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New car price cuts

One factor potentially influencing the pricing dynamics of these used EVs could be a decline in the prices of new vehicles.

“In January, Elon Musk dropped the prices of Teslas about 20%. That's because there are so much more EVs out there on the market. They're not the only major EV company anymore,” Parris suggested.

According to a January report from Kelley Blue Book, Tesla’s new vehicle prices experienced a year-over-year decline of 25.1% in December 2023, the largest drop among the 35 brands tracked by the automotive research company.

Parris added that with the end of COVID-19 and the resolution of the chip shortage, brand new cars are now available at discounted rates. This affordability of new vehicles means that used cars are remaining unsold for longer periods, leading to further reductions in their prices.

Right now, a brand-new rear-wheel drive Model 3 starts at $38,990 before options.

Tesla also announced this week that it will start the production of more affordable models in "early 2025, if not late this year."

“This is not contingent on a new factory or massive new production lines, it’ll be made on our current production lines much more efficiently,” said CEO Elon Musk during the company’s first quarter earnings call.

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Teslas for ‘lower-income individuals?’

Originally, Tesla, with its first models being the Roadster sports car and then the Model S sedan, did not position itself as an affordable option. However, with an expanded lineup and recent price cuts, the brand is becoming more accessible.

In the video's caption, Parris went further, posing the question, "Tesla for low-income individuals?!"

He even proposed a plan for what to do with the used Teslas.

“I think the government should take Tesla, with all these cheaper prices, give huge tax breaks to individuals who live in lower income housing, give them two years of free charging, whether it's through Electrify America or it's through like Tesla, and I tell you now, those things will sell like hotcakes and replace the Nissan Altima, because they got a car for cheaper and they don't have to pay for gas and they can get around and go to their job and save up money to get out of Section 8,” he suggested. Section 8 is a housing choice voucher program run by the federal government to assist very low-income families, the elderly, and the disabled.

While most cars depreciate throughout their lifespan, Tesla has been particularly noteworthy in this regard.

According to a study by online automotive search engine iSeeCars, which analyzed 1.8 million used cars aged one to five years sold between February 2023 and 2024, Tesla had the highest year-over-year depreciation of any brand.

Karl Brauer, executive analyst at iSeeCars, attributes this high depreciation rate to the price cuts of new Tesla models.

“Used Teslas lost more value than any other brand, and with a 28.9% decline they lost more than twice as much value as second-place Alfa Romeo,” he said. “Elon’s desire to maintain new Tesla sales through price cuts had a very destructive impact on the brand's residual values.”

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Jing Pan Investment Reporter

Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.

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