Tesla Could Profit From Selling Its Used Cars

Is $71,070 a bit steep but you really want a Model S?

If a Tesla certified pre owned (CPO) program goes to plan, the company will have clean, second-hand Model S sedans along the lines of what other luxury car brands now offer.

In an Automotive News article, Tesla head Elon Musk said it is looking also at how to best manage cars coming off of a three-year resale contract.

That began April 2013, and owners may return their Teslas and get back 43-50 percent – and these cars may actually be able to fetch more.

“With the Model S fleet now heading toward the first cars hitting three years old,” he wrote to Automotive News in an email, “we are looking at CPO and how best to structure.”

Cars returned under the program will begin in spring 2016, and more will be potentially able to be returned in 2017.

Alternately, some Model S owners may even choose to trade in their cars for the Model X SUV due next year.

What Tesla will specifically do to spruce up used Model S sedans before resale remains to be seen.

Also, what it can get for them is in question. New Tesla customers can often recoup $7,500 in federal tax credit, and possibly a state credit, meaning the starting price may have been less from the beginning.

In a better-case scenario, Tesla nonetheless stands to profit, and typically, used cars sell at higher margins as each is essentially a one-of-a-kind with unique acquisition price by the dealer helping negotiations for the seller. Last year car dealer used car departments averaged 12 percent per sale.

To date, after 11 years since its formation, according to generally accepted accounting principles, Tesla has had one profitable quarter and has never returned a full annual profit.

If Tesla can earn 12-percent or better and start selling a bunch more of these CPO cars, this level of profit could be a boon to its quarterly earnings.

Automotive News