Here are the notable changes from the previous model:
- The Model 3 purchase price increased. Our previous model anticipated a $35K Model 3 would be in the market, which hasn’t came to fruition. The entry-level Model 3 today is $38,900.
- The Camry LE price was essentially unchanged.
- We’re now factoring in resale value in our model.
- Gas prices increased 16% since our 2017 study. We continue to expect a 5% annual increase.
- Model 3 insurance is lower by 9%.
- We are shifting to a finance option. Previously we used a lease option. This slightly and uniformly increased interest payments for each car.
As the Model 3 is still considered to be a luxury sedan, we compared it to another luxury vehicle of similar cost. When compared to an Audi A5, the Model 3 was 12% cheaper upfront but over 5 years is 32% cheaper to operate (42% cheaper with resale value included). While we still believe the Model 3 has the perks of a luxury vehicle, it’s evident that it can maintain those features at a significantly lower cost.
Cost of Insurance
The cost difference between insuring a Tesla Model 3 and a Camry SE is less than you might think. The average cost per year of insuring a Tesla Model 3 is $1,128 today, while the average cost to insure a Camry SE is $1,212. Research suggests that Tesla Model 3s are categorized by insurance companies as luxury vehicles, while the Camry SE is not. Our estimates show that the first two years of insurance will run you about $100 a month, with the third and fourth year dropping to $90 a month. This price reduction is correlated with Tesla’s rumored internal insurance program which is projected to begin this summer in North America, as it has already launched in both Australia and China. The goal with Tesla’s insurance program is to match rates of the lowest competitor. We predict that the price to insure a Camry over the next 5 years will increase at a rate of 0.5%. Based on our model, we predict the average difference in insurance costs over a 5-year ownership span to be $420 less for a Tesla than a Camry.
The car insurance game itself is a data operation and there just isn’t enough current data on Tesla to justify the low insurance costs they should receive based on their safety ratings. We see this transformation happening in two ways; insurance companies who see the value in Tesla’s safety rating and lower their rate accordingly, and Tesla owners beginning to use Tesla’s branded insurance.
Looking to the Future
We believe that our model is conservative and that there is still room for the Model 3 to become even cheaper to own. We decided not to include the US EV tax credit due to the fact that it will be phased out completely by the end of this year. However, there is an opportunity for new incentives to be introduced. We believe Tesla will shed its status as a premium luxury vehicle that is contributing to higher insurance and financing rates. As EV ownership grows and there is more data on their cost, we expect the long-term value proposition to shine through.
Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio.