Tesla’s used car prices are in freefall, but Elon Musk isn’t the main culprit, according to Doug DeMuro

Doug Demuro has test ridden almost every four wheeler you can find on US roads, and many you won’t find: his expertise has not only garnered him a subscriber base on his YouTube channel of nearly 4.6 million followers, he also runs a used car auction site called Cars & Bids.

“The crazy ones [high] Prices we’ve seen for Teslas over the last 18 months – they’re gone and they’re certainly not coming back. There’s no question about it,” he warned Sunday, recommending customers who want to list their vehicles take advantage of discount offers before they fall further.

His deal gives him a unique insight into the market value of a Tesla, which has come under severe pressure over the past three months, even before last week’s controversial new vehicle price cuts abruptly reduced people’s willingness to pay for a used model.

Instead, the Federal Reserve’s anti-inflationary campaign has had a much larger impact on Tesla’s pricing power in the used-car market.

“This rise in interest rates has hit Tesla really hard because of the specific type of people who are buying the cars,” DeMuro believes, adding that they often have jobs where higher borrowing costs hit them harder than the general population.

Disproportionately affected by interest rate spikes

For example, in his experience, a large number of users listed on his Cars & Bids website are mortgage brokers, real estate agents, and others.

Additionally, many Tesla owners are younger buyers who are intrigued by the chic brand and often stretch their finances to afford it. A hike in lending rates can even put a used Tesla out of reach.

After all, Elon Musk’s buyers also tend to come from the same buoyant tech sectors as Tesla itself, and are now seeing a wave of layoffs sweeping through the sector at companies like Amazon, Meta, Salesforce and Coinbase, which could prompt them to Avoid buying any large ticket items such as cars.

“These are the people who bought Teslas. It’s the mortgage lenders that get killed when interest rates go up – nobody’s buying houses – and then it’s these young new money tech guys,” he said. “And I think that, more than anything else, has been the biggest factor in Tesla’s price decline over the past three months.”

Prices “fall off the cliff”

As a result, a 2021 Tesla Model 3 Performance with 27,000 miles on its platform was able to change hands for $56,000 just a month ago. This represented a discount of just over a tenth of the then price of $62,990 for a brand new vehicle.

For comparison, after Tesla lowered the entry point for this model to $53,990 a few days ago, DeMuro said Cars & Bids listed a 2022 version with just 3,700 on the odometer. The highest bid in the auction was only $48,250 and the sale therefore failed.

“This car is a year newer with 24,000 miles fewer and the bid was $8,000 less than a similar car a month earlier that wasn’t as good,” he said. “This result wasn’t some weird outlier, we see that in Tesla prices. They are – use whatever adjective you want – crater, sink, fall off a cliff.”

While DeMuro himself has seen a number of instances where EV buyers have told him they would not buy a Tesla because of Musk’s split, which has greatly contributed to his car brand’s declining net goodwill, the Cars & Bids owner felt that this is only of secondary importance at higher interest rates.

In his opinion, two other causes played a decisive role.

Supply has now completely caught up with demand

Raising the sticker price for Tesla models was a way to manage the once-crowded order book to avoid excessive wait times during times of supply chain constraints and production bottlenecks.

“If you wanted to buy a Model Y (…) you could either wait six to eight months or buy a used one,” DeMuro said. “But the used one would actually cost you more because there was no waiting, so people bought a Model Y and two months later they sold it and made a profit.”

The problem is that Tesla seems to have reached the point where its production has now depleted its reserves of backordered cars. With his order book now fully depleted and new purchases now roughly equaling production, Musk has had to cut prices in his three main markets of U.S., China, and Europe and cut activity on his assembly lines to keep inventories from bloating.

“It really pushed used car prices down. A year ago you could buy one and exchange it for ten grand more than you paid for, that’s not the situation today,” DeMuro explained.

Tesla’s competitive advantage has disappeared

After all, from DeMuro’s point of view, the competition has largely caught up with Tesla.

Semi-autonomous driving technology is available in a large number of competing models, new competitive electric vehicles have caught or surpassed Tesla in performance and range, and Musk’s product line is aging quickly, with the Model S being over a decade old while the Model 3 was not updated at all since its launch in mid-2017.

“Other than charging, Tesla doesn’t have much of an advantage — and it seems like they’ve slowed down their innovation,” he said. “It’s not like Tesla just drops something and kills everyone anymore.”

This means that there are now many Tesla cars available at bargain prices, such as

“I think we can all look forward to buying cheap Teslas for the next few years,” DeMuro concluded.

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