Energy
Thursday, July 14th, 2022 6:43 pm EDT
I’ve written around 300 articles over the last 4 years and the article above (my 7th) was my most popular article ever. Like a fair number of my articles, it was noticed by Elon Musk and retweeted by him (when he “only” had 30 million followers). It was one of the first attempts to look at the total cost of ownership (TCO) of the Tesla Model 3. Not only did I compare it to its top gas competitor (the BMW 3 Series), but I dared to compare it to the the everyman’s Toyota Camry.
The Model 3 was more expensive to own than the Camry, but only a little bit, and that was shocking to pretty much everyone I spoke with and even shocked me. Major sites like Edmunds and KBB had no total cost of ownership figured for the Tesla Model 3, so I had to do some work myself. I checked again for this article and Edmunds now has a cost for the used 2020 Model 3, but it still doesn’t have an estimate for the new 2022 Model 3. KBB has a new 2021 Tesla Model 3 listed as the cheapest to own in the luxury class.
My article on the total cost of ownership of the Tesla Model 3 was so popular that it may have garnered more views than my next 100 articles combined. So, when I was looking at the YouTube video below, which was a retrospective look at the total cost of ownership after 4 years (rather than the 5 years I attempted to estimate), I was VERY curious to see how I did!
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So, I found my original model from 4 years ago and updated it in the following ways (changed numbers are in RED):
- I multiplied the fuel cost for the gas vehicles by 1.25 to adjust for the higher than expected gasoline costs.
- I got offers from Edmunds on all the cars except the Model 3 (for the Model 3, I used the price from the video), and I figured the depreciation by subtracting the cash price from offer and multiplying by 1.25 to estimate the additional depreciation expected in the 5th year (it’s been 4 years and the TCO is for 5 years).
- I took the maintenance and repair estimates for the Tesla Model 3 way down based on both my personal experience, the video, and everything I’ve heard in the last 4 years. The Model 3 has had some glitches, but those have all been paid for by the 4 year warranty.
The shocking (at the time) finding from the original article was:
What did I find? You can drive a Model 3 for the about the price of a loaded Camry! Most people think you have to wait for the $35,000 model for the Model 3 to be comparable to a nice Camry, but the calculations show that the tax credit and fuel savings make the Model 3 very competitive today! Most people see the upfront cost of the Model 3 (which is very comparable with a BMW 3 series) and assume the cost of ownership is also similar. They are wrong. This analysis shows that the cost of ownership of the Model 3 today is about 40% below the comparably priced BMW 3 Series!
The news that I found after making these updates is:
- The Model 3 ended up slightly less than the much cheaper to buy base Toyota Camry
- It ended up 30% less than the loaded Camry!
- It ended up a shocking 65% less than a BMW 2 Series.
I did some analysis of the trade-in values of the BMW, Camrys, and Model 3. I know used car prices are up and I wanted to see how depreciation was different between the 4 cars. I found the Tesla Model 3 depreciation was about half what I expected 4 years ago. The Camrys depreciation was also down almost 50%. Although the percent of expected depreciation was similar between the Tesla and the Toyota, the effect on the TCO was much different. For example, the base Camry had depreciation of $6,255 instead of $12,031, about a $6,000 savings, but the Tesla deprecation was over $13,000 less than predicted! The BMW depreciation was only $800 less than predicted. Why have used BMW values not enjoyed the big bump that Tesla and Toyota have received? I would speculate that BMW has lost much of its “Halo” value over the last 4 years as it went from the “car for rising professionals to own” to “a great performing gas car.” This is a major downgrade.
Conclusion
I will have to study the situation further to see what this means for someone buying a car today, but I suspect it means electric vehicles are a far better value than is generally realized by the broader public.
Considerations that I’m researching now are:
- Expected fuel prices for the next 5 years.
- Maintenance and repair estimates for Tesla vehicles.
- Effect of over-the-air updates on depreciation. When 5-year-old cars get 90% of the new features of a new car, that should increase their value.
- Expected lifetime of a gas and electric vehicle. People expect a gas car to go through 4 stages:
- The first 50,000 miles should be trouble free and minimal maintenance as the bumper-to-bumper warrantee runs out.
- The second 50,000 miles lead to more maintenance and a few minor repairs are expected as the powertrain warrantee runs out.
- From 100,000 to 150,000 miles, you expect more maintenance and an increased chance of an issue that forces a sale because you just don’t want to deal with it.
- From 150,000 to 200,000 miles, most consumers don’t want the risk of problems, so they sell. Those with skills pick up these cars cheap and get many more miles from them if they are willing to deal with the issues.
The question to answer is: does an electric car with few parts to wear out stay in stage 2 with minimal maintenance and repairs until 300,000 miles (when the battery likely becomes an issue)? Does this mean that electric cars (like Tesla cars) that have expected lives of 300,000 miles or more and over-the-air updates will depreciate at about 5% a year instead of the traditional 15% a year of gas cars? If a 5-year-old Model 3 can give you 90% of the features and 75% of the expected life of a new Tesla, why not pay 75% of the new price? (As opposed to a gas car where you would rarely pay more than 50% of the new price for a 5-year-old vehicle.) We first learned about an electric car’s superiority in fuel costs, next we learned it was much cheaper to maintain, the last thing we are learning is the depreciation is a LOT lower.
Disclosure: I am a shareholder in Tesla [TSLA], BYD [BYDDY], Nio [NIO], XPeng [XPEV], and Hertz [HTZ]. But I offer no investment advice of any sort here.
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