Tesla used car prices are “sinking like a rock” and one of the most famous car reviewers on social media has a theory as to why. But that’s not what you can count on.
Doug Demuro has tried to drive almost every four-wheeler that can be found on US roads and many of them are impossible: not only have his skills earned him a subscriber base on his YouTube channel with almost 4.6 million followers, he also runs a used vehicle auction site. called Cars & Deals.
“Crazy people [high] The prices we have seen over the last 18 months for Teslas-they are gone and they are definitely not coming back. There’s no question about it,” he warned on Sunday, recommending that customers looking to list their vehicles receive markdown offers before the fall.
His business offers a unique insight into Tesla’s market value, which has come under severe pressure for the past three months even before last week’s controversial price cut for new vehicles sharply reduced what people wanted for used models. .
However, the Federal Reserve’s anti-inflation campaign has had a greater impact on Tesla’s pricing power in the used vehicle market.
“These interest rate hikes really hit Tesla hard because of the type of people who buy these cars,” DeMuro said, adding that he often has jobs where higher loan costs affect them more than the general population.
Disproportionately affected by interest rate spikes
For example, in his experience, many of the users who list on the Cars & Bids site are mortgage brokers, brokers and others.
Furthermore, many Tesla owners are younger buyers who are attracted to the brand and often have to stretch their finances to make the payments. An increase in credit rates can put even a used Tesla out of their reach.
Finally, Elon Musk’s buyers tend to also come from the same technology sector as Tesla itself, and is currently experiencing a wave of layoffs sweeping the sector at companies such as Amazon, Meta, Salesforce and Coinbase that could be asking them not to buy. of any big ticket item like a car.
“These are the people who buy Teslas. The mortgage lenders who die when interest rates rise – no one buys houses – then they become the new technology young people,” he said. “And I think that more than anything has been the biggest factor in Tesla’s price decline over the last three months.”
Price ‘off the cliff’
As a result, a 2021 Tesla Model 3 Performance with 27,000 miles was still able to exchange hands on the platform for $56,000 just a month ago. This represents a discount of more than a tenth of the then $62,990 price for a new vehicle.
In comparison to a few days ago, after Tesla cut the model’s entry point to $53,990, DeMuro said Cars & Bids listed the 2022 version with just 3,700 on the odometer. The highest bid in the auction was only $48,250 and the result was impossible.
“The car is a new year with 24,000 miles less and the offer is $8,000 less than the same car a month earlier which is not good,” he said. “The result is not a strange outlier, which we see with the price of Tesla. They are – to use the adjective we want – cratering, sinking, falling off a cliff.
While DeMuro has personally experienced several cases where EV buyers told him they would not buy a Tesla because of Musk’s divisiveness, which has contributed greatly to the net enthusiasm for the car brand, the owner of Cars & Bids believes that this is simply important. for higher interest rates.
There are two other causes that also play an important role, according to him.
Supply is now meeting demand
Raising sticker prices for Tesla models has been one way to manage a once-overflowing order book to prevent excessive wait times during periods of supply chain disruptions and production bottlenecks.
“If you want to buy a Model Y (…) you can wait six to eight months, or you can buy a used one,” DeMuro said. “But used ones are really expensive because there’s nobody waiting, so what people do is buy a Model Y and then they’ll come back and sell it two months later and make a profit.”
The problem is that Tesla seems to have reached the point where production has now eaten through the car reserves in the backlog. With the order book now depleted and new purchases now almost equaling output, Musk will have to cut prices in his three main markets of the US, China and Europe, as well as reduce activity on the assembly line, to keep inventories from rising.
“This has really reduced the price of used cars. A year ago you could buy one and flip it for ten more than you paid, not the situation today,” explained DeMuro.
Tesla’s competitive lead is gone
Finally, the competition is too much for Tesla in DeMuro’s view.
Semi-autonomous driving technology is available in many competing models, new competing EVs have caught up to or surpassed Tesla in terms of performance and driving range, and Musk’s product line is rapidly aging with the Model S over a decade old while the Model 3 hasn’t been updated since its launch in mid 2017.
“Aside from supercharging, there’s no big advantage for Tesla—and it seems like they’re slow to innovate,” he said. “It’s not like it is now, where Tesla just drops things and kills everyone.”
That means there are plenty of cheap Tesla cars to be had right now such as the high-mileage 2018 M3 sedan that currently fetches around $25,000.
“I think we can all look forward to getting cheap Teslas in the next few years,” DeMuro said.
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