Tesla Model 3 and Model Y dominate the used electric car market as prices collapse

According to a major online auto marketplace, Tesla is the undisputed leader in used electric cars, while prices for Model 3 and Model Y continue to fall.

Tesla has a 42% market share of used electric vehicles on Cars.com and is the primary reason for the increase in used electric vehicle inventory and the decrease in used electric vehicle prices, according to Cars.com data.

“Demand for Tesla remains high, although other brands are gaining ground as the selection of used electric vehicles [market] expanding,” Rebecca Lindland, senior director of industry data and insights at Cars Commerce, told me in an email.

Model 3 drops below $14,000: While Tesla's used Model 3 inventory in Los Angeles starts at around $25,000 (as of August 17), significantly lower prices – more than $10,000 less – can be found on used car marketplaces such as cars.com.

Lindland provided some highlights on the price development for Model 3 and Model Y.

• The average price of a used Tesla Model 3 is $26,000 in July 2024, very close to the $25,000 maximum for the IRA tax credit for used electric vehicles ($4,000).
• Model 3 is cheaper than the average used car, all fuel types
• Tesla Model 3 has dropped in price by -29% compared to last year
• Prices for the Tesla Model Y have fallen by almost the same amount, namely -27% compared to the previous year.

Used inventory increased: The rising used vehicle inventory is putting downward pressure on used EV prices and driving demand for used EVs, Lindland said. But the origin of some of the price pressure on used EVs is in new EV prices. “Dealer rebates, OEM rebates and the IRA tax credit for new EVs are putting further downward pressure on used EV prices,” she said. IRA stands for the Inflation Reduction Act, which provides a $7,500 credit on new EV purchases (which can essentially serve as a rebate). In short, the IRA makes new EVs cheaper, but it also depresses the price of used EVs later on.

Model Y as an affordable electric vehicle: The low end of the used Model Y price scale is starting to fall below the critical $25,000 mark. That's important because it makes the Tesla crossover eligible for the $4,000 used electric vehicle tax credit, which is immediately converted into a rebate if the seller is registered with the IRS. Currently, used Model Ys under $25,000 aren't nearly as plentiful as those over $25,000, but that could change as the Model Y—whose design has remained unchanged since its launch in 2019—ages.

Sentiment in electric vehicle sales: According to Cox Automotive's Dealer Sentiment Index, overall sentiment for electric vehicle sales at dealers has dropped significantly since its peak in the first quarter of 2022. This could also be a factor in the low prices of used electric vehicles.

The supply of new cars is also pushing down the prices of used electric vehicles. according to Cars.com:

• The demand for new cars is Decrease of 26% compared to the previous year
• The supply of new cars has increased by 45.1% compared to the previous year

Electric vehicles must continue to compete with gasoline vehicles: To put used electric vehicles in a broader context, they still have to compete with their gasoline counterparts, including popular cars like the BMW M4, Audi S5, Lexus IS 350 and Cadillac Escalade. Below is the What's Hot ranking of the most in-demand used cars for July.