Tesla Depreciation - Model S-3-X-Y (And How to Avoid It) (2024)

If you’re like most Tesla owners, you have probably experienced some degree of depreciation on your Tesla. But understanding why it happens and how to mitigate it can make a significant difference in your ownership experience and overall investment.

Tesla vehicles, like any other car, lose value over time, but the factors contributing to this depreciation are unique in some ways due to the rapid evolution of EV technology, market dynamics, and Tesla’s own pricing strategies.

At Find My Electric we’ve seen, interacted with, and served a number of Tesla owners who’ve experienced depreciation on their Teslas (with the people who bought at the height of the supply chain constraints, in about spring 2022, getting the worst of it).

It’s hard to see people consistently lose money on their Teslas, but this has become a commonly accepted part of Tesla ownership now. And while everyone knows that automobiles are depreciating assets, Teslas (and to an extent, EVs in general), seem to be in a special category here. We’re very pro-Tesla at Find My Electric, but this depreciation curve is something that we think is worth writing about to help inform buyers and sellers.

In this article, we’ll explore the specific depreciation trends for each Tesla model, including the Model S, Model 3, Model X, Model Y, and even the Cybertruck. We’ll break down why these vehicles tend to lose value and provide practical tips to help you minimize depreciation on your Tesla. Whether you’re a current Tesla owner looking to protect your investment or a potential buyer wanting to make a smart purchase, this guide will arm you with the knowledge you need.

Why Do Teslas Depreciate & Lose Value So Fast?

Tesla’s vehicles are well-known for their cutting-edge technology, performance, and design. However, despite their appeal, Teslas—like most vehicles—depreciate over time.

But what sets Tesla apart is the unique set of factors that influence how quickly their vehicles lose value.

Let’s dive into the primary reasons behind Tesla’s rapid depreciation:

1. Frequent Price Adjustments

One of the most significant factors contributing to Tesla depreciation is the company’s frequent and unpredictable price adjustments. Tesla has a history of altering the pricing of its vehicles, often without much notice. This can be a double-edged sword: while it might make Tesla vehicles more accessible to new buyers, it can also lead to a sudden drop in the resale value of Teslas purchased at a higher price point.

For example, if Tesla decides to reduce the price of a Model S by $10,000, owners who bought the car before the price drop might see the value of their vehicle plummet almost overnight. These price adjustments are often driven by changes in production costs, supply chain dynamics, and Tesla’s strategy to stay competitive in the market.

This was at its worst in spring 2022, when if you could get your hands on a Model Y Long Range, you could immediately flip it for a $5k profit. During that time, members of the Find My Electric team did a few podcasts, where we cautioned that this wouldn’t last forever (and it didn’t).

Tesla was simply trying to anticipate the supply chain curve and didn’t want to deliver vehicles later that they would lose money on, so they temporarily had to overprice them (even Elon has noted this).

Once the supply chain got better, Tesla dramatically cut prices, and everyone was left holding the bag. The worst of this, are people who bought Model S Plaids, for $150k+, and now have lost about 60% of their vehicle value in just a couple years, which really hurts.

2. Rapid Advancements in Technology

Tesla is known for pushing the boundaries of automotive technology. From Autopilot to battery innovations, Tesla vehicles often feature the latest in EV tech. However, this constant innovation means that newer models often outshine their predecessors, leading to faster depreciation of older vehicles.

For instance, Tesla’s over-the-air software updates are a key selling point, but they also mean that the newest models are usually more advanced than those released just a year or two earlier. As new features and improvements are introduced, older models can feel outdated more quickly, which impacts their resale value.

It’s well-known that Tesla doesn’t wait to release hardware updates or improvements on vehicles, they just roll them out in real time. This means that for example, the new Model S plaid seats—once those dropped, the older Plaids without them were worth slightly less; this happens a lot with Tesla, and while it makes sense for new vehicles, it leads to them depreciating faster.

3. People Are Still Worried About Owning EVs Out of Warranty

A significant factor contributing to the depreciation of Teslas is the concern many buyers have about owning an electric vehicle (EV) after the warranty expires. Unlike traditional internal combustion engine vehicles, where maintenance and repair costs are more predictable and well-understood, EVs introduce a level of uncertainty, particularly around battery life and replacement costs.

Tesla’s batteries are designed to last a long time, and have a good warranty, but the potential for a costly repair or replacement outside of warranty can deter buyers, driving down the resale value of older Teslas. Additionally, the complexity of Tesla’s software and the reliance on over-the-air updates means that some buyers fear they might encounter expensive or difficult-to-fix issues once the vehicle is out of warranty. This hesitation can lead to a steeper depreciation curve as the vehicle ages and moves beyond its warranty period.

4. Shifting Consumer Preferences

While Tesla’s Model Y became the best-selling vehicle globally in 2023, the broader EV market is still subject to fluctuating consumer preferences. These shifts can create periods where EVs, including Teslas, are either in high demand or experience slower sales. Despite Tesla’s strong brand and innovative technology, there are times when external factors like economic conditions, changes in government incentives, or even the release of new models from competitors can temporarily influence consumer interest in EVs.

For example, when gas prices spike or new environmental regulations are introduced, there may be a surge in demand for EVs, driving up prices and slowing depreciation. Conversely, when incentives are reduced or consumer attention shifts to the latest tech gadget, interest in EVs might wane slightly, leading to a quicker drop in value. While Tesla continues to dominate the EV market, these ebbing and flowing consumer preferences play a role in how fast their vehicles depreciate.

5. Uncertainty Around Full Self-Driving (FSD)

Tesla’s Full Self-Driving (FSD) feature is a significant selling point for many buyers, but it also introduces a level of uncertainty regarding depreciation. FSD is still in a state of development, and the timeline for its full rollout remains unclear. As a result, the perceived value of FSD can fluctuate, impacting the resale value of Teslas equipped with this feature.

If FSD does not deliver on its promised capabilities within a reasonable timeframe, or if regulatory challenges delay its implementation, the value proposition of owning a Tesla with FSD could diminish, leading to faster depreciation for these models.

This is also aside from the fact that FSD simply doesn’t retain its value in the used market. So, at the time of writing, FSD costs about $8,000 to be paid in full, but is only worth $1,000 – $2000 on the used market. While we definitely support Tesla’s mission on solving FSD and autonomy, if you’re looking to avoid depreciation, don’t pay for FSD in full.

Tesla Model S Depreciation

The Tesla Model S has been a flagship of the brand since its introduction in 2012, embodying the luxury, performance, and cutting-edge technology that Tesla is known for.

However, despite its many accolades, the Model S is not immune to depreciation (in fact, it’s basically the worst of all Teslas if you take into account the Plaid). Understanding the specific factors that influence its value over time can help current owners and potential buyers make informed decisions.

Initial Depreciation

Like most luxury vehicles, the Tesla Model S experiences significant depreciation within the first few years of ownership. On average, a new Model S can lose between 30-40% of its value within the first three years. This steep initial depreciation is typical for high-end vehicles, where the market is smaller, and buyers are often looking for the latest and greatest features.

For instance, a Model S that originally retailed for $100,000 might be valued at around $60,000 after three years. This rapid depreciation is driven by a combination of factors, including the introduction of newer models with upgraded features, frequent Tesla price adjustments, and the general depreciation trend for luxury vehicles.

Technology Advancements

The Model S has seen numerous updates and iterations over the years, from battery improvements to interior upgrades and software enhancements. While these advancements keep the Model S at the forefront of EV technology, they also contribute to depreciation. Older Model S variants quickly feel outdated as newer versions hit the market with better performance metrics, longer range, and more advanced features (just look at the rounded nose-cone older Model S variants if you need proof of this).

For example, the introduction of the Plaid version in 2021, with its unparalleled speed and new interior, caused earlier Model S versions (P100D, Performance, etc.) to drop in value. Buyers looking for the most advanced technology might opt for the latest model, leaving older versions to depreciate more rapidly.

Impact of Supply Chain Disruptions

The Model S was not immune to the supply chain disruptions that plagued the automotive industry, particularly during the COVID-19 pandemic. These disruptions led to delays in production and deliveries, which temporarily inflated prices for available vehicles. However, as production normalized and new units became more readily available, prices for used Model S vehicles adjusted accordingly, contributing to a faster depreciation rate for those who purchased during the peak of the supply chain crisis.

Market Perception and Luxury Vehicle Depreciation

As a luxury EV, the Model S is also subject to the general trends that affect luxury cars. Luxury vehicles tend to depreciate faster than their non-luxury counterparts due to a smaller pool of buyers, higher initial costs, and the rapid pace of technological change. For the Model S, this means that while it might retain value better than some luxury brands, it still faces significant depreciation, particularly as newer Tesla models or competitive luxury EVs enter the market.

Resale Value and Long-Term Depreciation

Long-term depreciation for the Model S tends to stabilize after the first few years. A well-maintained Model S that is about 5-7 years old can retain about 50-60% of its original value, depending on the condition, mileage, and any aftermarket upgrades. The Model S tends to hold its value better in the long term compared to some other luxury vehicles, thanks to its brand recognition and the strength of Tesla’s supercharging network.

However, it’s important to note that as Tesla continues to innovate and roll out new features, older Model S variants may struggle to keep up with the latest technology, leading to further depreciation. Additionally, the out-of-warranty concerns discussed earlier can also play a significant role in the long-term value retention of the Model S.

Tesla Model 3 Depreciation

The Tesla Model 3, introduced in 2017 (has it really been that long?), was designed to be the more affordable and accessible option in Tesla’s lineup, bringing the brand’s cutting-edge EV technology to a broader audience. As the most popular Tesla model by sales volume, the Model 3 has seen significant market penetration, which plays a role in its depreciation. Here’s what you need to know about how the Model 3 holds its value over time.

Initial Depreciation

The Model 3 generally experiences a less steep depreciation curve compared to luxury models like the Model S, partly due to its lower starting price and broader appeal. On average, the Model 3 loses about 25-35% of its value within the first three years of ownership, which is relatively modest compared to the industry standard for vehicles in its price range.

For example, a Model 3 that originally sold for $50,000 might be worth around $35,000 after three years. This relatively slow depreciation rate is influenced by strong demand for used Model 3 vehicles, Tesla’s brand strength, and the vehicle’s reputation for being a reliable and efficient EV.

High Demand and Market Saturation

One of the reasons the Model 3 holds its value well is the sustained high demand in both new and used markets. The Model 3’s popularity means that even as new models enter the market, there is a consistent demand for used ones. However, as more Model 3s are produced and enter the market, there is a risk of market saturation, which could potentially accelerate depreciation in the future.

In the used car market, the Model 3 is often seen as a smart buy, offering many of the same features and performance as newer models but at a lower cost. This high demand helps to keep depreciation rates lower than expected for a vehicle at its price point.

This has been affected to some degree though by the used EV tax credit ($4,000 on qualifying vehicles), as well as a flood of out-of-warranty 2018, 2019, and now 2020 Model 3s entering the market.

Impact of Frequent Software/Hardware Updates

Tesla’s commitment to over-the-air software updates is a double-edged sword for the Model 3’s depreciation. On the one hand, these updates help to keep older vehicles up to date with new features and improvements, which can positively impact resale value. On the other hand, major hardware changes, such as the introduction of new battery technology or design tweaks, can make older models feel outdated, leading to faster depreciation (for example, older vehicles that aren’t HW3 or HW4 capable).

For instance, the Model 3 has seen several interior and battery improvements since its launch, and each new iteration tends to slightly reduce the value of earlier models. However, the overall impact on depreciation remains moderate due to the vehicle’s ongoing software improvements.

Resilience Against Economic Fluctuations

Interestingly, the Model 3 has shown a degree of resilience against broader economic fluctuations. During periods of economic uncertainty, such as the COVID-19 pandemic, the Model 3 retained its value better than many other vehicles. This is largely due to the growing shift toward EVs, the strong brand recognition of Tesla, and the cost savings associated with owning an electric vehicle.

However, it’s worth noting that while the Model 3 has been relatively resilient, significant economic downturns or shifts in consumer preference toward newer models or different brands could still impact its long-term value.

Long-Term Depreciation and Value Retention

Long-term depreciation for the Model 3 tends to stabilize after the initial drop in the first few years. A well-maintained Model 3 that is 3-4 years old can retain around 50-65% of its original value, depending on factors like mileage, condition, and any enhancements or updates.

The Model 3’s continued popularity, combined with Tesla’s strong brand presence and ongoing advancements in EV technology, suggests that it will continue to retain its value better than many of its competitors in the EV market. However, as with all vehicles, factors such as warranty expiration and the introduction of newer models will inevitably influence its depreciation over time.

Tesla Model X Depreciation

The Tesla Model X, known for its distinctive falcon-wing doors and status as a luxury electric SUV, has been a standout in Tesla’s lineup since its launch in 2015. Combining performance, advanced technology, and family-friendly space, the Model X appeals to a specific segment of buyers looking for a high-end EV experience. However, as with all vehicles, the Model X is subject to depreciation, and its unique characteristics play a role in how its value changes over time.

Initial Depreciation

The Tesla Model X experiences significant depreciation during its first few years, much like other luxury vehicles. On average, the Model X loses about 35-50% of its value within the first three years of ownership. This steep depreciation is typical of high-end SUVs, where the initial high purchase price means that the dollar amount of depreciation is substantial. And for Plaid owners, it’s the worst due to Tesla price cuts and other factors.

For example, a Model X that originally sold for $100,000 could be worth around $55,000 to $65,000 after 2-3 years. This rapid depreciation is influenced by several factors, including the introduction of newer, more advanced models, and the general trend of luxury vehicles losing value more quickly than non-luxury counterparts.

Luxury Market Dynamics

As a luxury SUV, the Model X is also subject to the broader dynamics of the luxury vehicle market. Luxury vehicles tend to depreciate faster than non-luxury vehicles due to several factors, including higher initial prices, a smaller pool of potential buyers, and the rapid pace of technological change. For the Model X, these dynamics are further complicated by the EV market’s fast evolution.

Buyers of luxury SUVs often prioritize the latest features, leading to quicker depreciation of older models. Additionally, as new luxury EVs from other manufacturers enter the market, the competition increases, putting downward pressure on the resale value of older Model X vehicles.

Out-of-Warranty Concerns

The Model X is known for its advanced features and complex engineering, including its falcon-wing doors and intricate electronics. While these features are part of what makes the Model X appealing, they can also be a source of concern for buyers considering a used Model X that is out of warranty. The potential for expensive repairs, particularly for unique components like the doors or advanced Autopilot systems, can deter some buyers and contribute to faster depreciation once the vehicle is no longer covered by Tesla’s warranty.

Long-Term Value Retention

In the long term, the Model X tends to stabilize in value after the initial steep depreciation. A well-maintained Model X that is 2-3 years old can retain around 50-60% of its original value, depending on factors such as mileage, condition, and the presence of any significant updates or aftermarket enhancements.

The Model X’s value retention is bolstered by its status as one of the few luxury electric SUVs on the market, offering a combination of space, performance, and technology that remains appealing to a niche segment of buyers. However, as newer models continue to be released and the luxury EV market becomes more competitive, the Model X may face additional depreciation pressures.

Tesla Model Y Depreciation

The Tesla Model Y, introduced in 2020, quickly became one of the most popular vehicles in Tesla’s lineup, largely due to its blend of practicality, performance, and price. As a compact SUV, the Model Y appeals to a wide range of buyers, from families to tech enthusiasts, and its popularity has only increased since its release. However, like all vehicles, the Model Y is subject to depreciation, and understanding how it holds its value can help buyers and owners make informed decisions.

Initial Depreciation

The Tesla Model Y experiences a relatively modest depreciation rate compared to other vehicles in its class. On average, the Model Y loses about 20-35% of its value within the first three years of ownership. This slower depreciation is a testament to the vehicle’s high demand, strong brand reputation, and Tesla’s continuous improvements in technology and performance.

For example, a Model Y that originally sold for $60,000 might be worth around $40,000 – $45,000 after two years. The lower-than-average depreciation for a vehicle in this segment reflects the Model Y’s broad appeal and the growing demand for electric SUVs.

High Demand and Market Stability

One of the key factors contributing to the Model Y’s lower depreciation rate is its high demand. The Model Y has consistently been one of the best-selling EVs globally, and its popularity shows no signs of waning. This strong demand helps to stabilize its resale value, as there is a large pool of potential buyers for used Model Ys.

Additionally, the Model Y’s position as a compact SUV—a highly desirable vehicle category—means that it benefits from a broader market appeal than some other EVs. This has helped the Model Y maintain its value better than many of its competitors, both within the EV market and the broader automotive market.

Impact of Price Adjustments on Model Y

Tesla’s tendency to adjust prices frequently also plays a role in the Model Y’s depreciation. While these price adjustments can make the Model Y more accessible to new buyers, they can also affect the resale value of vehicles purchased at a higher price point. For instance, if Tesla lowers the price of the Model Y by several thousand dollars, the resale value of older Model Ys might drop accordingly.

However, because the Model Y is positioned as a more affordable option within Tesla’s lineup, these price adjustments tend to have a smaller impact on depreciation compared to higher-end models like the Model S or Model X.

Long-Term Value Retention

In the long term, the Model Y is expected to retain its value better than many other vehicles in its class. A well-maintained Model Y that is 4 years old can retain around 50-60% of its original value, depending on factors such as mileage, condition, and any significant updates or enhancements.

The Model Y’s strong resale value is driven by its ongoing popularity, the expanding EV market, and Tesla’s reputation for producing reliable, high-performing electric vehicles. As Tesla continues to innovate and improve its vehicles, the Model Y is likely to remain a solid choice for buyers looking for a vehicle that holds its value well over time.

Tesla Cybertruck Depreciation

This one is hard to tackle, since the Cybertruck hasn’t been out very long, with the first deliveries occurring in January 2024.

That said, if you bought a Cybertruck at MSRP back then, and took delivery, there’s a good chance that you could have actually resold it for a profit (assuming that you weren’t worried about the no resale clause in the Cybertruck contract).

That said, the price of all Cybertrucks is coming down now, with the Foundation AWD series selling for less than MSRP with tax, title, and license included now (let’s say $99k or lower).

By this time next year, it’s reasonable to say that you might be able to pick up a Cybertruck in the $60k range, which would amount to at least 40% depreciation or so, which is still significant, within the first year or two of ownership for most people who got them early.

How to Avoid (Or at Least Minimize) Depreciation on Your Tesla

While depreciation is an inevitable part of vehicle ownership, there are several strategies you can use to minimize the impact on your Tesla’s value.

If you’re careful and pay attention to these strategies/points, you can’t avoid (or at least minimize) some of the worst factors in Tesla depreciation.

1. Make Use of Local Incentives

   Local incentives, such as state rebates or utility company discounts, can significantly reduce the initial purchase price of your Tesla, which in turn can help cushion the blow of depreciation. Many states offer rebates for purchasing electric vehicles, and some utility companies provide additional incentives for installing home charging stations.

   Sometimes these local incentives can really add up, being $2,500 to $5,000 or even more, which can do a lot to offset the hit of buying a new (or used) Tesla.

   Be sure to research the incentives available in your area before making a purchase, as they can vary widely by location and may change over time.

2. Make Use of Federal Tax Incentives

   In addition to local incentives, federal tax credits for electric vehicles can also help reduce the initial cost of your Tesla. Currently, the U.S. government offers a federal tax credit of up to $7,500 for qualifying new electric vehicles, including certain Tesla models (and $4,000 for qualifying used vehicles). While these credits may phase out or change in the future, they can provide substantial savings at the time of purchase, helping to offset depreciation.

   It’s important to stay informed about the status of federal tax credits, as the availability and amount can change depending on government policy and the number of vehicles sold by a manufacturer.

3. Be Aware of Tesla Pricing Movements

   Tesla is known for its unpredictable pricing adjustments, which can have a direct impact on the resale value of your vehicle. Staying informed about Tesla’s pricing trends can help you make smarter buying decisions. For example, purchasing a Tesla during a period of price stability, rather than immediately before a price drop, can help you avoid sudden depreciation.

   It’s also a good idea to monitor Tesla’s announcements and market conditions closely. If there are signs that a price adjustment might be coming, you can time your purchase or sale accordingly to minimize the impact on your vehicle’s value.

4. Don’t Pay in Full for FSD

   While Tesla’s Full Self-Driving (FSD) feature is an exciting prospect, and we definitely support their commitment to solving autonomy, it’s important to consider the potential impact on your vehicle’s depreciation.

   FSD is currently in a state of development, and its value on the used market is significantly lower than its upfront cost. At the time of writing, FSD costs around $8,000 when purchased outright, but it typically adds only a fraction of that amount to the resale value of your Tesla ($1,000 – $2,000 currently).

   To minimize depreciation, consider opting for a monthly FSD subscription instead of purchasing it outright. This allows you to benefit from the feature without locking in a large expense that may not be fully recouped when you sell your vehicle.

5. Buy a Used Tesla (and Pay a Good Price)

   One of the most effective ways to minimize depreciation is to buy a used Tesla instead of a new one. Since new cars experience the steepest depreciation in the first few years, purchasing a used Tesla allows you to avoid that initial drop in value.

   Additionally, buying used often means you can get more vehicle for your money, as the previous owner has already absorbed much of the depreciation.

   When shopping for a used Tesla, it’s important to ensure you’re getting a fair price. At Find My Electric, our platform connects buyers and sellers of used Teslas, offering detailed listings and a variety of competitive deals on a wide range of models.

   Check out our used EV listings to find a deal on a used Tesla and steer clear of some of the steepest depreciation!