Why Are Used Tesla Prices Dropping?

Many Tesla owners have been unpleasantly surprised in recent months by a dramatic drop in resale value. After reaching record highs mid-2022, the average listing price for a used Tesla started to fall and then kept falling.

So far, the downward trend has continued in 2024.

The average listing price for many used Tesla Model 3s has now fallen below $30,000. While this is great news for buyers looking to snag a sweet deal, it can be very disappointing for sellers who were hoping to get a decent return on their investment.

What’s behind this steady decline in value? There are a lot of factors at play, but, like so many other economic conundrums, it boils down to supply and demand.

Brand New Teslas Are More Affordable

Why buy a used car when you can get a new one hot off the lot for the same price? Brand new Tesla Model 3s are more affordable than they’ve ever been. Some Teslas even qualify for the $7,500 federal tax credit. To encourage sales momentum, Tesla slashed prices by a good $15,000 at the end of 2023 and continues to cut prices and offer discounts to keep up demand.

The highly anticipated Tesla Model 3 Highland is now available in the U.S. at a starting price of $40,630. With a redesigned look and aerodynamic design, the new Tesla Model 3 boasts upgraded tech and audio systems, improved suspension, longer range, and a 20% reduction in noise and vibration, among other new and improved features.

Used 2018 Model 3s were selling for about $40k at the start of 2023, but now aspiring Tesla owners can get the upgraded Model 3 for the same price. Anyone hoping to sell a used Tesla will have to lower the listing price to attract buyers.

The Hertz Sell-Off

Hertz made waves in 2021 when they announced a plan to convert 25% of their fleet to electric by the end of 2024. Now the company is making headlines after their decision to sell off 20,000 electric vehicles, including many Teslas. The turnabout comes in part due to Tesla’s price cuts.

The rental car company also cited expensive repair costs as a reason to offload their EVs. Driving an EV is different from driving a gas car. Some renters who were unfamiliar with the EV’s rapid acceleration ended up in front-end collisions.

Hertz even limited the torque and speed of their Teslas to help avoid accidents. Numerous studies show that while electric cars are actually cheaper to maintain than gas cars, saving up to $4,600 over the life of the vehicle, repair costs can be higher.

Hertz ultimately decided to put a bunch of their Teslas on the market for unbelievably competitive prices. Some 2021 Model 3s are going for $20,000 or less! The influx of used Teslas into the market has contributed to the drop in prices across the country.

Plenty of Competition

The used electric car market is bigger than it has ever been and it is still growing. There are over 40 EV models available for purchase in the U.S. these days, meaning buyers have a plethora of new and used options to choose from. Sellers have to offer competitive prices to beat out the competition.

In some ways, the current low prices are a correction from the auto industry’s post-pandemic weirdness. Supply chain issues and computer chip shortages made cars harder to get.

That lack of access gave used cars a boost in value, lowering or even reversing depreciation. Not so long ago, it was possible to flip a Tesla and make a decent profit.

Those days are gone.

Even though Teslas retain their value better than gas cars, they still start to lose value the moment they’re driven off the lot. It may sting to see that price drop, especially for sellers who were still hoping to turn a profit on their used vehicle, but a used car losing value is more normal than a used car gaining value.

Used Tesla Prices Will Stay Down

Supply and demand control the market. With thousands of used Teslas being listed and many brand new Teslas available at affordable prices, the supply is high. Demand isn’t exactly low, but it’s growing more slowly than many automakers hoped.

Anyone wanting to sell a used EV in the near future is going to have to account for these market forces by offering buyers a good deal. These low prices will likely continue throughout 2024. 

The takeaway? If you dream of affordable EVs for everyone, this is great news. Now is a good time to buy a used EV.

Sellers, however, might have to accept a loss or wait and hope for increased demand.