Tesla. Man, what an incredibly sexy, innovative, disruptive company! Tesla has already disrupted the world in so many unfathomable ways, and they’re really just getting started. Tesla’s CEO, Elon Musk, is the true catalyst of change though. He brought us the online “yellow pages” with his first company, Zip2, before most companies even knew what the internet was. He revolutionized the banking industry with X.com and PayPal. He started his own space company, SpaceX, which has effectively privatized space travel and is successfully sending satellite payloads and supply missions to the international space station on a regular basis. He even gave us the foundational idea of the Hyperloop (capsules inside vaacum sealed tubes transporting people up to 700 mph) and has now started a tunnel boring company, which may or may not be used to build a national tunnel network to bring Hyperloop to reality. Wink, wink! And while I could talk for hours about all of these other topics, this post is about Tesla. This is one of those exciting topics where my love for technology and finance collide. In full transparency, I am going to gush a bit about why I love Tesla as a company so much, but then get to the meat of this post, which is a financial analysis of purchasing a Tesla Model X (crossover SUV) compare to the latest version of my current ride.
I have been following Tesla for some time now. But only recently has it gotten much more exciting for me. A technology I have been longing for going on over a decade is autonomous driving. Pick your favorite futuristic movie and most of them have cars that drive themselves. And there are two main reasons why I have such faith in the future of this technology. The first and foremost is safety. Humans, by nature, are very error prone, slow to react, emotional, and easily distracted. Then there’s the issues with drowsy driving, drunk driving, or just being plain bad at driving. Computers and machines will always be better than humans in many things, beyond driving, because they don’t suffer from any of these issues once the technology is perfected. A great example of this is if you think about factories now versus 20, 30, 50 years ago. Every factory is very heavily automated with computers and robots because they’re safer and more productive. According to the IIHS, 35,092 people died in automobile accidents in 2015 and caused $242 billion dollars in damage. The CDC reports that, in 2014, 9,967 deaths were a result of alcohol related crashes, 31% of the total deaths for that year. The CDC also says that there are 8 deaths and 1,161 injuries every day as a result of distracted driving. That’s 2,920 deaths and 423,765 injuries per year! Taking driving out of the hands of humans has the ability to change all of that. During a recent NHTSA investigation into Tesla following a fatality, electrek.co reported that the NHTSA found that the overall crash rate in Tesla’s was reduced by 40% when the autosteer feature was enabled, which is part of their semi-autonomous autopilot system that is currently available on the road today. This isn’t just a reduction in deaths, but in ALL accidents.
The 2nd reason why I see so much value in autonomous driving is the efficiencies they will be able to drive when it comes to traffic and congestion. If you’ll just think about your daily driving and what you see on the road and really think about it, you’ll see tons of inefficiencies. Some drivers will tailgate, others will keep 3-4 car length distances from the car in front. When a light turns green or traffic starts moving again, some drivers are slow to react and take several seconds before they start moving. If there’s an accident, everyone slows down to look at the accident, even if it’s on the other side of a divided highway. When it comes to merging, some people don’t want to let cars merge, causing them to slow down until someone will let them in. I could keep going, but you get the point here. As a result of all of this, there is the perception of traffic problems in thousands of cities across the globe. This has resulted in billions of dollars being invested by governments to beef up road infrastructure by adding lanes, additional routes, etc. In reality though, most of these traffic issues are a result of driving behavior. One way to solve this is with autonomous driving where each car acts like a human driver in that it is responsible for keeping itself (and its occupants) safe without really interacting with the outside world, but just reacting to driving situations. To take this one step further, the ability for vehicles to talk to one another, or V2V communications, will enable them to further optimize traffic situations, such as merging onto a high speed highway without slowing a bunch of cars down. V2V communications could also be key for reducing the distances between cars (since self-driving cars can react to situations much quicker), and theoretically put much more cars on an existing road than we can today, reducing the need for expenditures on expanding existing road infrastructure.
Now, as you may already know, the Google car project has been around for years and has most likely done the most research than anyone in this area. Unfortunately though, in my opinion, Google was playing this project too safe and will likely never get the product to market in any kind of meaningful way. Google’s car project has been underway since 2009 and driven a total of 1.7 million miles as of June 2016, yet they are still in their testing and optimization mode and not ready to bring autonomous driving to the mass market just yet. Tesla, on the other hand, has been more of a risk taker in this arena. Rather than waiting for the perfect product to release to the masses, they have been perfecting their autonomous driving, piece by piece, and releasing it as beta software releases via over the air software updates to their cars. Tesla (aka Elon Musk) had the vision to put all the self-driving hardware onto cars before the software was ready to be released so they could enable remotely and start collecting and analyzing data on a much larger scale. Tesla starting to release beta versions of it’s semi-autonomous autopilot software in 2014. As of November 2016, electrek.co reported that Tesla cars had driven close to 300 million miles with autopilot active and had collected over 1.3 billion miles of data from autopilot-equipped cars in a learning mode. Now, Tesla’s auto-pilot software isn’t fully automated yet. It will only adjust speed and keep itself in a lane up to certain speeds, among a few other features, but Tesla is far and away the leader in this space and they plan to release fully autonomous capabilities by the end of 2017 allowing cross-country trips with the Tesla car making all of the decisions.
Tesla – Disrupting the Auto Industry, Energy Industry, and more
Now, as if Tesla’s autonomous driving aspirations weren’t enough, that is just the most recent “feature” of interest to me. Tesla got it’s start with aspirations to build a feasible electric car and ultimately help reduce humanity’s reliance on fossil fuels and contributions to global warming. They started with the Tesla roadster being offered to the super rich, then a little more mainstream sedan, the Model S, followed by an SUV, the Model X. However, these are all $100K plus cars once options are added. Elon Musks plan was to produce these high value luxury cars in order to finance his dream of producing a more mainstream car, the Model 3, which is slated to start production this year with a $35K base price. The goal wasn’t just about producing electric cars, but completely flip the business model of automobiles on its head. Tesla completely changed the car buying experience by not having a traditional sales model with commission based car salesmen, no haggling on price, even taking the stance that car maintenance and service wouldn’t be sold as a profit-producing arm of the business. They are also showing up every other manufacturer by constantly improving the vehicles with over-the-air software updates. With all other vehicles, your car is going to be “at its best” when it’s driven off the lot, but Tesla’s cars just keep getting better via free software updates. Tesla’s cars also have 8 year, unlimited mile warranties on the drive train and batteries. I could keep going, but, as if cars weren’t enough, Tesla soon learned that their research and development into perfecting the batteries for these cars had more applications. And thus they produced the Powerwall and Powerwall 2, an in-home battery that can power the whole house in the event of a power outage. This battery technology is now being applied to entire cities to supplement existing power grids to help with supply and demand of power during peak times, or even powering an entire city entirely off of solar panels and batteries. Tesla merged with Solar City last year and now, not only sells solar panels, but created an entirely new type of solar technology with solar shingles that are indistinguishable from regular shingles and actually provide a more solid and longer life expectancy type of roof. Tesla just keeps innovating and pivoting to conquer new and unique industries and being a source of disruption for the better. But, enough about all of that and my very evident love affair for Tesla. Let’s get on the guts of this post, the financial analysis of the Model X.
Why A Tesla Model X?
Based on my technical background, and all the gushing above, it will come as no surprise that I definitely want a Tesla. For me, it’s more about the technology and the autonomous driving, but the fact that it’s electric is just a plus in my eyes. An electric car is a feature, but not my main reason for purchasing. However, it will be nice to leave for work in the morning with a “full tank of gas” every single day. Now, I’ve always been very conservative when it comes to cars as they are a depreciable asset and I’ve never felt comfortable spending a lot of money on a car. My first car out of high school I drove through college and nearly for 10 years in total and it was an Oldsmobile Alero. My next purchase, after doing lots of research and heavily using Consumer Reports annual auto issue, I settled on the 2011 Kia Sorento as a crossover SUV. My wife and I were going to start having kids soon and I knew that I would need a little bigger family hauler. The Kia was very economical and had high ratings for low cost of ownership due to good gas mileage and low maintenance costs. I really do love my Kia, however, I do miss the fact that there’s not really any sort of advanced technology. We recently upgraded my wife’s car, a 9 year-old 2-door Honda Civic, which was getting very cumbersome getting our son in and out of the car seat in the back seat without a 4-door car. For her, we settled on a Mazda 6 with advanced technology like rear-cross traffic, blind spot, and lane departure warning systems we well as emergency braking and active cruise control that adjusts speed based on the car in front. It’s been quite a joy to drive on trips with the active cruise control, and all I was missing was the ability to keep the car in it’s lane (aka Tesla Autosteer). On the Kia SUV, I spent $32K and the smaller Mazda mid-sized car, we spent $35K. So, as you can see, I’m not really a fan of spending a lot of money on cars. However, my current job, with traffic, has me spending close to 2 hours in the car every day, and after getting up early to get 2 kids ready in the morning and a long day at work, I am frequently quite drowsy in the car, especially with the slow stop and go traffic, which is dangerous. So, I know that for my sake and my family’s sake, I need a Tesla with its safety features and autonomous features sooner rather than later. For all the analysis that follows, I assumed a 5 year TCO, which is the number of years it took me to exhaust my 100,000 mile Kia warranty. I will also provide some alternate analyses at the conclusion.
Models for Comparison
Now, based on my love for my existing Kia, mostly due to it’s balance of versatility and value, I have decided to use a 2017 Kia Sorento for my comparison purposes. Now keep in mind that, in my opinion, this is a value-focused mid-size crossover SUV, and I plan to compare it to the Tesla Model X, which is considered a full-size luxury SUV. So, it’s not quite a fair comparison at the outset, but one that is somewhat realistic for my purposes. Just keep in mind that the concepts outlined herein are ones that can be applied to most any comparison you might need to do for your own purposes. I went ahead and chose the Kia Sorento SX trim line as that’s what I have today. The main features of this trim line (plus the additional options I picked) are a 3rd row of seats, V6 engine, All Wheel Drive (AWD), lane departure warning system, emergency braking, and towing package. Now, for the Tesla, I picked the 75D. The main differences in the Tesla models are how quick it can accelerate (which I couldn’t care less about) and the size of the battery, and in turn, the range of the car. The 75D is a 75 kWh battery that has a 237 mile range as calculated by the EPA. If you compare all models based purely on the range, the 100D actually has the lowest cost per mile, but it has a $13K uptick for an additional 58 miles of range. For me personally, the only time I would be exceeding the range is on long-distance road trips. I only do a few of these a year, so I’m not sure yet if paying an extra $13K is worth saving an extra Supercharger stop of 30-60 minutes. Especially with two small children, I see our need to stop anyways. So, for the 75D (the D means dual engine or AWD), I configured it with the premium package, towing, and 6 seat configuration. The Kia has a 7 seat configuration, but in my existing Kia, I rarely find the middle seat in the 2nd row used, which is why I opted for the 6-seat configuration. For the pricing, I used True Car to estimate the Kia price, and as you may or may not know, Tesla prides itself on selling everything “at list” (aka “no haggling”), so the price came right off of the Tesla Website. For comparison purposes, I have excluded the cost of enhanced autopilot and full autonomy as those options are not available in the Kia (nor any other brand at this point).
Kia Sorento SX Average Selling Price – $40,919
Tesla Model X Configured Price – $$93,750
For the energy cost, the Kia has an EPA combined (city & highway) MPG of 19. Based on the last 6 years I’ve owned my Kia, I have averaged 21,000 miles per year, so that’s what I used for my comparison. I also used a gas price of $2.50 per gallon, which is a realistic price these days, however, I fully expect that to go back up to $4 per gallon in the future just like it was a couple years ago and thus we will look at a few different scenarios. Leveraging Tesla’s online energy calculator, I worked out the energy cost on a per mile basis, using $0.12/kWh, which is what the online calculator had by default and my cost is $0.112/kWh. Tesla also includes the equivalent of up to 1,000 miles per year in free charging at its Superchargers and I have included that as well. Additionally, I’ve also included a one-time installation fee for a charging point in my garage.
Estimated Kia Gas Charge – 5 Yr Cost – $13,816
Estimated Tesla Energy Charge – 5 Yr Cost (with Supercharger credit) – $4,553
Installation Fee for Charging Point – $1,000
Because I live in Texas, I am only eligible for the federal tax credit of $7,500 (no state tax credit due to no state income tax). However, this credit only applies until Tesla has exceeded 200,000 units sold that qualify for the credit. This is important because, once the Model 3 goes into production, which has in excess of 400,000 reservations, it will only be a matter of time until this credit is exhausted for Tesla.
Federal Tax Credit – ($7,500)
The insurance analysis was very surprising, however, I don’t expect it to stick around for long. For comparison purposes, I kept the insurance companies, deductibles, and coverages the same. I had these quoted through USAA. With the quotes below, you can see that the Tesla insurance is approximately twice as expensive as the Kia insurance (over 5 years, assuming no increases), which isn’t all that surprising as the capital cost of the Tesla is more than 2x of the Kia.
USAA Insurance for Kia Sorento 2007 SX – $5,982
USAA Insurance for Tesla Model X – $10,183
However, with full autonomy just around the corner with Tesla with it being expected by the end of the year, expect this cost model to change drastically. With Autosteer already reducing crashes up to 40% as identified above, an insurance company in Ohio has already recognized the changing market and adjusted accordingly. As reported by Business Insider, Root insurance has already created an app that can be installed onto a Tesla to monitor how often Autosteer is enabled. The more miles that are driven with it, the lower the cost is. This is the very dynamic nature we should expect in the future with regards to the autonomous driving technologies, regardless of manufacturer, due to the exponential increase in safety that the technology provides. Taking that a step further, Tesla themselves hope to one day provide a single price for the car, maintenance, and insurance as reported by electrek.co from a recent analyst call. It’s already being offered quietly in Asia and already producing a sizable savings for consumers. Yet another way that Tesla is changing the game on automakers.
This is one aspect that truly surprised me. Due to the nature of electric engines, there are no oil changes required, however, contrary to most companies, Tesla very clearly states the maintenance prices on their website as they are not in it for the money. To the contrary, that’s how most mainstream auto manufacturers make the majority of their margin. Now, again, this is based on the average of 21,000 miles driven per year. Tesla recommends service every 12,500 miles, with different prices for each segment based on the service required. It does look like this is exclusive of tires, so I excluded tires from the Kia analysis as well. Since I am a heavy user of Quicken to track costs, I was able to articulately look back at my expenses over the past 6 years and come up with an average annual cost for maintenance for the Kia. Based on Tesla’s website and the assumption of 21,000 miles per year, I was able to do the same while also taking advantage of Tesla’s 8.1% discount for prepaying. Here’s how the costs work out, which are apples to apples as far as I can tell:
Kia Sorento 5-Yr Maintenance Cost (based on actuals from 2011 model) – $2,507
Tesla Model X 5-Yr Maintenance Cost (according to website) – $5,959
Now, this is the aspect that really changed the game for the Model X. There was a study done as reported by electrek.co that reports the expected depreciation by the Model S, and being that the Model X and Model S are very similar, I have made the assumption that the depreciation models would be as well. In all actuality, the Model X is probably still too new for such a study to exist yet for it. That being said, you’ll notice almost a 75% reduction in value over 5 years for the Kia (kbb.com) versus only 48% for the Tesla. Ultimately, I think a lot of this has to do with the fact that the Kia is just like every other automaker in that the Kia is the best car it’s gonna be in the year it’s sold. However, the Tesla will only be able to keep getting better due to it’s over-the-air updates.
Kia Sorento SX 2007 Re-sell value after 5 years – $11,261
Tesla Model X 75D Re-sell value after 5 years – $48,750
If we put these altogether, we end up with only a $7,600 difference in the TCO of a mid-sized value SUV versus a luxury full-sized SUV. That being said, there are a lot of factors, in my mind, that you can’t put a price to, but I imagine they will push Tesla to the top in anyone’s mind, which I’ll cover next.
|Kia||Tesla X 75D|
|Estimated Base Purchase Price||$40,919||$93,750|
|Install Chargin Point||$1,000.00|
|Estimated Resell Value||-$11,621||-$48,750|
|5 Year TCO||$51,603||$59,195|
Can you Really Put a Price on These Features?
- Over-the-Air Updates – Tesla cars just keep improving with time
- Safety – How do you put a price on your family’s safety provided by Autopilot?
- 8 Year Unlimited Mile Warranty (Batteries and Drivetrain)
- Luxury vs. Value Car – Even Falcon Wing doors set this thing apart from the rest!
- Self-Presenting Doors – Doors that open as you approach? How cool is that!
- Tesla is creating the fastest production cars on the planet at a fraction of the cost!
- Max Cargo Room – Kia @ 73.5 Cubic Ft. – Model X @ 88 Cubic Ft. (Includes a Frunk!)
As discussed previously, all of these calcualations were based on todays gas prices of $2.50/gallon. What if the prices return to $4/Gallon?
Kia Sorento SX 5 Yr TCO – $59,892
Tesla Model X 75D 5 Yr TCO – $59,195
What if gas prices are $4/Gallon, but we look at an 8 year TCO, which is equivalent to the Tesla warranty period (assuming no increases in annual maintenance cost for Kia, though resell statistics are based on 5 yr depreciation)?
Kia Sorento SX 8 Yr TCO – $78,249
Tesla Model X 75D 5 Yr TCO – $71,612
At the end of the day, this seems like a no-brainer on paper. But, I think I still have an emotional problem with spending $103K on a car (with Full Autonomy, which wasn’t included above for comparison reasons), which is a depreciable asset. I put down my $1,000 deposit on the Model 3 in 2016, however, I think the big thing I’m facing now is the question of “what will I give up other than cargo space by going with the Model 3 versus X”? As I’ve seen the press releases from Tesla, they have been very clear that the Model 3 is a less-advanced version than the Model S and X, but I think it remains to be seen if that’s a sales ploy to boost S and X sales, or if it’s a real difference in my situation. My guess is that with the 3-4 trips a year that I do that would make the X valuable, are probably not worth the 2X+ cost of the X over the 3, but that remains to be seen. I will definitely post an update once the configuration details of the Model 3 are available. But, all things being considered, if the future of an autonomous vehicle for the masses, like the Model 3, were 5+ years out, I would definitely be investing in the X. Time will tell and I’ll keep you all updated.
P.S. If you’re interested in buying a Model S or X, save yourself $1,000 and get UNLIMITED SUPERCHARGING FOR LIFE! Just use my referral link below.