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Four years ago, Elon Musk declared that his Teslas would defy the laws of the auto market and appreciate in value after purchase as software updates would eventually render his models more autonomous and self-driven.
According to CNN, Musk reiterated the claims during 2023 Q3 earnings call. “You can think of every car we sell or produce that has full autonomy capability as something that in the future may be worth five times what it is today,” he said.
Unless your dealing in unique or rare cars, or those that enjoy a cult following or are valued to collectors, used vehicles don’t increase in value. Aside from the market glitch in 2020 when auto production came to a standstill and cars started selling for over their original MSRPs, it’s unlikely for any used car, even a Tesla, going up in value.
While some experts believed Musk’s assertion about Teslas becoming more valuable after customers purchase them was a publicity stunt, Musk wasn’t being completely disingenuous.
Musk’s predictions were based on two assumptions: that Tesla vehicles will be able to drive themselves by the end of 2019 (or 2020), and that customers would then be able to make money from their Teslas by hiring them out or using them as an autonomous ride-hailing service.
Why Are Teslas Are Dropping In Value?
If Tesla becomes the only automaker with self-driving technology that required no human supervision for its vehicles, there’s a chance that its models could increase in value. But it’s unlikely that Tesla will ever have the self-driving niche for long.
“A lot of other manufacturers and non-automotive companies are rushing into this area, so the scenario where Tesla has this capability all to themselves is a little far-fetched,” said Eric Ibara, the director of residual value consulting for Kelley Blue Book.
Regardless of what the future holds, the present is clear: Teslas are dropping in value and here are three reasons why.
1. Full Self-Driving Software Hasn’t Been Approved
With Tesla’s driver assistance suite software — Full Self-Driving (FSD) — still pending regulatory approval, Musk’s models are just like any other used vehicle, susceptible to value drops the second they leave the lot. And there’s still a lot of debate on how much human interaction and human oversight will be required to operate any vehicle equipped with self-driving technology. If a self-driving car isn’t really self-driving, why would its value grow?
Tesla continues to launch new FSD Beta tests, but other companies are moving ahead with their own technologies and autonomous vehicles too. Mercedes-Benz EQS and S-class sedans will feature Drive Pilot, the company’s SAE Level 3 self-driving system, and the forthcoming robotaxi market is going to be a very crowded one.
2. Competition From Other EV Automakers
Pre-owned Teslas are trading at lower sticker prices as the company fights to regain its dominance in the suddenly crowded EV market. “This was a natural development as more competitors entered the market. Car shoppers can now choose EVs from Ford, Hyundai, Kia, Audi, Volkswagen and others,” said CNN Business.
While its dominance in the electric vehicle market continues to decrease — Tesla made 76.6% of all EVs purchased in the U.S in 2020; it’s share in Jan.-Feb. 2023 was 55.8%, per Edmunds — the average used Tesla Model 3 sells for around $29,000, while a new base Model 3 costs around $38,000-$40,000.
3. Tesla Price Cuts Are Bringing Down the Market
Amid increased competition from the likes of Ford, Mercedes-Benz and Rivian (and globally from BYD), Tesla has been cutting prices on its models on a regular basis to meet delivery goals. As Kelley Blue Book reported back in October, price cuts by Tesla in 2023 drove the EV market down more than 22% year-over-year in Sep. 2023, from $65,295 to $50,683.
With inventory back to normal and competition strong, prices are becoming more affordable for EVs. “At last check, we had 15 new EV models for sale that were not available a year earlier,” said Stephanie Valdez-Streaty, director of Industry Insights at Cox Automotive. “Better choices and more options are helping push prices lower and drive higher sales.”
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