Would you buy a used car from Tesla?
Tesla Motors (TSLA) founder Elon Musk is also known as the co-founder of PayPal and CEO of commercial space company SpaceX. Now he's going into the used car business.
Tesla is planning to sell its flagship Model S cars as certified used vehicles as people trade them in or as leases expire. The company confirmed the plan recently to Automotive News, but has not given an exact timetable.
With the price of a new Model S topping out at over $100,000, a certified used version would give motorists a chance to own the widely lauded electric car at a lower cost. It also could add to Tesla's profits. Profit margins for used car sales at dealerships of all brands average about 12 percent, compared with four percent for new cars.
One hurdle before Tesla starts the program is getting regulatory approval in most of the states where it plans to sell used cars. The company has clashed with state regulators in the past over its practice of selling directly to consumers instead of through franchised dealerships.
Though the company did not respond to requests for further details on its certified pre-owned program (as it is known in industry jargon), we set out to find some answers to key questions from automotive experts. Some of their responses:
How much is a used Model S likely to cost? Very few used Model S sales have yet taken place that could indicate the vehicle's resale value. But Eric Ibara, director of residual value consulting for Kelley Blue Book, made a comparison to a used German luxury model offering certified programs.
"The vehicle most associated with the Model S -- by Elon Musk's designation -- is the Mercedes-Benz S-Class,which holds a 36-month residual value of over 50 per cent, " Ibara said. "Given the sparse data available, it is speculative to suggest that the Model S would retain more than 50 percent of its value in three years, but that does not mean it cannot happen."
New Model S prices start at about $70,000 for the version with the 60 kilowatt-hour battery and range up to over $100,000 for cars with the 85 kWh battery. That suggests a Model S coming off a three-year lease might sell for $35,000 to $50,000. With Tesla selling a large share of the used models, it would have more power to set the used car price than is the norm for other manufacturers.
Should you worry about battery life? Since driving range before needing to recharge the battery is a major concern for electric car owners, the durability of the battery pack is a natural question when considering a used electric vehicle. The EPA rating for the maximum driving range for the Model S on one charge of the 60 kWh battery is 208 miles and 265 miles for the 85 kWh version.
Kevin Riddell, chief powertrain analyst for consulting firm LMC Automotive, notes that Tesla's new-car warranties are transferable to second owners and that they last for eight years and 125,000 miles on the smaller battery and eight years with unlimited mileage on the larger version. For used car buyers, "That should reduce concerns about having to replace the battery in the first few years of ownership," he said.
Riddell added that battery packs in gas-electric hybrids such as the Toyota Prius have shown battery longevity beyond the time stipulated in the warranty.
At Plug In America, a research and advocacy group, surveys of Model S owners indicate that the 85 kWh battery retains 90 per cent of its capacity after 100,000 miles and the 60 kWh version holds that level up to 75,000 miles on average.
Tom Saxton, the organization's chief science officer, told CBS MoneyWatch that these results were similar to an earlier study done on the Tesla Roadster, the sports car that launched the company's line. But he cautioned that these numbers can be affected by driving style and conditions.
What are the drawbacks to buying used? Buyers of new Model S cars get a federal tax credit of up to $7,500, and in some places an additional state tax credit. But second owners of these cars are no longer eligible for such credits.
Tesla also may be issuing a new-car competitor to its used Model S cars. Current plans call for the Model III -- expected to sell for around $40,000 -- to roll out in 2017. And that car would be eligible for the electric-car tax credits if Tesla had not yet hit the cutoff point of 200,000 cars sold by one manufacturer.
For Tesla itself, if it can navigate state regulations, the used-car sales would generate additional revenue from its investment in company-owned showrooms.
