The ‘Tesla Effect’ brings down used luxury-car prices
More upscale autos are being traded in for full-electric Teslas and are flooding the pre-owned market
While used vehicle prices, in general, remain strong, resale values among European luxury cars are spiraling downward. While that’s good news to those shopping for a pre-owned Audi, BMW, or Mercedes-Benz, it’s a definite disadvantage to those trading one in or planning to lease a new model.
According to a report posted on the Capital One auto financing website, we can blame this on something they’ve dubbed the “Tesla effect.”
This refers to the finding that a larger-than-average percentage of buyers are trading in European-brand upscale cars for Teslas, specifically the wildly popular Model 3 compact sedan that’s currently outselling all other electric cars combined. An estimated 22.2 percent of Tesla customers are swapping their European-branded cars for Teslas versus the industry average of 10.9 percent.
The automaker delivered an estimated 97,000 vehicles to customers during the third quarter of 2019, with 79,600 of them being Model 3s. Running the numbers, that’s over 21,500 used European luxury cars hitting the resale market over a three-month period that might have otherwise remained in their owners’ hands. And that’s on top of the already high number of late-model, offlease and high-end models that are returning to dealerships these days, with demand unable to keep pace.
According to estimates taken from Kelley Blue Book at the beginning of November 2019, a three-year-old BMW 320i compact sports sedan in very good or better condition and driven 45,000 miles that was initially priced at $33,150 would command a trade-in value of around $13,500 in the Chicago area. That’s nearly a 60 percent loss in value. KBB says the best-performing vehicles in this regard will lose only 40 percent or less of their original value after 36 months. KBB says the 320i would sell on a dealer’s lot for about $17,000.
A base version of the Audi A6 midsize luxury sedan from the same model year that initially carried a sticker new has a projected trade-in value of just around $17,000 and would go for close to $22,000 at a dealership. You’d be offered nearly $17,400 in trade for a 2016 BMW X3 that was initially priced at $38,950 and would sell for about $21,000 off the lot. And those are the brands’ two most popular models right now.
The Capital One post suggests that Model 3 is attracting buyers with its
high-tech demeanor and a reasonably affordable price tag that starts at just under $40,000. That’s only about $2,500 costlier than the smaller and far less-flashy Chevrolet Bolt EV. What’s more, Tesla comes standard with the basic version of the automaker’s semi-autonomous Autopilot system. The car can be fitted with the upgraded version that can navigate from on-ramp to off-ramp, change lanes automatically, and even pull itself out of a parking lot space and drive to where you’re standing for an extra $6,000.
And with Tesla planning to release its new Model Y compact crossover SUV later in 2020 — which should quickly become the brand’s top seller — this trend could well continue, and perhaps even accelerate.