Energy
Sunday, July 3rd, 2022 7:30 am EDT
Love is not what makes the world go round. Supply and demand is. At the most fundamental level, the essence of capitalism is, “Buy low and sell high.” Everything else is just window dressing. On that topic, according to the Los Angeles Times, selling a slightly used Tesla is becoming more popular as demand soars and prices continue to rise.
Larry Harris was once the chief economist for the Securities and Exchange Commission (SEC). Today, he teaches at the USC Marshall School of Business. He tells the LA Times, “When supply and demand are not in alignment, you get these opportunities where clever people can take advantage. We’ve seen this in all kinds of markets. When prices change significantly for scarce goods, some buyers realize that the item has a greater value to others than it does to them, and they will sell to the people willing to pay more than they would, and profit from it.”
It happened with tulips in Amsterdam in 1634 when prices shot up astronomically before falling back to Earth in 1637. It happened on Wall Street in 1929, on NASDAQ in March of 2000 when the dot-com bubble burst, and again in 2008 when the global housing market collapsed. Those of you who are fans of crypto-currencies have seen any number of boom and bust cycles over the last few years.
But every cloud has a silver lining. Many people became wealthy by buying up foreclosed properties in 1929 and waiting for the market to recover. Yes, it took nearly 15 years for that to happen, but those who were able to be patient made out very well in the end.
The Used Tesla & EV Craze
The Tesla Model Y costs about $10,000 more today than it did last year at this time. The used car market is overheated thanks to supply chain issues, computer chip issues, high oil/gas prices, and surging demand for new cars. Many people would buy a new electric car if they could, but they can’t because prices are higher and unscrupulous dealers are adding “market adjustment” fees of $10,000 or more. That creates a pool of ready, willing, and able used EV buyers who are willing to pay inflated prices to get one, any one. It’s the perfect example of what Larry Harris calls supply and demand not being in alignment.
Dennis Wang tells the LA Times he has made about $10,000 recently buying and selling used Teslas. For him, it is no different than scalping tickets to a sold our concert or sporting event. “I have a Tesla Model S currently that I’m probably going to sell within another three months, pending the market,” he says. “I also have another Model Y and a Model X on order.” Some like Wang are finding buyers who are willing to pay exorbitant sums — sometimes tens of thousands of dollars more than the retail price — to acquire a vehicle.
On Fakebook, the LA Times found a 2022 Hummer EV1 selling for $220,000 — more than double its $105,000 list price. There are also two Rivian R1T electric trucks on offer, one for $123,000 and another for $220,000. On the Rivian website, the same vehicle starts at $67,500. Buyers on Cars & Bids, an online auction site, can find others listed for $97,000 and $103,000. It lists 14 R1T sales between April 12 and June 28 at prices that ranged from $106,000 to $138,000.
In June, Tesla raised the price of its Model Y by 5%, to $65,990, but that hasn’t stopped the flippers. A Model Y with less than 2,800 miles was recently up for sale on Edmunds.com for $70,995. Edmunds called that a “good price,” saying it was $1,739 “below market.”
Eddie Gribust outfits Mercedes-Benz Sprinter vans for people who want to live off the grid. He recently sold the Tesla Model Y that was his family’s daily driver at a profit. The buyer flew from Boise, Idaho, to Las Vegas to get the car. Gribust was so happy with how things worked out that he created a YouTube video entitled, “Flipping my Tesla for $5,000 profit! Here’s How.”
He says he is keenly aware of the market dislocations created by the microchip shortage. “I was about to order a [Tesla] Model X and the Cybertruck. The delivery times were nine months to a year, and that would obviously signal high demand, and therefore, low supply. From there, it was taking advantage of simple economics.” Larry Harris would agree.
Strike While The Iron Is Hot
Recurrent Auto, which tracks the used EV market and provides car shoppers with independent reports on EV performance and battery life, noted in its most recent market evaluation that 2021 used EVs “make up a surprising 17.5% of inventory.” It found that used EVs had climbed 25% in price since March 2021. On average, it said, a 2021 Mustang Mach-E was selling for 60% more than it was last year. Citing what it called “the new normal, inflated prices are here to stay,” Recurrent said that the used EV sales trend was skewed heavily toward the most recent model years available.
“Anecdotally, we’ve heard of many owners who sold pretty new cars to dealers and made back more than their purchase price, and the numbers show this makes sense,” Recurrent said. “Reselling a barely-owned car works differently for different cars. In terms of Teslas, the price of new vehicles increased so much last year, and waiting periods are so long for new vehicles, that the value of used cars skyrocketed.”
If you have a relatively new EV, Recurrent’s advice is to jump into the game now. “If you are an EV owner or a dealer, now is as good a time as any to list a used EV. Since we speculate that prices will not change much in the coming months, by holding on to your car, you risk higher inventory flooding the market.” If you’re one of the many hoping to obtain an EV, “it may not pay to wait for prices to come down,” Recurrent advises.
Restrictions On Flipping Cars
If you want to get in on the game, there are some pitfalls you should be aware of. In most states, only a licensed dealer may sell a new car. Everyone else has to pay the applicable sales tax and registration fees and wait until they have the title in their hand. Manufacturers are getting wise to the game.
Ford recently revoked the ability of someone who leases one of its electric vehicles to sell it privately at the end of a lease and has notified dealers they may insert language in the sales contract that bars reselling the car for a period of one year from the date of sale. Tesla will refuse to sell a new car to someone it thinks is playing the game too aggressively.
Several states limit how many cars — electric or not — a person can buy and resell in a year before needing a dealer’s license. If you are selling a car for profit in California, for example, you must have a retail car seller’s license, according to the DMV’s occupational licensing office, even if you are using an auto selling auction site as an intermediary. That requires completing a six hour course, passing a test, and paying fees.
In France, where flippers have been reselling nearly new EVs for a profit of $10,000 or more, the government in June changed its energy code to prevent the immediate resale for profit of electric vehicles purchased using state incentives. EV owners must now keep their cars for a year before reselling. Germany has a six-month hold on reselling EVs but is considering an increase to a year-long wait starting in 2023. Most governments get cranky if people use public incentives to juice private profits.
One way to avoid some of the restrictions is to simply get on a waiting list and then sell your reservation slot to someone else. But beware — companies are aware of such shenanigans and may have the power to cancel a reservation if they feel people are abusing the system. You might not want to deal with an aggravated person waving an assault rifle outside your condo at 3 am who feels entitled to a refund of the money paid to you. America is a long way from the kinder, gentler place George H. W. Bush liked to talk about.
The Takeaway
No one can fault you for taking advantage of opportunities that come your way, but flipping cars has some inherent risks for the unwary. Don’t accept any checks from members of royalty in Nigeria and make sure you are aware of local and state rules and regulations.
The other thing to bear in mind is that market conditions can change swiftly. Remember the housing bubble in 2008? That was sure quick when it happened. If you plan to make a killing flipping electric cars, make sure it’s not you who winds up getting killed if the market changes.
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