Tesla price cuts crash second-hand market | WARC | The Feed

Tesla price cuts crash second-hand market

Cuts to the price of Tesla vehicles are not only incurring some anger from earlier buyers but are also hitting the value of second-hand cars, with knock-on effects on financing models in some markets. 

What’s happening

Data from industry pricing agency CAP HPI, reported in the Financial Times, indicates that the value of second-hand Teslas in the UK has declined sharply since the brand began cutting the price of new models, first in China late last year, then in the US and Europe at the start of this year. 

For example, a Model 3 bought in the UK in January this year stands to lose 47% of its value by January next year; that compares with a 4% fall over 12 months for the same model bought in September 2021.

While the figures refer to the UK market, the story within the industry is that there’s a similar picture in other countries.

Why it matters

As Tesla models are depreciating more quickly than rival EVs, the FT explains that this could make its new cars more expensive in the sort of financing deals that are already common in the UK and gaining traction in other markets. 

Personal Contract Purchase now accounts for around three-quarters of all new car sales in the UK. This involves paying instalments that cover only a part of the cost of a new car over a three-year contract, with an option to purchase outright at the end of that period. 

The state of the second-hand car market will dictate the value of equity a buyer holds in their vehicle at the end of the contract and that money can either reduce the final payment if purchasing, or be rolled over as a deposit for another new vehicle. Lower second-hand prices mean bigger payments. 

Elon Musk’s decision to cut the price of new cars to encourage more buyers is having consequences – did he even think about these? – further down the line. It’s notable that competitors have resisted following suit precisely because they want to avoid hitting the second-hand market. Ultimately, the price cuts start to affect the perception of the brand and its desirability. 

Musk famously does little or no marketing for Tesla but it’s arguable that now might be a good time to start, seeing automotive advertising as value preservation.

Sourced from Financial Times

[Image: Tesla]