“You can buy a used Model 3 for $22,000. It’s not much different from a new one.”
The Tesla-led electric vehicle price cuts are revitalizing the used electric vehicle market, Bloomberg reported on the 23rd (local time). According to market research firm Cox Automotive, used electric vehicle sales in the U.S. surged 70% in the first half of this year.
The popularity of used electric vehicles is due to their low prices. In February, the average selling price of a used electric vehicle fell below that of a used internal combustion engine vehicle for the first time. In June, the average fell to $28,000. “Tesla is driving the market by lowering prices,” said Scott Shannon, a used car sales manager in New Jersey. “Used electric vehicles are selling faster than gasoline cars. They come in and are gone in a week.”
Tax benefits played a part here. The Inflation Reduction Act (IRA) passed in 2022 applies subsidies not only to new electric vehicles but also to used electric vehicles. Consumers who purchase a used eco-friendly vehicle priced at $25,000 (about 33 million won) or less and that is more than two years old will receive a $4,000 tax credit. There are no stringent conditions that apply to new vehicles, such as American manufacturing. This is an attractive benefit for consumers looking for used cars.
The increased supply of used electric vehicles has also helped drive demand. According to Bloomberg, the inventory of used electric vehicles in the U.S. is about four times larger than it was in 2021. This is because automakers, including Tesla, have expanded their electric vehicle sales, which has led to an increase in used vehicles. Tesla has sold 2 million units in North America since 2019.
Usually, when the price of a certain brand’s used car falls, it is interpreted as a negative signal. This is because new cars often do not sell well or the brand image is damaged. However, Bloomberg analyzed that “the biggest obstacle to electric vehicles being chosen by the general public was price,” and “the popularity of used electric vehicles is a positive signal that demand will increase if automakers provide cheaper models.”
If Tesla, the number one electric vehicle company, releases a low-cost model, it could bring a breath of fresh air to the electric vehicle market that has fallen into a chasm (temporary sluggish demand). Tesla CEO Elon Musk said in the second quarter earnings announcement that “we will release a cheaper model in the first half of next year.” This vehicle (tentatively named Model 2) will be produced quickly using the Model 3 platform.
Wall Street is also pinning its hopes on the Model 2. Gary Black, CEO of Future Fund, analyzed on the 2nd that “Tesla’s compact car priced at $25,000 to $30,000 could have the same effect as the Model Y launched in 2020,” and that “it will receive a great response in the $30,000 market.” The Model Y is Tesla’s flagship model and achieved the top spot in global vehicle sales last year.
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Reporter Baek Su-jeon jerry@hankyung.com
