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- When you buy a new car, its value depreciates immediately, so I’ve always preferred buying used.
- I decided to buy a Tesla this year, and I’m buying one new thanks to the tax credits on electric cars.
- I’ll get $7,500 as a federal tax credit and $5,000 from my state, Colorado.
Conventional wisdom says that a new car loses about 20% of its value the moment you drive it off of the dealer’s lot. That’s why I’ve always preferred to purchase used cars. However, this equation has been turned on its head by the unique economics of electric cars and recent subsidies for electric vehicles.
In fact, the price of some new electric cars is now lower than the same model of used car, when federal and state tax credits are factored in. As a result, I’m breaking with my long held tradition and purchasing a new 2023 Tesla Model 3 Performance edition.
Why a new Tesla is less expensive than a used one
In March 2023, I considered buying a used Tesla Model 3 Performance, which is the top-of-the-line version of the company’s entry-level, four-door sedan. At that time, a new version cost $62,990, while I was able to find a 2021 model with 21,000 miles for $46,000. I came very close to the purchase, but was turned off by the added dealer charges that were over $1,000.
Thankfully, I decided to wait. Since then, Tesla has dropped the price of this model several times, to its current price of $50,990. Tesla appears to be pricing its vehicles more like electronics, with regular price drops occurring over time, as manufacturing costs come down and new product innovations are released.
Tesla has already started producing the next version of the Model 3 overseas, which is referred to as the “Highland.” And it’s expected to start selling the Model 3 Highland in the US early next year. This makes my purchase of a Tesla Model 3 feel like buying a new Apple iPhone at a discount, shortly before the next version is released.
And when the Inflation Reduction Act took effect in August 2022, buyers of the Tesla Model 3 began enjoying a $7,500 federal tax credit. As a resident of Colorado, I also qualify for another $5,000 credit towards my state taxes. The federal tax credit for a used electric vehicle is $4,000.
Note that these are tax credits, not tax deductions. In other words, they directly offset the equivalent amount of income tax paid, as opposed to simply reducing how much of my income gets taxed.
How does buying a new Tesla Model 3 compare to purchasing a used one?
With the combined total of $12,500 in tax credits, the net cost of my Model 3 Performance will come down $40,130 after fees.
Searching for used Tesla Model 3 Performance editions in Colorado, I found that the price of a 2022 model ranged from around $44,000 to $45,000, with mileages ranging from around 7,000 to 17,000. Expanding my search nationally, I found that the 2022 model was selling as low as $38,500 — with just under 39,000 miles.
These prices are as advertised by dealers. And while there’s usually some room for negotiation, I’ve also found that most dealers will also add fees ranging from $1,000 to $2,000. And the savings I might realize by buying a car out of state will be partially offset by the cost of having the car shipped back to Denver, or the time and expense of flying out of state and driving it home.
But it’s not even worth considering purchasing a used car for roughly equal to or more than a new one, especially as the new one will be a year newer and have the exact paint and interior options I prefer, not to mention having virtually zero miles.
I’m happy with my choice of car
The Tesla Model 3 is a great choice for purchasing a new electric car, as it qualifies for the full $7,500 in federal tax credits. However, the federal tax credits offered will vary, based on whether the battery was manufactured in the US.
Most electric cars sold in the US only qualify for $3,750 in federal credits. Other cars that qualify for the full $7,500 federal tax credit include the Chevy Bolt, the Chrysler Pacifica Plug-In Hybrid, and the Ford F-150 Lightning Extended Range. You can see the full list at FuelEconomy.gov.
Buying a new car is typically an expensive luxury, but we are living in a rare moment when that’s not always the case. By purchasing a new electric vehicle with a lowered price, and by taking advantage of state and federal tax credits, I’ll be able to enjoy having a new car and save money at the same time.
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