Tesla used car prices are plummeting, but Elon Musk is not the main culprit, says Doug DeMuro

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Tesla used vehicle prices are plummeting like a stone and one of social media’s most well-known car critics, he has a theory as to why. But that’s not what one might assume.

Doug Demuro has tested just about every four-wheeler you can find on American roads and many you can’t: not only has his expertise earned him a subscriber base on his YouTube channel of nearly 4.6 million of subscribers, it also manages a used vehicle auction site. called Cars and Deals.

The fool [high] the prices we’ve seen over the past 18 months for Teslas are gone and they certainly won’t come back. There’s no doubt about it, he warned on Sunday, recommending customers looking to list their vehicles to take up markdown offers before they fall further.

His company gives him unique insight into the current market value of a Tesla, which has come under severe pressure over the past three months even before last week’s controversial price cuts for new vehicles sharply reduced what people are willing to pay for a used model.

Instead, the Federal Reserve’s inflation-fighting campaign had a far greater effect on Tesla’s pricing power in the used-vehicle market.

This interest rate hike has hit Tesla really hard because of the specific type of people who buy the cars, DeMuro believes, adding that they often have jobs where the higher borrowing costs hit them harder than the population. in general.

Disproportionately affected by soaring interest rates

For example, in his experience, a large number of users listed on his Cars & Bids site are mortgage brokers, real estate agents and others.

Additionally, many Tesla owners are young buyers captivated by the posh brand and often need to stretch their finances to afford it. An increase in loan rates can put even a used Tesla out of their reach.

Finally, Elon Musks buyers also tend to come from the same booming tech sectors as Tesla itself and are currently experiencing a wave of layoffs sweeping the sector at companies including Amazon, Meta, Salesforce and Coinbase. that may cause them to avoid the purchase. of all large items such as cars.

These are the people who were buying Teslas. It’s the mortgage lenders who get killed when interest rates go up, nobody buys houses, and then it’s those kind of young people who make money, he said. And I think more than anything has been the biggest factor in Tesla’s price decline over the past three months.

Prices fall off a cliff

As a result, a 2021 Tesla Model 3 Performance with 27,000 miles could still trade hands on its platform for $56,000 just a month ago. This represented a discount of just over a tenth on the then $62,990 price for a new vehicle.

By comparison a few days ago, after Tesla slashed that model’s entry point to $53,990, DeMuro said Cars & Bids listed a 2022 version with just 3,700 on the clock. The highest bid in the auction came in at just $48,250 and so the sale was unsuccessful.

This car is a year newer with 24,000 miles less and the auction was $8,000 less than a similar car a month earlier that wasn’t as good, he said. This result wasn’t a weird outlier, it’s what we saw with Tesla’s pricing. They use the adjective you want to crack, sink, fall off a cliff.

While DeMuro has personally experienced a number of instances where EV buyers told him they wouldn’t buy Tesla due to Musks’ split, which contributed heavily to the net decline in favor of brand of car, the Cars & Bids owner thought was of secondary importance to higher interest rates.

In his view, two other causes also played a key role.

Supply has now completely caught up with demand

Raising the list price of Tesla models has been a way to manage its once overflowing order book to avoid excessive wait times during times of supply chain constraints and production bottlenecks.

If you wanted to buy a Model Y (), you could either wait six to eight months or buy a used one, DeMuro said. But the used one was actually going to cost you more because there was no wait so what people did was they bought a Model Y and then they turned around and sold it two months later and were making a profit.

The problem is that Tesla seems to have reached the point where its production has now exhausted its backlog of cars. With his order book now fully depleted and new purchases now roughly matching production, Musk has had to cut prices in his three main markets of the United States, China and Europe, as well as reduce the activity on its assembly lines, to prevent stocks from ballooning.

This has really put downward pressure on used car prices. A year ago you could buy one and return it for ten thousand dollars more than you paid, that’s not the situation today, DeMuro explained.

Tesla’s competitive lead is gone

Finally, the competition has largely caught up with Tesla according to DeMuros.

Semi-autonomous driving technology is available in a slew of competing models, newer competing EVs have caught up with or surpassed Tesla in performance and range, and Musks’ product lineup is aging rapidly with the age-old Model S. more than ten years while the Model 3 has not been updated at all since its launch in mid-2017.

Other than supercharging, there isn’t a huge upside for Tesla and it looks like they’ve slowed down their innovation, he said.

That means there are plenty of low-cost Tesla cars out there now, like a high-mileage 2018 model year M3 sedan that currently costs around $25,000.

Guess we can all expect to buy inexpensive Teslas over the next two years, DeMuro concluded.

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