Used Teslas are holding their value better than other cars despite Elon Musk's price cuts

• Used Tesla Model 3 and Model Ys aren't depreciating substantially, a new study says.
• That's despite the price-cut frenzy keeping Tesla in the news this year.
• These dynamics keep piling on the bad news for Tesla competitors.

Elon Musk's price-cutting frenzy at Tesla doesn't appear to be impacting the company's impressive resale values, according to new data released this week.

Tesla's Model 3 and Model Y — its most popular vehicles — have only an 11.7% and 10.4% 3-year depreciation, respectively, among the lowest in the industry, according to a study from Recurrent Auto. Comparatively, the Porsche Taycan loses around 35% of its value in that same time period, while the Mercedes-Benz S-Class loses almost 41% of its value.

The used-car market has experienced several years of volatility since the pandemic, and electric vehicles threaten to throw off that balance even further as the industry figures out how to calculate resale values. So many factors for EVs differ from gas-powered cars that make their used values a lot harder to nail down, though they average around $38,000 used. 

Recurrent's latest study on EV resale values takes into account the first five price cuts Musk implemented this year — and while there was a knee jerk reaction to early cuts that made used Tesla prices plummet — that has shifted. Recurrent said it does not expect the sixth and most recent cut to change their findings.

Many car buyers assess resale value when making a purchase, and that's especially true for EVs. Buyers need assurance that they'll see some money back when they're done with the vehicle, especially as electric cars cost, on average, higher than gas cars. 

But factors like the battery, how many of a certain EV are on the used market, and availability of tax credits for used EVs will all play a role. Slightly more used EVs are being priced just below $25,000 in recent months in order for customers to get the used credit.

Tesla's competitors are squirming

The Model 3 and Model Y retaining resale values is the latest sign that Musk's plan to sacrifice profit margins for sales volumes could pay off. Despite a stock sell-off following Tesla's first quarter earnings last week, when the company reported a 24% decline in profits due largely to the price cuts, Musk has insisted that he knows what he's doing.

"We do believe we're, like, laying the groundwork here, and that it's better to ship a large number of cars at a lower margin, and, subsequently, harvest that margin in the future as we perfect autonomy," Musk told investors on a quarterly earnings call.

This is all bad news for Tesla's competition. 

Companies like Ford, GM, and Mercedes aren't turning a profit on their EV business yet, and don't have as much room to slash prices to compete with Tesla. At the same time they're getting beat in the new-car market, Tesla is hammering them in the used car market with these resale values. 

Still, Ford CEO Jim Farley told reporters last week that the company isn't at all surprised by Musk's price-cutting moves and that Ford will continue on its own path to profitability.

"Honestly, anyone who is surprised at this — I don't understand," Farley said at a charity event in Detroit last week. "Like, retail investors, maybe, but for us and professionals in the industry, this is exactly what we expected."

Tesla's leasing strategy could be helping resale values

Though Musk is charging ahead to steal market share in the new electric car market, the company is being more conservative in the used market. In September of last year, Tesla made up for roughly two-thirds of the used EV market. Now, Teslas only account for about a third of used EVs available, according to Recurrent.

There are a few possible reasons for this, one being that with price cuts this year more Tesla owners have opted to hold onto their cars for a little longer. The other is more of a strategy from Musk. 

Tesla locks lease buyouts for Model 3s and Model Ys, meaning they can't be purchased at the end of their lease term. This prevents Teslas from flooding the used car market and gives the company more control over its own resale market.

Ford has taken a similar approach; vehicle buyouts aren't an option with its electric Mustang Mach-E and F-150 Lightning.