Will Teslas Get Cheaper?

‍Are Tesla Cars and SUVs Really That Expensive?

On the service, any reasonable person could conclude that Tesla vehicles are expensive. At the moment, the least expensive Tesla costs around $40,000, which is not cheap considering you could buy a new car for half that.

But upon careful inspection, the relative price of Tesla vehicles is quite low. This considers the features and technology that’s present in each new Tesla, along with the long-term cost of ownership and life expectancy. Here’s an example.

Tesla Compared to Other High-End Cars

What do you look for in a luxury car? Is it status? Comfort? Safety and Performance? Tesla beats virtually all other cars in the majority of these areas and costs about the same.

Let’s make a direct comparison between a 2022 Tesla Model S and a 2022 Mercedes S class AMG. Both of these vehicles cost a little over $100,000 and represent the luxury car market well. For the Mercedes, you’ll pay around $112,000 and around $105,000 for the Tesla.

There are numerous advantages to buying a Tesla at this price. The Tesla has 670 hp compared to the 607 hp Mercedes, and at a lower price. Additionally, electric vehicles have 100% torque availability from a stop, which produces unbeatable acceleration. For power, Tesla is a clear winner.

The list goes on. While the Mercedes beats the Tesla on driving range and traditional amenities, the Tesla wins on cost of ownership, life expectancy, resale value, technology, and it produces no direct emissions. From a cost and point, Tesla is decidedly competitive with other brands in the luxury segment.

Why Are Tesla Vehicles Expensive?

Tesla design is certainly interesting, but it’s not remarkable or revolutionary. Sure, you can usually tell the difference between a Tesla and a Mercedes C-Class, but these vehicles both look like modern sedans.

Other than the unique electric drivetrain used by Tesla vehicles, why is there such a large cost disparity between a typical sedan like a Honda Accord and a Tesla? There are numerous reasons, and they go beyond flashy design. Here are a few examples.

Unique Design and Technology

Tesla vehicles are fundamentally unique, as the manufacturer started from scratch and designed a cart for the 21st-century. Unlike other manufacturers, you have decades of design experience and massive component stockpiles. Tesla started from the ground up to design a purpose-built electric car.

Tesla vehicles rely on complex computer systems. These computers are extremely advanced and control everything from air conditioning to acceleration. They’re also designed to be programmed and re-programmed, and the company often issues updates that can add an amazing amount of functionality to existing cars.

Designing, testing, patenting, and protecting these vital systems it’s extraordinarily costly. Research and development alone for these vehicles cost billions of dollars, which is passed to both investors and consumers.

High Material Costs

Some car manufacturers are known for utilizing substandard and cheap-feeling materials, both inside and out. You know who they are. Tesla is definitely not one of them. Tesla is extremely particular about the quality of the components used in their cars, along with the interior and exterior fit and finish.

Tesla vehicles are made with aluminum, and the manufacturing processes required to produce vehicles with this expensive material are very sophisticated. In other words, it costs a ton of money to get the aluminum and even more to make it into a car.

Still not convinced? Go sit in a new Tesla and compare it to a domestically produced car at the same price point. There is no comparison. Every inch of a Tesla is carefully thought through and made with noticeably premium materials.

Additionally, one of the most vital components of these electric cars is inescapably expensive. Batteries are one of the most costly components of all Tesla vehicles, and there’s no room for cost-cutting.

Sure, Tesla could buy cheaper batteries, though up to 1 in 1000 sketchy lithium-ion cells spontaneously explode. This is an unacceptable risk, which is why Tesla sources its batteries from well-known manufacturers such as Panasonic.

Teslas Are Getting Cheaper

Since the early 2010s, the overall cost to own a Tesla has actually decreased. This is due to a number of factors and applies both to the new and used market. Here, we’ll analyze why Teslas are getting cheaper and why this trend will most likely accelerate during the 2020s.

Introduction of Lower-Priced Models

Tesla’s first “practical” mass-market vehicle was the Model S, which was introduced in June of 2012. The first edition of the Model S had a base price of $57,400 plus a destination fee. This was meager in comparison to Tesla’s earlier two-seat Roadster, which retailed for between $80,000 and $120,000.

Today, the more advanced new Model S retails for $94,990 and up—but the Model S isn’t the sole vehicle in Tesla’s lineup. The Model 3 sedan, which looks similar to the Model S (and indeed holds the same number of people as the Model S), starts at $44,990. That’s over $10,000 less expensive (ten years down the line) for a car that is practically the same to many people.

Additionally, the new Model 3 is infinitely more advanced than the original Model S in many ways and offers more range-per-dollar than the best original Teslas.

The Model 3 isn’t the only example. A base Tesla Model Y SUV retails for $58,990, which is significantly more affordable than the older Model X and its $104,990 price tag.

In 2023, Tesla plans to release a new compact car which is rumored to retail for around $25,000. The vehicle, which the industry speculates will be named the Model 2, will feature all the latest tech and be cost-competitive with a new Toyota Camry.

As you can see, the sticker price of Tesla’s flagship models has increased, but the company compensated by offering newer and more advanced vehicles at rapidly decreasing prices. Many of these vehicles fit market segments that didn’t have a decent electric offering before and thus offer more options to an increasing number of consumers.

Used Tesla Market

If you didn’t want to pay around $57,000 for a Model S in 2012, you’d be pleasantly surprised to learn that your dream car now costs somewhere between $25,000 and $40,000 on the used market. For a car with a 500,000-mile life expectancy, paying less than $30,000 for a unit with 50,000 to 150,000 miles is a steal.

While it’s true that Tesla cars and SUVs hold their value better than most, depreciation still makes the used market a much more affordable environment for prospective Tesla owners. You can leave with a Tesla in excellent condition for less than $30,000, and you can reasonably expect to get (at least) another decade of daily use out of it.

Late-model used Tesla vehicles, such as those sold in the last two years, won’t take much of a depreciation hit. There aren’t a whole lot of “great deals” on 2020 and 2021 Tesla vehicles. That said, there are thousands of excellent 2012-2018 models on the market for much more affordable prices.

Better Manufacturing

As manufacturers get larger, they often find unique ways to lower costs. Tesla is no exception and has dramatically reduced its production overhead. The company is opening several brand new factories, which helps demand to keep prices level.

Additionally, Tesla has begun shoring-up its battery production, which will reduce transportation costs and increase the companies control over these costly components.

As time goes by, Tesla will continue to reduce costs across its enterprise. Increased automation, trial and error, and more favorable supply chain agreements will lower costs for both the company and consumers as time goes by.

Does Eliminating Dealerships Lower Prices?

All things considered, Tesla vehicles should be more expensive than they are. Part of the reason why Tesla‘s aren’t totally unattainable is due to the company’s unconventional sales model. Tesla doesn’t use dealerships, which causes trouble in some states, but ultimately reduces costs for consumers.

A typical new car sale makes a profit for two entities: the dealership and the manufacturer. The traditional auto company sells its vehicles to dealerships, which then sell them to the public. It allows the auto company to focus on building the car, as somebody else deals with selling it.

Car dealers have a great amount of control over how much is the vehicle sales floor. True, there are some manufacturer incentives from time to time, but ultimately the choice is made by the dealership.

Typically, a dealership will make between $500 and $10,000 on a car sale. That means that you’re getting it for $500-$10,000 more than the dealership paid for it and even more than it cost the manufacturer to produce.

Tesla cut out the middleman and sells cars directly from the manufacturer to the consumer. This generally benefits consumers in the form of reduced costs, but it may harm the community as a whole if dealership jobs and services are eliminated.