Everyone that follows car news knows Tesla has made a considerable impact on premium carmakers. Most of them are now developing fully electric sedans or SUVs just to have something to compete with the American EV manufacturer.
This phenomenon has a simple explanation. People that used to buy new cars from Mercedes-Benz, BMW, or Audi now want a Tesla. So they are trading in their vehicles from these brands to have their new EVs. But the demand for these brands has not increased.
If you are familiar with supply and demand laws, you already know what this means: severe devaluation of cars from these European luxury brands. To measure it, Capital One used the Manheim Market Report.
One of the largest auction companies in the world, Manheim is part of Cox Automotive, a company that recently announced an investment of $350 million in Rivian. We bet the large holding realised The Tesla Effect before its christening. And that it bets Rivian will have a similar performance.
Capital One says in regard to U.S. market vehicles “a 2018 BMW 320i lost nearly 20% of its value, dropping from $37,700 to $30,700.” Calling that a drop is a euphemism. What about the 2016 Mercedes-Benz B-Class? In a single year, “the B-Class dropped from $18,500 to $13,250, nearly 30%.” The company says 22.2 percent of trade-ins for Tesla new cars are from the European luxury brands. Typically, that rate is only 10.9 percent.
The Tesla Effect would be beneficial to used car buyers. They can now get luxury cars for much lower prices. For our readers, that is not precisely good news unless they already own an EV.
If they want to buy one, they will probably suffer The Tesla Effect. They are the ones that – as Capital One puts it – will “take a brutal hit in depreciation.” Consequently, they are the ones that will allow other people to buy a Mercedes or a BMW for the price of a Toyota Camry (similar to UK market Vauxhall Insignia).
Capital One does not mention that, but this will inevitably affect non-premium cars. Anyone willing to sell an Camry will have to price it for much less. That will cause a chain reaction that will make all ICE vehicles feel what luxury cars are now having to put up with.
An interesting aspect of the study is the change in the perception of luxury. Rather than leather or equipment, it now relates to technology. Capital One defines it like this:
“Unlike the luxury cars listed above, nearly every Model 3 sold today has self-driving software that allows the car to automatically change lanes and even be summoned out of a garage or parking space. Luxury through a Tesla lens is in the car’s ability to take over some of the more boring aspects of driving.”
That puts into the right perspective why the Royal Mansour Palace Hotel plans to replace its Bentley shuttle units with the Model X. Did you realise why buying an EV is a wise choice? If not from an environmental point of view, from a financial one.