Tesla’s used car prices are in freefall, but Elon Musk isn’t primarily to blame, according to Doug DeMuro

Tesla’s used car prices are “sinking like a rock” and one of the most popular car reviewers on social media has a theory as to why. But it is not what one thinks.

Doug Demuro has tested just about every four-wheeler you’ll find on US roads and many you won’t: not only has his expertise earned him a subscriber base in his the YouTube channel of nearly 4.6 million followers, he also runs a used car auction site called Cars & Bids.

“The fool [high] prices we’ve seen in the last 18 months for Teslas—they’re gone and they’re certainly not coming back. There’s no question about that,” he warned Sunday, recommending customers looking to list their vehicles to take markdown offers before they fall.

His business has given him a unique understanding of the ongoing value of the market for a Teslawhich has been under heavy pressure for the past three months even before last week controversial price cuts because new cars suddenly lowered what people were willing to pay for a second-hand model.

However, the Federal Reserve’s campaign against inflation will have a greater impact on Tesla’s pricing power in the used car market.

“This increase in interest rates has really hit Tesla because of the specific type of people who buy cars,” DeMuro believes, adding that they often have jobs where higher borrowing costs affect them more than the general population.

Not equally affected by rising interest rates

For example, in his experience, many users who list on his Cars & Bids site are mortgage brokers, realtors and others.

In addition, many Tesla owners are young buyers who are attracted to the chic brand and often have to stretch their finances to afford them. Rising lending rates can put even a used Tesla out of reach.

Finally, Elon Musk’s buyers tend to also come from the same buzzy tech sector as Tesla itself, and is currently experiencing a wave of layoffs. sector sweep in companies like AmazonMeta, Salesforce and Coinbase which may prompt them to avoid buying any big ticket items like cars.

“These are the people who buy Teslas. The mortgage lenders who get killed when interest rates go up — nobody’s buying houses — and then these kind of young, new tech people of money,” he said. “And I think that more than anything else has been the biggest factor in the decline in Tesla prices over the last three months.”

Prices ‘fall off a cliff’

Because of this, a 2021 Tesla Model 3 Performance with 27,000 miles can still exchange hands on his platform for $56,000 just a month ago. This represents a discount of more than a tenth of the previous $62,990 price for a new car.

In comparison to a few days ago, after Tesla cut the entry point for that model to $53,990, DeMuro said Cars & Bids listed a 2022 version with only 3,700 on the odometer. The highest bid at the auction topped out at just $48,250 and the sale as a result did not proceed.

“That car is a year newer with 24,000 fewer miles and the bid is $8,000 less than a similar car a month earlier which isn’t very good,” he said. “That outcome is not a weird outlier, that’s what we’re seeing with Tesla prices. They’re—use the adjective you want—cratering, sinking, falling off a cliff.”

While DeMuro has personally experienced many cases where EV buyers have told him they won’t buy a Tesla because of Musk’s divisivenesswhich has contributed significantly to the sinking net favor for his car brand, the owner of Cars & Bids believes that it is only under the importance of higher interest rates.

There are two other factors that also play a key role, in his opinion.

Supply is now completely caught up with demand

Raising the sticker price for Tesla models is a way to manage the once-overflowing order book to prevent excessive wait times during times of supply chain constraints and bottlenecks. production.

“If you want to buy a Model Y (…) you can wait six to eight months, or you can buy a used one,” DeMuro said. “But used actually costs you more because there’s no waiting, so what people do is they buy a Model Y and then they come back and sell it two months later and make a profit. “

The problem is that Tesla appears to have reached the point where its production has eaten through its reserves of backlog vehicles. With his order book now completely depleted and new purchases now almost identical outputMusk had to cut prices in his three main markets of the US, China and Europe, as well as cut activity on his assembly lines, so that inventories do not increase.

“That really puts downward pressure on used car prices. A year ago you could buy one and flip it for ten grand more than you paid, that’s not the case today,” explained DeMuro.

Tesla’s competition is gone

Ultimately, the competition is catching up with Tesla in DeMuro’s view.

Semi-autonomous driving technology is available in a number of competing models, new competing EVs are catching up or surpassing Tesla in terms of performance and driving range, and Musk’s product line is rapidly expanding. aging the Model S by a decade of age while the Model. 3 hasn’t been refreshed since its launch in mid-2017.

“Besides supercharging, there is no big advantage to Tesla – and they seem to be slowing down their innovation,” he said. “It’s not like it used to be, where Tesla would just drop something and kill everybody.”

That means there are plenty of bargain Tesla cars to be had right now like a high-mileage 2018 model year M3 sedan that now fetches about $25,000.

“I think we can all look forward to getting affordable Teslas in the next couple of years,” DeMuro concluded.

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