Why Tesla’s Depreciation Rate Is Alarming

A recent industry study has made headlines by showing just how quickly Tesla vehicles lose their value. Unlike traditional automakers like Chevrolet, Tesla’s resale value declines rapidly within just a few years.

Several factors contribute to this trend. The electric vehicle (EV) market is evolving fast, with new technology and models emerging constantly. This makes older Teslas less desirable, leading to faster depreciation.

Another key reason is Tesla’s over-the-air updates. While innovative, these software upgrades often reduce the incentive to buy older models, as newer cars come with significant hardware improvements.

The Numbers Speak Volumes

The data from the iSeeCars study paints a stark picture. Tesla’s used vehicles dropped by a staggering 28.9% year-over-year, equating to a $14,808 decrease in value. In contrast, Chevrolet’s average used car value barely changed, with a negligible 0.4% increase — just $140.

This means Teslas are depreciating nearly 70 times faster than Chevrolets. For car buyers and sellers, these figures signal a significant shift in the resale market, with long-term value becoming a critical consideration when purchasing electric vehicles versus traditional brands.

Comparing Tesla vs. Chevy: The Hard Data

According to the study, Tesla’s depreciation rate outpaces Chevy by an astonishing 70 times. This means that while a Chevrolet might lose a manageable percentage of its value after five years, a Tesla’s value can plummet dramatically over the same period.

For example, if a Chevy loses about 20% of its value in the first year, a Tesla could lose that same percentage within just a few months. This creates a significant financial risk for Tesla owners compared to more stable brands like Chevy.

The study also noted that Chevrolet’s long-standing reliability and widespread service network help maintain its resale value. In contrast, Tesla’s service delays and part shortages may accelerate depreciation.

What It Means for Buyers and Sellers

Should you buy a used Tesla now?

For buyers, the rapid depreciation of Teslas presents an opportunity. A two- or three-year-old Tesla can often be purchased at a steep discount compared to its original price. This makes it an attractive option for those looking to own an EV without paying the new-car premium.

Pros and cons of investing in Chevy vs. Tesla

Chevy vehicles hold their value better over time, making them a safer bet for those concerned about long-term financial impact. Tesla, however, offers cutting-edge technology and performance, but at the cost of higher depreciation risk.

It’s essential to weigh these factors based on your personal priorities. If you value innovation and are okay with faster depreciation, Tesla may still be appealing. If resale value and long-term reliability are more important, Chevy stands out.

Expert tips for navigating vehicle depreciation

• Do your research: Check recent depreciation data before purchasing any vehicle.
• Consider total ownership costs: Factor in maintenance, insurance, and resale value.
• Stay updated on market trends: EV values fluctuate as technology and infrastructure evolve.

Final Thoughts: Is Tesla’s Rapid Depreciation a Red Flag or Opportunity?

Tesla’s depreciation rate is undeniably high, but for some, that creates an opportunity to buy advanced EVs at a fraction of their original price. For others, it’s a cautionary tale about the risks of investing in rapidly evolving technologies.

Ultimately, whether this trend is a red flag or an opportunity depends on your priorities as a car owner. By understanding depreciation and staying informed, you can make smarter vehicle decisions.

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The US Treasury Department has issued guidance on federal electric vehicle (EV) tax credits that imposes new requirements for battery production and minerals sourcing. For vehicles to qualify for the $7,500 EV tax credit, 40% of critical minerals must be extracted or processed in either the US or a country with a free trade agreement with the US, while 50% of battery components must be produced by value in North America.

This requirement will become more stringent over time, as 80% of critical minerals must be sourced domestically by 2027 and 100% of component manufacturing should occur in North America by 2029. This aims to reduce reliance on Chinese suppliers for EV battery components and is part of President Joe Biden’s ambition to reach 50% electric or plug-in hybrid vehicles among new car sales by 2030.

Confusion has been caused by the guidance, with stakeholders finding the needs too heavy for the burgeoning EV sector. Presently there are 91 EVs set up for sale in America, and it’s hard to ascertain which cars make the cut for the changed tax discount. The leader of Alliance for Automotive Innovation, John Bozzella, declared that manufacturers will submit reports straight to the IRS to show which EVs satisfy the necessary mineral and/or battery component criteria, and a few will be eligible for a portion of the credit.

Concerns over Chinese Influence on EV Industry

Treasury Secretary Janet Yellen indicated that the guidance would help consumers save up to $7,500 on a new clean vehicle while also strengthening national security by boosting American manufacturing jobs. Yet, certain stakeholders have expressed apprehension that the guidance could further cede control to the Chinese Communist Party and contradict World Trade Organization regulations. Last month, Ford declared a $3.5 billion investment to craft an EV battery plant in Michigan, which will be developed utilizing technology from Chinese battery company CATL.

The US, Japan and EU are renegotiating free trade agreements to expand minerals sourcing rules. The Treasury has proposed that tax credits for Electric Vehicle (EV) batteries produced using Chinese technology be blocked from 2024. Republican Senator Marco Rubio has gone further, introducing a bill that he claims will stop Chinese companies from taking advantage of EV tax credits. As of April 18th, new guidance on battery production and mineral sourcing will apply to vehicle purchases.

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It is a well-known fact that all newly manufactured automobiles eventually lose their “new” status once they are sold. While this may seem like a simple observation, it serves as the fundamental cause of the ongoing challenges facing the used vehicle market in the United States, which has become a barometer for the country’s inflation levels.

The COVID-19 pandemic, which began in early 2020, caused automakers to temporarily halt production to prevent the spread of the virus. This unprecedented action led to additional supply chain issues, including a current shortage of semiconductor chips, which has forced factories to cease production for weeks or even months at a time in recent years.

The reduced production of new vehicles has resulted in a scarcity of used models available for purchase by consumers, leading to inventory constraints and record-high prices due to persistent demand. Although it has been three years since the initial plant closures, consumers and the Biden administration should not expect the used vehicle market to return to pre-pandemic levels anytime soon.

Despite a significant decline in used vehicle prices towards the end of last year, inventories remain significantly depleted due to production disruptions, and there has been a surge of consumers buying out leases to avoid skyrocketing car prices and increasing interest rates.

This situation is likely to persist for some time, as the reduced production of new vehicles has created a situation where wholesale and general used values remain high, given the millions of fewer new vehicles that would eventually turn into used ones.

As indicated by the Manheim Used Vehicle Value Index, which monitors auctioned vehicles sold to dealers, wholesale prices for pre-owned cars have surged by 8.8% this year through mid-March, according to Cox Automotive. The trend is upward, and the index is on track to approach the previous record of 257.7 basis points, which was established at the beginning of 2022. As of mid-March, the index stood at 238.6.

Furthermore, the used vehicle inventory has decreased by 21% compared to last year and by 26% from pre-pandemic levels in 2019, with no expectation of returning to the pre-pandemic level of 38.2 million units until at least 2026. Additionally, a change in leasing has further added to the decrease in production. A significant number of consumers have opted to buy out their leased vehicles rather than trading them in, leading to an increase in the residual values of the vehicles.

Cox Automotive previously forecast a 4.3% decrease in wholesale prices on the Manheim Used Vehicle Value Index by the end of 2023 compared to December 2022. However, the company may need to revise this forecast due to the increasing wholesale prices.

As of February, the average listed price of a used vehicle was $26,068, lower than the records set in the previous year but significantly higher than the average of roughly $22,000 reported two years ago. Consumer retail prices generally follow wholesale price changes.

The only solution to the current situation is to increase the production of new vehicles to boost the number of future used models. However, automakers are expected to maintain caution and not overbuild as they have in the past, despite the need for increased production. It is also unlikely that the market will return to pre-pandemic levels due to the current landscape of high prices and decreased production. Automakers have experienced significant profits due to the decreased production, leading to fewer vehicles in the manufacturing process.

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A report published last week by Shell’s chair said it would not set targets to reduce emissions from customers’ use of its products in absolute terms.

End-user emissions (also called Scope 3) account for almost 95% of Shell’s greenhouse gas emissions. In view of this, several investors asked Shell to set targets to reduce them in absolute terms in the medium term. Shell, however, stated that the Board found that this would be detrimental to shareholders’ financial interests, as well as not contributing significantly to mitigating global warming.

Shell said these targets, if enforced, would hurt its sales of oil products and natural gas, forcing its customers to switch to competitors’ products.

After Shell’s new chief executive, Wael Sawan, signaled this month that the company was reviewing plans to gradually reduce oil output, the company rejected the tougher emission reduction targets. The activists of Follow This group have filed a resolution asking Shell to set 2030 emissions reduction goals consistent with the 2015 Paris climate accord. Shareholders will vote on this resolution on May 23.

Shell’s board has yet to officially comment on the matter but has already recommended that investors vote against similar resolutions. In last year’s vote, 20% of shareholders supported the resolution, while Shell’s energy transition strategy was approved by 80% of them.

Shell Cuts Emissions Intensity

Shell has set ambitious targets to decrease its carbon footprint by cutting planet-warming gases in its line – based on fuel quality – by 2030 and, by 2050, achieve neutrality of these emissions. As of 2016, it has also committed to reducing emissions by 50% by its absolute operations by 2030 and has already recorded a 30% reduction.

While measuring emissions by intensity could technically allow for an increase in fossil fuel output and overall emissions, Shell has committed to offsetting these increases by incorporating renewable energy and biofuels into its product mix.

Despite these, Shell has faced legal challenges. In 2021, a Dutch court ordered the company to reduce its emissions by 45% by 2030, a decision that Shell has appealed. Additionally, a group of European institutional investors is supporting a London lawsuit targeting Shell’s board over allegations of climate mismanagement. The outcome of this case could have significant implications on how companies approach emissions reduction.

In response to the lawsuit, Shell has maintained that its directors have acted in the best interests of the company and complied with their legal duties.

Scientists have emphasized the urgent need to reduce greenhouse gas emissions. To limit global warming to 1.5 Celsius (2.7 Fahrenheit) and avoid the most severe consequences, emissions must be reduced by 43% from 2019 levels by 2030.

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It has been announced that Ford Europe will build a Volkswagen-based electric vehicle from its German factory in Cologne. It will be announced on March 21, and will be one of two Volkswagen-based SUVs manufactured by Ford. Upon closing the Fiesta production line at Ford’s Cologne plant in July, it will be completely converted to producing only fully electric vehicles.

The name hasn’t been revealed, but Martin Sander, Ford’s e-business director across the pond, included the hashtag #ExploringReinvented, leading some to speculate it has something to do with the Explorer. It makes sense, given that there is currently a hybrid version but not a fully electric model.

Ford is working to connect its American roots with Europe through styling and marketing. They want to use their SUV and pickup models in the United States to show that they can deliver the same quality as European passenger cars.

VW’s ID.4 platform is likely to provide the new crossover with a range of about 310 miles – which is impressive for today’s electric cars. VW’s ID.5 platform will be used for the second EV. The brand’s focus is on SUVs, crossovers, and trucks – which are its bread and butter – rather than smaller cars that don’t sell well.

However, an increase in Electric Vehicle production and a decline in internal combustion engine-powered vehicles means an inevitable cut in Ford Europe’s workforce. According to Ford, there will need to be 3,800 job cuts in administration and product development to keep deliveries on schedule. EVs will have a much lower workload since there is less work to be done on drivetrains.

The automaker Ford Europe plans to have an all-electric lineup by 2030, as well as all commercial vans and trucks that are plug-in hybrids or all-electric by the same date.

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Over 460,000 Nissan vehicles are being recalled worldwide because the driver’s side airbag cover emblem may detach during deployment, increasing the risk of injury to passengers.

Titan, Frontier, Xterra, Pathfinder, Armada, and Quest vehicles manufactured 2008-11 are included in the recall. Nissan spokesman Stephen O’Neil says it affects 463,472 vehicles worldwide, with 404,690 in the U.S., 17,214 in Canada, and 6,471 in Mexico.

According to an NHTSA recall report, the badges on driver-side airbag covers on affected vehicles may be less durable due to a possible variation in the Tier 2 supplier’s production process.

Nissan said it was aware of four incidents alleging injury as a result of the issue, and a fix is in the works.

A Nissan dealership can check your vehicle if your emblem is loose, cracked, or missing. If repairs are necessary, a limited number of parts can be obtained or alternative transportation can be arranged.

We often discuss Takata airbags here when airbag problems arise, but these airbags are manufactured by Swedish supplier Autoliv, one of the world’s leading airbag and seatbelt manufacturers.

Nissan notified dealers last Friday and owners were expected to receive letters by April 10. A second letter will be sent once the repair is ready to be made.

Past Recalls

Several Nissan models have been recalled over the past few years for airbag issues and electronic failures. These include the Altima, Maxima, Murano, Leaf, Sentra, Pathfinder, Rogue, and NV trucks.

It was reported that about 350,000 Nissan Altima models made from 2015 to 2017 were recalled due to an improper rear door latch. The completion rate was 82.8 percent as of April 2018, based on NTSA data. Lowering the rear window could accidentally open the rear door while the vehicle was in motion, putting rear passengers at risk.

Nissan recalled over 3 million vehicles in 2016, including those from the Maxima, Altima, NV200, Leaf, Sentra, and Pathfinder ranges. The particular issue at hand was a front passenger airbag seat sensor that would not appropriately register an adult passenger. To solve the problem dealers have reprogrammed the necessary airbag unit as well as electronics. According to NHTSA’s October 2017 data, a completion rate of 77.1 percent had been achieved.

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Despite production constraints caused by COVID-19, Toyota outperformed all of its competitors in 2022 for the third consecutive year. The company said that global sales dropped 0.1% due to supply bottlenecks, chip shortages, and other different issues, but total sales exceeded 10.5 million vehicles, outpacing all other automakers.

In spite of a 9.6% decline in Japanese domestic vehicle sales, it was able to boost global production by five percent last year thanks to an increase in demand in Asia and an increased production capacity both in Asia and North America.

Germany’s Volkswagen Group came in second with 8.3 million vehicles, its lowest sales in a decade as a result of COVID-19 lockdowns in China and the war in Ukraine.

Nonetheless, robust vehicle sales pushed General Motors back into first place among U.S. vehicle sales after Toyota won the title for the first time since 1931 last year. In the U.S., GM sold 2.2 million units, outselling Toyota by nearly 200,000 units. GM’s best-selling vehicle was the Chevy Silverado truck, and Toyota’s RAV4 was the most popular choice among American drivers.

Due to the worst domestic sales numbers in more than a decade in 2022, despite healthy demand, GM’s reclaiming the top spot was particularly impressive. Over 13 million vehicles were sold last year, a decline of almost 9% from the year before, according to industry experts. However, supply chain issues slowed sales, which offset robust demand.

Both Volkswagen Group and Toyota have declared plans to create, manufacture and roll out a whole array of electric and electrified vehicles; however, publicly, VW is demonstrating a more vigorous approach towards the shift than Toyota. VW has laid out an assertive plan to present 75 purely electric autos by 2029 as well as sell roughly 60 hybrids alongside its EVs. In contrast, the Japanese auto giant has been called out for its hesitance to plunge actively into battery-powered pumps, instead investing in various technologies such as battery-based EVs, hybrid technology, hydrogen-powered vehicles, and conventional combustion cars.

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According to a panel of vehicle finance experts, the increasing cost of a used vehicle is deterring consumers. According to David Paris, senior manager of market insights at J.D. Power, challenging economic conditions and an increase in new vehicle inventories are putting pressure on used vehicle sales.

Paris says: “We think the biggest headwinds are going to be higher new-vehicle incentives, higher new-vehicle supply, and higher interest rates,”. “We also see weaker economic conditions starting to play out.”

A vehicle under $20,000 is very profitable but has vanished from the marketplace as a result of affordability concerns, which will be a key factor for the industry this year.

The economy

In spite of the fact that the economy appears to be relatively healthy, some indicators, such as the savings rate, indicate potential cracks. Currently, the savings rate is about 2.3 percent, down from about 7.5 percent just a few years ago.

It is most likely that net charge-offs will reach 2019 levels sometime in the second half of 2023. Delinquencies are the leading indicator of what happens to net charge-offs — debt that cannot be recovered by a company. When they reach that level, they will mostly move in parallel with employment levels.

As a result of inflation, consumers are seeing greater financial obligations. Whereas before, it would take 34 months for a consumer to pay off a new vehicle, it now takes almost 44 months. Since the pandemic, consumers have gotten into a bit more financial difficulty and have more obligations.

As a result, we believe consumers will switch to cheaper vehicles.

Leasing lower

Leasing is another factor affecting the used-car market.

Paris said leasing had a market share of about 17 percent last year, down from about 30 percent a few years ago. The fact that a lot of leases haven’t taken place over the last two years means that “we’ll miss out on those 3-year-old vehicles, as well as those 1- and 2-year-old ones down the road.” “That’s a major concern.”

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A shortage of inventory is a major challenge for many dealers right now as they prepare for the influx of used EVs that will eventually arrive on their lots.

There isn’t enough supply to meet consumer demand as dealers prepare to welcome an influx of older electric vehicles into the used-vehicle market in coming years.

More automakers are now committing to electric vehicles, meaning dealers must prepare their sales and service operations accordingly. Used EVs will eventually hit auction lanes or come back to dealers as trade-ins, with shoppers also showing heightened interest in purchasing cars with alternative powertrains. While the Inflation Reduction Act does allow for a tax credit on used EVs, the small pool of such vehicles likely means it will take time for the provision to be put into practice.

Automakers are racing to introduce their new battery-electric or plug-in hybrid vehicles into their lineups through 2030, making the used-vehicle market rife with EV options.

Consumers are more familiar with EVs

The EV adoption curve steepened in 2022, and consumers did their homework on used EVs. Some of them even knew more about the specs of a used EV than the dealership employee.

Franchised dealerships selling an automaker’s new electric cars will receive more training, such as how to repair and maintain the vehicles. Used-vehicle dealers, who sell whatever used electric vehicles a customer trades in or finds at auction, may find it “really hard” to understand all the different systems and batteries and how to maintain them.

Additionally, dealers need to invest in EV training for their sales and service staff and take special care of their software-based features. Employees should undergo written internal training programs on EV maintenance and charging, and EV education should not stop at the service drive – it should also be delivered to frontline employees who sell vehicles.

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