Before I get into the details of this hypothetical investment exercise; let me state that I’m a huge fan of Elon Musk and I’m a huge fan of Tesla (along with spaceX). The positive impact Mr. Musk and his companies are having on electrical vehicles, electrical battery technology, autonomous car platforms, solar technologies, aeronautics, robotics/manufacturing, etc is not debatable. I give the man and his incredible team of engineers serious credit.
This is an exercise to highlight the difference between, wanting a car versus needing a car and also to examine our financial priorities. I acknowledge that most folks who are buying brand new state of the art electric vehicles are not struggling to pay bills and hopefully already maxing out their annual retirement contributions.
Some folks however, whether they are buying a new Tesla Model X or a new Ford F-150 or a Mercedes E300 or a Toyota Sienna minivan, are putting too much into a vehicle that immediately affects the health of their financial situation. We all know ‘the value of the vehicle drops the second you drive it off the lot’. I propose instead, that we start thinking, ‘the value of your retirement portfolio drops the second you sign the dotted line for that new car’.
I’d surmise that Tesla is not bad for your health; in fact there might be some unknown secondary benefits. Perhaps all those exhaust fumes and internal combustion engine vibrations from our gas guzzling cars are silently rattling our sella turcicas. In turn leading to global pituitary dysfunction that has yet to be discovered.** One could argue that buying or leasing a new vehicle is a Bad Habit from a wealth perspective. More importantly, having a large monthly car payment that could instead be reduced (by buying an affordable car) or eliminated (by saving up the purchase price) is the investment bad habit that most of us could relate to. I promise to evaluate that later, but first on the docket is our new Tesla purchase.
**(Anyone want to write the grant and submit an IRB proposal?)
Instead of slapping down X amount of money for the privilege of driving a new Tesla vehicle, we are going to hypothetically invest the same amount in TSLA stock. Let’s start with $30 per share TSLA stock in exchange for the Tesla Roadster without any fancy-schmancy upgrades, base price of $109,000. We traveled in our fictitious Delorian back to March 2012 and purchase 3633 shares at that $30 share price, we then parked those shares into our portfolio garage. We log into our account today (Jan 26th, 2017) to discover the following.
For those of you without a magnifying glass, you now have $917,368.83. Sweet! Now you can buy a real flux capacitor.
Maybe you overslept and didn’t get a chance to purchase one of the approximate 2500 Roadster units manufactured. Luckily a cheaper version came out, but before you could oil the works on that new Tesla Model S, your future self tricked you into buying $68,000 worth of TSLA shares at $34 per share. Forgoing that shiny 2012 automobile Christmas present, you instead got a pair of woollen♥ socks. You had forgotten about that mundane Christmas of 2012 until you opened your investment account and pulled out your bifocals.
It seems those warm socks with holes in the toes are now worth $505,020 on January 26th, 2017. You decide to frame them behind glass and hang it on the wall of your office. Now they serve as a sentimental reminder of temperate toes and investments.
One last chance to play this hypothetical experiment out. For the SUV enthusiasts out there I present the luxurious crossover Tesla Model X, the sticker price is $80,000. Instead your money was alternatively invested in 400 shares of TSLA at $200 each in 2016. While the results are not as exciting; consider it has only been 1 year, and you’ve made 26% in gains (turning $80,000 into $101,004).
purchase price date purchased current TSLA share price
Tesla Roadster $109,000 March 18th, 2012 Share price $30
Tesla Model S $68,000 Dec 21st, 2012 (Christmas present) Share price $34
Tesla Model X $80,000 Jan 22nd, 2016 Share price $200
Why these dates and stock prices?
They are arbitrary. I picked them based on when the particular Tesla model was available and selected an average stock price for the time. For example: The Roadster became available starting in 2008, TSLA stock started trading July 2010; The stock price fluctuated between $20-$30 between 2010 and early 2012. I could have just as easily picked $109,000 worth of shares purchased at $22 in 2011 and our investment value would be $1,250,934 today (instead of the already shocking $917,368).
For the Tesla Model S, having seen dozens of car commercials last December goading people into buying a new car as a present, I couldn’t help but think of a modern consumerism yuletide theme. I imagined a blind folded unshaven upper middle class man, dressed in a plaid bathrobe, being led towards a gaudy gigantic red bow adorning an obsidian black metallic purring Tesla S in the snowy driveway.** Not only did he not need it; but 5 years later he’s out a cool half million ($505,020) and hoping he can somehow retire by age 65.
One of my primary goals is to try and create accurate and realistic depictions with the best available data.
**another goal is to create lengthy run on sentences with 10+ adjectives to make anyone reading this out of breath.
-Sales Tax 5-8% depending on what state you live in, luckily this is negated essentially by federal and state tax credit/rebates.
-Not including the $1200 delivery fee
-Not including any upgrades (this the base model). Numbers would be greatly inflated if one selected a higher capacity battery or software upgrades such as enhanced autopilot
-Not considering auto financing, this would obviously add to the amount paid over the life of the loan. It would also negate stock returns buying monthly/annually in place of car payments. Tesla financing department *APR as low as 2.24%!
-Not including money saved on using electricity over gasoline
-We are not considering environmental costs and impacts that Tesla is reducing. (For example, the destruction cost to the environment caused by drilling and/or the oil spills that you are partly responsible for by continuing to consume fossil fuels.) True, but consider that by buying a cheaper used electric vehicle or riding your bike to work, that this cost would be negligible or even further reduced.
I have to drive something! You expect me to walk!
Valid argument. How does a $20,000 vehicle sound instead? Lets knock down your initial investment by 18%, 29%, or 25% respectively. Let’s invest $20,000 less than previously planned, because we bought a quality used car instead. Below is a table that illustrates the investment return while still purchasing a slightly used vehicle, of course it isn’t accounting for the current value of the reliable used car you selected. Here is a list of $20,000 and under autos for sale for those of you reconsidering your upcoming NEW car purchase.
TSLA Share price currently 252.51 as of Jan 26th, 2017-time this article was written.
The last thing to mention is that this “Current Investment Value” is just what it says, if not withdrawn for present needs, it will likely continue to increase in value over time. Conversely, it could also decrease in value with market fluctuations and poor TSLA performance. I’ll posit however, that the rate of stock value decrease is not likely to ever match the depreciation rate of the original Tesla vehicle.
Financial Interest Disclosure
-I have no affiliation with CARFAX or any other used car company
-Nor do I have any secret relationship with the giant red car bow industry-I’m just amazed to discover that said industry exists.
-Nor do I have a framed pair of wool socks, but I wish I did. Only I’d prefer a less itchy, more comfortable, Michael Jordan endorsed natural fiber. (IF THERE WAS EVER A HYPERLINK THAT YOU SHOULD CLICK ON – IT WOULD IT WOULD BE MJ’S.)
♥WOOLLEN is one of 2 ways to spell the word, and done so intentionally.
♥Trivia: Did you know that WOOLLEN, like the word BOOKKEEPER has 3 successive double letters? spell it out: “double U-O-O-L-L-E-N”