Tesla Motors Inc. (NASDAQ: TSLA) is set to release its Model X crossover next year and a third new model (the Model D?) may follow the year after that. But if Tesla is serious about selling a lot of cars and becoming a real automaker, it has to offer more models and more of them. And one of the things it can do — in fact must do — is sell used versions of the Model S at its stores.
In 2013 the company promised customers that Tesla would take the car back at a predetermined price after the buyer has driven it for three years. The car’s owner gets the benefit of the $7,500 federal tax credit as well as the guaranteed buyback price. For a car with a sticker price that starts at around $70,000 and can climb to well over $90,000, this has been a successful program for Tesla and mirrors leasing programs for other luxury vehicles.
And speaking of leasing, Tesla kicked off its own leasing program on October 1: $5,000 down and $932 a month for 36 months. The program promises to add even more pre-driven Teslas in the used car market in 2017.
The Model S buyback price is around 43% to 50% of the original price of the car, and Tesla CEO Elon Musk personally guaranteed the buyback out of his own pocket, even if the company couldn’t honor the deal. According to Automotive News, the few private-party sales of the Model S that it has been able to track indicate that the cars will be worth more in 2016 than the amount Tesla has promised to pay.
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What makes used car sales attractive are the margins. According to the National Automobile Dealers Association (NADA), profit margins on a used car average 12%, compared with just 4% on a new model. By offering used cars, Tesla captures all the profits that can be made on any single car and leaves no money on the table. One analyst told Automotive News that Tesla would earn more profit on the second sale than it did on the first, making $6,000 to $10,000 profit on each used Model S it sells.
The question really isn’t if Tesla will sell used cars, but when it will start. Look for an announcement around the time the Model X comes out. Early buyers of the Model S may be looking to buy something different, and they will want to Tesla to take those cars in trade.
Tesla’s stock closed up more than 2% on Monday, at $260.62 in a 52-week range of $116.10 to $291.42.
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