Tesla’s used car sales ecosystem growing rapidly

22 August 2017

As part of its progress towards becoming a fully-fledged OEM, Tesla is now quickly adding considerable scale towards its used car business cash flow.

Its nascent used car operation in the first six months of this year has already well surpassed sales from 2016 – and if the pace continues would result in a tripling of the size of the business in just a year. Total 2016 sales reached $117.4m (€99.8m), and sales recorded so far this year have topped $154.1 million (€131.0m).

Tesla says the sales jump is down to more used Tesla vehicles being in circulation, as well as due to the support of various Tesla trade-in programmes. It is now itself also listing its stock of used cars online on Cars.com following owners having listed their own vehicles on the website for some time.

In the second quarter of 2017, Tesla’s total business – including Tesla cars on the way to the consumer, vehicles in Tesla showrooms, used Tesla vehicles and energy storage products – reached $1.47 billion (€1.25 billion). After a falling out over how to treat existing clients, Tesla CEO Elon Musk ousted executive Klaus Grohmann in March, meaning Grohmann’s PrÜm, Germany-based firm Tesla Grohmann Automation, which gave Tesla fundamental engineering expertise, will be playing an increasingly small role going forwards, with more development being done in-house.

As part of its Q2 filing, Tesla said: ′In future periods, we do not anticipate meaningful revenue from sales of powertrain or other vehicle systems and components to third parties.

′However, we anticipate that revenue from sales of pre-owned vehicles will continue to increase as the volume of pre-owned vehicle sales increases and that revenue from services by Grohmann will decrease as we primarily consume internally its services.’

Tesla’s used car business model forms part of a wider push by the company to break down the traditional dealer model of car sales. It is currently fighting hard several legal battles in the US against states including Michigan that ban Tesla’s direct-to-consumer sales model.

Tesla has seen high consumer engagement with this online strategy, which appeals to their tech-savvy electric vehicle fanbase. While currently only targeting the US, the success of its used car model means it is expected to soon launch in Europe. The platform no doubt aids Tesla residual values, which may not perform strongly non-dedicated online sales platforms against premium combustion engine rivals such as BMW and Mercedes. With Tesla still currently leading the way in world perceptions to EVs, it could well be that their digital sales strategies accelerate the move to online vehicle sales as part of the broader electric vehicle revolution.

Tesla is also expanding its vehicle support services as part of its transition to become a mainstream OEM in the US. It is adding 100 new Tesla Service Centers with 1,400 new service technicians, bringing its total number of Service Centres to 250 worldwide.

The growth of their used car business will put the company on a more self-sustaining financial footing as the company grows beyond its origins as a venture capital-funded startup.

With the current negative perceptions around diesel vehicles as their image is hit following talks of diesel bans, with the aftermath of the Dieselgate scandal also threatening perceptions towards petrols also, Tesla’s rapidly growing used car business offers consumers an increasingly attractive, affordable way for people to buy into the ′safe haven’ of a reliable electric vehicle, that they know will not be banned from inner city areas.

Photograph courtesy of Tesla