vehicle shopping sites. You can follow John on Twitter, and connect with him at Linkedin.