Screenshot of my October 2018 article.
I have written about 300 articles in the last 4 years and the article above (my 7th) was my most popular article ever. Like quite a few of my articles, it was noticed by Elon Musk and retweeted by him (when he had “only” 30 million followers). It was one of the first attempts at looking at the total cost of ownership (TCO) of the Tesla Model 3. Not only did I compare it to its closest gas-powered competitor (the BMW 3 Series), but I dared to compare it. with the common man’s Toyota Camry.
The Model 3 was more expensive to own than the Camry, but only slightly, and that was shocking to pretty much everyone I spoke to and even me. Major sites like Edmunds and KBB hadn’t calculated a total cost of ownership for the Tesla Model 3, so I had to do some work myself. I’ve re-checked this article and Edmunds now has charges for the 2020 Model 3 used, but it’s still has no estimate for the new 2022 Model 3. KBB has a new 2021 Tesla Model 3 listed as 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 gotten more views than my next 100 articles combined. So when I watched the YouTube video below, which was a retrospective look at the total cost of ownership after 4 years (rather than the 5 years I was trying to estimate), I was VERY curious to see how I did!
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 costs for the gas vehicles by 1.25 to adjust for higher-than-expected gasoline costs.
- I got offers from Edmunds for all cars except Model 3 (for Model 3 I used the price from the video), and I calculated the depreciation by subtracting the cash price from the offer and multiplying by 1.25 to get the expected extra estimate depreciation in the 5th year (it is 4 years ago and the TCO is 5 years).
- I’ve pulled the maintenance and repair estimates for the Tesla Model 3 all the way down based on my personal experience, the video, and everything I’ve heard over the past 4 years. The Model 3 has had some glitches, but those are all paid for by the 4-year warranty.
The shocking (then) finding from the original article was:
What have I found? You drive a Model 3 for about the price of a loaded Camry! Most people think you have to wait for the $35,000 model before the Model 3 compares to a nice Camry, but the calculations show that the tax benefit and fuel savings make the Model 3 very competitive these days! Most people see the initial cost of the Model 3 (which is very similar to a BMW 3 Series) and assume that the cost of ownership is also comparable. They are wrong. This analysis shows that the Model 3’s cost of ownership today is approximately 40% lower than the comparably priced BMW 3 Series!
The news I found after making these updates is:
- The Model 3 finished slightly below the a lot cheaper to buy base Toyota Camry
- It ended up being 30% less than the loaded Camry!
- It ended up a shocking 65% less than a BMW 2 Series.
I did an analysis of the trade-in values of the BMW, Camrys and Model 3. I know that used car prices are rising and I wanted to see how the depreciation differed between the 4 cars. I found that Tesla Model 3 depreciation was about half what I expected 4 years ago. Camrys depreciation also fell by nearly 50%. While the percentage of expected depreciation was similar between the Tesla and the Toyota, the effect on TCO was very different. For example, the base Camry had a depreciation of $6,255 instead of $12,031, roughly a $6,000 savings, but Tesla’s depreciation was more than $13,000 less than forecast! BMW’s depreciation was just $800 less than forecast. Why haven’t BMW values enjoyed the big bump Tesla and Toyota got? I would speculate that BMW has lost a lot of its “Halo” value over the past 4 years as it went from the “car for emerging professionals to own” to “a great performing gas car”. This is a significant reduction.
Conclusion
I’ll have to study the situation further to see what this means for someone buying a car today, but I suspect it means that electric vehicles are a much better value than generally thought by the general public.
Considerations I am now investigating 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 life of a gas and electric vehicle. People expect a petrol car to go through 4 stages:
- The first 50,000 miles should be trouble-free with minimal maintenance as the bumper-to-bumper warranty expires.
- The second 50,000 miles means more maintenance and a few minor repairs are expected as the powertrain warranty expires.
- From 100,000 to 150,000 miles, you expect more maintenance and a higher chance of a problem forcing a sale because you just don’t feel like it.
- From 150,000 to 200,000 miles, most consumers don’t want the risk of trouble, so they sell. Those with skills pick up these cars cheaply and get a lot more mileage out of them if they’re willing to fix the problems.
The question to be answered is: Will an electric car with few wear parts stay in Stage 2 with minimal maintenance and repairs for up to 300,000 miles (when the battery is likely to become an issue)? Does this mean that electric cars (such as Tesla cars) with an expected lifespan of 300,000 miles or more and over-the-air updates will be depreciated at about 5% per year instead of the traditional 15% gas cars per year? 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? (Unlike a petrol car where you would rarely pay more than 50% of the new price for a 5 year old vehicle.) We first learned about the superiority of an electric car in fuel costs, then we found out that it is much cheaper was to maintain, the last thing we learn is that the depreciation is a MUCH lower.
Disclosure: I am a Tesla shareholder [TSLA]BYD [BYDDY]Nioz [NIO]XPeng [XPEV]and Hertz [HTZ]. But I am not giving investment advice of any kind here.
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