High Tesla demand damaging used German luxury car values.
High demand for the Tesla Model 3 is causing unwanted ripple effects for used German luxury car values. Automotive News cites various industry data sources that indicate a growing number of used three-year-old luxury vehicles are experiencing eroding values due to the high demand for new Teslas. The Model 3, in particular, is the main cause.
According to J.D. Power, used luxury vehicle supply is up by 20 percent since 2006 while the overall used-vehicle market has seen a two percent increase. Furthermore, a just-released report from Capital One states that, in general, Tesla demand is up while used German luxury vehicle demand is down.
Residual values for these German brands have also dropped by six percentage points since 2015. The overall vehicle luxury market, to compare, has seen a four-point reduction. So, what does this all mean? There are now too many used luxury German cars sitting on dealership lots and they're priced to sell.
"It's strong enough to cause prices to plummet, because the market has an excess supply of used luxury cars," according to the Capital One report. Tesla alone is not to blame for the drop in demand for used German luxury cars; early signs of an economic slowdown are also a factor.
However, a brand new Tesla Model 3 costing around $40,000 doesn't help sales of used BMWs, Audis, and Mercedes vehicles. For example, Capital One says Tesla receives European luxury vehicles as trade-ins about 22.2 percent of the time. That's more than double the industry average of 10.9 percent. "We're calling this The Tesla Effect," Capital One said. "It's strong enough to cause prices to plummet because the market has an excess supply of used luxury cars."
For BMW, in particular, the rise of Tesla has been a negative thing. BMW has lost the largest share of customers to Tesla, according to AutoPacific. The numbers don't lie: eight percent of new Tesla buyers traded in a BMW while 5.7 percent traded in a Mercedes and two percent ditched their Audis. Through last month, a total of 67,000 Tesla Model 3 sedans have been delivered this year, compared to 32,837 BMW 3 Series, 38,174 Mercedes C-Class sedans, and 20,049 Audi A4s.
Luxury German brands were already experiencing trouble in the used market before Tesla arrived, but now the situation is getting significantly worse.