By the end of next month, we’ll get our Tesla Model 3 named Oreo back from the collision center. (Side note, Oreo was named for having black paint and white seats, like the cookie). Oreo might have been totaled. It seems there’s not enough damage to do that. I ordered a Tesla Model 3 standard range to ensure delivery before March 31st, before the tax credit changes. Does it make sense to buy a new Model 3 or to keep our old one? There’s pros and cons to both options.
Three options available
There are three options available to us.
- Keep Oreo, lose our $250 deposit on the new vehicle
- Sell Oreo, buy a new vehicle
- Keep Oreo and rent it on Turo, buy a new vehicle
When you have complex financial decisions to make, break down the decision into smaller pieces. Evaluate each small piece separately. add the results together as needed.
Breaking down options
The easiest option is selling Oreo. The current value of Oreo before the accident was around $40,000. The value of the misnamed FSD Beta is $15,000 new. We can not transfer our FSD Beta to another vehicle or to another owner. Selling it wipes out the full value. I expect we might lose $5,000 on the value due to the accident. We owe about $18,000 on the loan. If we sell, how much do we lose?
+$40,000 – $18,000 – $15,000 – $5,000 = $2,000
For a vehicle we planned to hold for 10 to 15 years, this is a huge economic loss. It makes no sense to sell. We can cross out option #2.
Buying a new Model 3
Buying a new Model 3 is more complicated. We have to pay a $250 order fee, a down payment, and ongoing payments. Next year, the car can give us back $7,500 due to federal tax credits. The best way to find the economic value is Net Present Value (NPV). This formula discounts future cash flows back to their current (present) value today. The final comparison is a great way to compare different economic cashflows.
Our down payment would be 10% or $4,500. Regardless of the term you choose, Tesla charged us 5.44%. This interest rate will vary based on your income and potentially your credit. Therefore, we chose 72 months. We can use the extra savings to pay down our student loans. The monthly payment is $668.
$250 order fee – due today
$4,500 down payment – due today
$668 monthly payment
3.75% discounting interest rate (how much we could earn in other opportunities, which is our savings interest rate).
In Excel, Sheets or Numbers, you can set up the formula this way.
Next, we create a table of our cashflows. Positive values are cash coming in, negative values are cash going out. Month 0 represents money we pay or receive today, which is our order fee and down payment. Month 9 is approximately next year when we file our taxes and can reclaim the tax credit. The payments continue until month 72.
The NPV is -$40,466.96. If you had 40,466.96, you could cover all the payments over the next 72 months. This is highly negative.
We can do a similar analysis if we keep Oreo. We have $17,000 left over 18 payments, our interest rate is 3.49%, and our monthly payment is about $950.
The NPV for Oreo is +$27,960.39, a big difference from paying off a vehicle that’s almost done with getting a new vehicle.
Renting Oreo on Turo
Given the large difference between buying a new vehicle, and paying off an existing one, we’d have to make money renting Turo every month to fill the gap. One of the options to rent on Turo is getting 75% of our rental price. If we rent for $60 a day, we’ll get $45. This doesn’t include the extra cleaning or maintenance involved. If we could rent out Oreo for 15 day every month, that comes to $675 a month ($45 x 15). Let’s run that through our NPV calculations.
That gives us a net present value of +$71,420.
Let’s go through our options again.
- Keep Oreo, lose our $250 deposit on the new vehicle = +$27,960.39 – $250 = $27,710.39
- Sell Oreo, buy a new vehicle = $2,000 + -$40,466.96 = -$38,466.96
- Keep Oreo and rent it on Turo, buy a new vehicle = +$71,420 + -$40,466.96 = $30,953.04
Option 3 is first, Option 1 second, and Option 2 last. Which means we should go ahead with getting the new car 🚗. Let’s see if I can convince the family that’s the case. 😅
Really, Options 3 and 1 might be tied, once the extra maintenance and cleaning is included for Option 3. We might be able to squeeze more money out of Turo by lowering rates.
What option do you prefer? Car color can influence accident rates. Reader’s Digest and many other organizations say lighter color cars are safer. See here. We’ll let our loyal readers know what we decide.
Copyright © 2023 smilingdad. The content produced by this site is for entertainment purposes only. Opinions and comments published on this site may not be sanctioned by and do not necessarily represent the views of smilingdad, its owners, sponsors, affiliates, or subsidiaries.