In a move which will make it compete more directly with its rivals BMW and Mercedes-Benz in the luxury mainstream automotive market, Tesla Motors [NASDAQ:TSLA] is hard at work developing a certified pre-owned program to help ensure those who buy a used Tesla can get the same ownership experience as those who buy their cars fresh from the factory.
According to Automotive News (subscription required), the Californian electric automaker is looking to capitalise on a way to enable existing owners to trade in their old cars for a newer one while simultaneously offering new customers a way to buy a pre-owned, certified Tesla.
“With the Model S fleet now heading toward the first cars hitting three years old, we are looking at CPO and how best to structure,” Tesla Vice President of Communications, Simon Sproule confirmed in an email to Automotive News this week. While many early Model S customers placed an order for the luxury plug-in car years before they were delivered, often paying for the vehicles outright, Tesla has aggressively promoted a series of attractive lease deals in an attempt to encourage customers to lease their car rather than buy it outright.
For those who opted to finance their car through Tesla, the company offers a guaranteed resale value program in which Tesla will buy back the car after three years at between 43 to 50 percent of its original sticker price. Moreover, promised CEO Elon Musk back in 2013, if Tesla couldn’t buy customers’ cars back at the agreed value, he would personally buy them back.
While Musk’s promise — and Tesla’s guaranteed resale value program — was primarily taken to be a way to encourage those unsure of spending upwards of $70,000 on a brand new electric car from a relatively unknown automaker, the buyback program has also ensured that Tesla has the perfect source of used Tesla cars to sell on.
At the moment, Tesla resale values are still relatively high — far higher than Tesla’s resale value program would suggest. In fact, at the time of writing we’ve not seen a Tesla Model S for sale for anything less than $60,000, meaning Tesla’s bet has well and truly paid off, especially if Tesla can persuade existing owners to trade their cars in for less than market value in order to get a great deal on a brand-new Tesla Model S, upcoming Tesla Model X or, in the future, Tesla Model ≡.
With some careful planning, says John Krafcik, president of online car-buying service TrueCar Inc., Tesla could make an extraordinary profit from a carefully run certified pre-owned program. What’s more, he explains, since Tesla owns and operates its own stores, there’s no middle-men to pay.
“When you have a manufacturer-controlled retail network, you’re capturing all of the profit with each sale,” he said. “The upside is pretty amazing for Tesla.”
With Tesla’s cars retaining their value extremely well, Krafcik suggests that Tesla could be able to make somewhere between $6,000 to $10,000 profit on each used Model S it sells through a certified pre-owned program.
At this point, it’s worth noting that in its yearly and quarterly financials, Tesla always reports its accounts using both the Generally Accepted Accounting Principals (GAAP) and non Generally Accepted Accounting Principals (non-GAAP) methods. In the first, Tesla’s accounts can only include actual assets and cash on hand, but Tesla’s non-GAAP financials always factor in the value of the Model S cars leased to customers and available through its guaranteed resale value program.
Capitalising on that value moving forward by selling those cars through a certified pre-owned program is the smart move.
As for the details of what Tesla’s certified pre-owned program will be? At the current time, Tesla hasn’t talked specifics, but we’d guess certified pre-owned Tesla customers not only be offered a set of finance packages matching those offered to new customers, but also a special certified pre-owned warranty and offers on additional extended warranties not available to Tesla customers who buy their used Tesla from a third-party source like a regular used car dealer or online auction site.
Whatever the details of the final certified pre-owned program are however, we think everyone gets to benefit. Existing customer have somewhere they can trade their car in easily for a new model, Tesla gets to profit from a second tier of sales, and those who can’t quite afford a brand new car can get behind the wheel of a Tesla for the first time without worrying about service and after sales.
Would you want to buy a used Tesla from a certified pre-owned program? Would you sell your Tesla back to Tesla Motors, or try to cash in on higher-than-expected values yourself?
Leave your thoughts in the Comments below.
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