Automotive Blog

Tesla hits the spot! Residual value is key to market success for EVs

Tesla Model S For Blog

I had the opportunity to drive the first Tesla Model S in the UK a couple days ago, courtesy of my friends at Chargemaster who are installing much of the EV charging infrastructure in the UK.  What was most impressive is that it is a great car which happens to be electrically powered, rather than a great electric car.  In my short drive, it seemed well-built, performed like a sports saloon should do in terms of acceleration, and hid its weight well – perhaps because the battery pack is under the floor, in the middle of the chassis.

This coincides with the news that Tesla announced on Monday that they expect to make their maiden profit, 10 years after being launched, and the announcement on Tuesday of a leasing deal which makes the Model S available in the US for $500 per month – higher than comparable models with traditional power trains, but still important at a time when most leasing companies are unwilling to make any lease offer on electric cars, or at least not at an affordable rate.  More significantly – at least to my mind – is that Tesla, and Elon Musk as a guarantor, are giving customers the right to sell their Model S back to Tesla for the same residual value percentage as the Mercedes S Class after three years.

This addresses what I see as the biggest obstacle to buying any electric car.  The driving experience of an EV is different, but interesting and enjoyable.  The charging infrastructure is rolling out quickly in many markets, and for many of us the range of an EV is already sufficient for the second car in the household.  With the Model S, it is now a genuine 300km, which would cover all of my normal requirements as the primary car.  What has held me back until now, is that I am not prepared to take the residual value risk on a car where a change in battery technology may dramatically change the shape of the depreciation curve in two or three years.  I am much less worried by the value in 8 years time when the battery needs replacement, as I would lose 90%+ of the original value of an S Class or any other premium car over that time period.  At three years though, I am still looking for 50% or more of my original “investment”, and the Tesla guarantee will offer that.

So – a note in my diary to see what offers Tesla bring to Europe when they launch here in 2014, and a tip to other EV manufacturers to focus on a residual value guarantee if they want to up the volumes!


Written by Steve Young

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