Tesla’s New Price Cuts May Sink Used Values Later and Owners Aren’t Happy

Slashing new car prices hurts used car values, which takes money out of customers’ pockets.

byNico DeMattia| PUBLISHED Jan 18, 2023 2:40 PM
Tesla’s New Price Cuts May Sink Used Values Later and Owners Aren’t Happy
Photo | Tesla.
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Tesla recently slashed its new car prices across the board, with some cars' pricing—such as the Model Y—dropping by as much as 20%. However, that's come with potentially unexpected consequences, as it's angered many of its recent customers by completely sinking used Tesla values.

Why did Tesla slash its prices? According to Automotive News, Elon Musk said during a recent call that price cuts were made to increase sales volume. It's also likely that Musk wanted to get many of his cars' prices low enough to allow some customers to qualify for a $7,500 federal incentive under the new Inflation Reduction Act requirements. And while that did work, it came at the expense of customers who bought their Teslas just before the price cuts were made, causing those customers to miss out on huge savings. Admittedly, customers miss out on savings all the time from all automakers. Tesla slashed its prices without warning, and there's no sign of them going back up.

Furthermore, Tesla owners are also upset because their cars' values have dropped significantly after the massive price cuts, which will hurt them when it comes time to sell. They're losing money right before their eyes. The significant drop in new car prices not only reduces the incentive to buy used cars but it floods the market with them. As more and more customers buy new Teslas, more and more Teslas are added to the used car market, thus further reducing their values.

However, Kelley Blue Book Executive Editor Brian Moody told The Drive that it's too early to tell if new car prices have affected used car values. "There isn't enough data yet," Moody said, but agreed that values could drop after a significant price cut. Who would pay for a used car when only a little more money gets you a new one with a warranty?

Photo | Tesla

According to Reuters, almost a third of used Tesla sales last year were 2022 models. Over the past year or so, rising fuel costs due to the war in Ukraine raised used Tesla values as customers searched for second-hand EVs. That led to customers of 2022 Teslas to flip their cars and buy new ones. However, many of those flippers have either already seen their newer car plummet in value, or they just missed out on huge discounts.

It isn't just values that are dropping, it's reputation as well. Tesla had a great year in 2022, outselling other premium brands like BMW, Mercedes, and Audi in the U.S. by huge margins. However, premium brands don't make lineup-wide price slashes, especially of that magnitude. Instead, that's often seen as something budget brands do. Jessica Caldwell, executive director of insights at Edmunds recently told The Verge, “Like the mainstream automakers, Tesla will need to contend with what these price cuts will mean for its residual values and brand image." 

However, according to Moody, Tesla's—and by extension Elon Musk's—price slashing behavior can be seen as maverick-like to its fans, shielding it from criticism. "The mystique of the company, that they don't follow rules," he said.

It's hard to blame customers for wanting to jump on Tesla's newly discounted models, especially while they're still eligible for federal tax credits. However, that influx in new customers, and its subsequent flooding of the market with used cars and damaging its reputation as a premium brand, could end up doing more harm than good in the long run.

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