Musk said the price of Tesla cars would increase, but the opposite happened

(CNN) — In 2019, Elon Musk made a surprising claim about Tesla vehicles. He said, after the purchase of Tesla cars, the price will increase, not fall.

The reason for this is Tesla’s full self-driving capability, which Musk says only requires a few additional software updates and regulatory approvals before Tesla vehicles can be fully independent on the road today. He repeated this statement in June 2023.

“Any car we sell or produce that has full autonomy capability could be valued in the future at five times its value today,” he said in the company’s third quarter 2023 earnings conference call.

And not only will the price of used Teslas increase, but Musk also predicts a world in which Tesla’s driver assistance package, which the company calls “fully autonomous driving” despite not driving the vehicle itself, will be. Its price is $100,000.

Because, with regulatory approval, your self-driving Tesla can “work” as a taxi on your behalf. You just have to sit and collect the money.

But four years after Musk’s 2019 prediction, the average used Tesla Model 3 sells for $29,000. And regulatory approval for FSD has also not come, as the company is slowly trying to improve the software.

To be clear, used cars generally do not increase in value. Except for that crazy time of early 2020, when almost all automotive production stopped and almost all cars began to appreciate in property value for almost a year. Beyond that market idiosyncrasy, however, Musk has been wrong.

The value of used Teslas has declined significantly over the past year or two, as Tesla has struggled to maintain its dominant hold on the new electric vehicle market. By aggressively lowering the price of its new cars and SUVs, Tesla has also created a domino effect, causing prices of other electric vehicles to decline as well.

a domino effect

According to Cox Automotive, in 2020, Tesla produced 80% of all electric vehicles sold in the United States. By 2022, its electric vehicle market share was expected to fall to 64%. Last year it fell further to 55%. ,

This was a natural evolution as more competitors entered the market. Car buyers can now choose electric vehicles from Ford, Hyundai, Kia, Audi, Volkswagen and others.

Tesla’s response, understandably, was aggressive price cuts as it attempted to stem the decline in its EV market share. According to Cox Automotive, sticker prices for new Teslas have dropped nearly 21% over the past year.

Over the past year, the price of a used 2021 Tesla Model 3 sedan has fallen on average nearly 29%, from $40,522 in January 2023 to just $28,700 in January 2024, according to Edmunds.com data. Overall, all types of used vehicles in the 2021 model year lost about 19.5% of their value during the same period.

Tesla generally does not respond to media inquiries and does not answer questions about its pricing strategy.

In general, changes in the price of a new vehicle have a direct impact on the price of used vehicles of the same make and model. Logically, people expect to pay less for a used car than for a new car. So when the price of a new car falls, the value of used versions of that model also falls.

Why buy a used car when, after all, you can get a new vehicle for a little more or even less?

“What were the vehicles with the highest depreciation in the industry? It’s Tesla,” said Evan Drury, auto pricing analyst for Edmunds.com. “That’s a lot of money.”

low resale value

Braden Wall, who lives in Colorado, bought a used 2020 Tesla Model 3 for $51,000 about two years ago. He recently presented it as a trade-in at a Tesla dealership and was offered just $22,000 for it, he said.

Wall said he doesn’t regret his decision to buy Tesla, only the timing of it.

“I understand that vehicles depreciate in value and are not investments,” he said in a text message. “But losing more than 50% of a $50,000 purchase in 18 months is a huge blow.”

The main reason for the rapid decline in the value of used Teslas was that, in January, Hertz announced it was selling 20,000 electric vehicles, the majority of which were Teslas. Car rental companies rely on being able to sell the car on the second-hand market after a certain period of time, which makes resale value important to the business. Tesla’s declining resale value hurt Hertz’s results.

“Tesla deployments have become a more expensive proposition because when the (manufacturer suggested retail price) went down, the residual went down and depreciation went up,” Hertz CEO Stephen Scherr said during an earnings conference call last month. “

The fall in prices of Tesla cars has led to increased price competition in the used electric vehicle market.

“Tesla is not throwing a pebble in the pond,” Drury said, “they are throwing a pebble and it creates waves. “This has implications that impact the entire used electric vehicle industry.”

For example, the average price of a used 2021 Ford Mustang Mach-E dropped nearly 37% from last year. In terms of size, price and specifications, the Mach-E is a very close competitor to the Tesla Model Y, which has declined by 31% during the same period. Meanwhile, the average price of used electric vehicles for all other model year 2021 vehicles is down about 34%, though that figure may vary, Drury said.

This is what happens in the electric vehicle market when Tesla makes a move because even though it is less impressive, it still has a huge impact.

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