Do you like to consume? I do. I consume a couple of eggs with veggies each morning (thanks wife), then leftovers for lunch and a home cooked meal for dinner. Dinner is the hardest part, because my wife and I don’t usually get home from work until 6:30, so it’s only around 7:30 that we eat, but it’s almost always a home cooked meal.
What I don’t like to consume is consumer products. But it’s a small percentage of us who feel that way in North America. Most people love buying stuff.
Take, for example, the Tesla Model 3. Within 24 hours of the March 31st announcement, there have been 180 000 preorders for this car. At an average cost of $42 000, Elon Musk has sold about 7.5 Billion dollars worth of cars in a single day. Not bad. With the current exchange rate the “electric car for the masses” costs around $55 000 for Canadians.
I don’t know how many Canadians bought these cars, but I did have to step over the people sleeping in line at the dealership the other day, and I hear this scene in Vancouver was similar to the lines outside dealerships in Toronto and Montreal.
So lots of people want this car. I get it, it’s fancy. But isn’t $42 000 a lot for a car? In 2014, the average Canadian’s salary was $49 000 a year. The average American’s salary was $41 392.
So, how is this possible? Surely these people aren’t spending 100% of their income on a new car are they? It must be only the ultra rich who spend this much on a car, right? Nope. Elon Musk chose this prince point because $35 000 (the cost of the lowest trim Model 3) is exactly what the average consumer paid for a new car in 2015.
Holy crow, $35 000?
Hey everyone, stop it. That’s too much.
If the average Canadian is spending this much, it means that they are going into debt for their vehicles. This is poor financial planning. Cars are depreciating assets, that $35 000 will essentially be scrap in a few years. What are you doing?
Ok, it’s not a rule, but doesn’t it make sense? You may LOVE cars, fair enough, If you do then you’re going to spend whatever you want, but let’s do the math. Just because. The new Tesla Model 3 vs. my 2008 Mazda3.
The base model Model 3 costs $35 000 USD or $45 527 Canadian. My 2008 Mazda3 was $8000 in 2015. This was 1/10 of my salary. Slightly less, actually. If I wanted the Model 3 instead and, let’s just say that I had $45 527 to spare, that’s a difference of $37 527. If the life of a car is eight years, that $37 527 would grow (if invested at a conservative 6%) to 59,812.34 in that time. Buying the Model 3 would mean missing out on potentially $22 285 free dollars.
Now imagine you didn’t have any cash lying around and needed a car loan. A 5 year loan at 5% would price the Model 3 at $ 54,276.43, whereas my Mazda3 would total $10,210.25. That’s about $900 a month for the Tesla, or $170 a month for my Mazda.
No, I don’t love cars, but they’re necessary tools so that’s how I see them. It drives me to work when I can’t bike, and that’s about it.
Here’s the breakdown;
If you absolutely have to have a $35 000 car, go ahead and get one. I’m not your boss. But the truth is, you’ll probably need to do into debt to do it, and from my point of view that’s just not worth it.
What to do instead? Save up some money while you read some reviews, maybe Consumer Reports, and find a car that suits your needs. Then spend some time pricing the ones available in your area, pay to have one or two inspected by a mechanic (this costs about $125-$150 in Vancouver, but will save you much, much more) and if everything checks out, buy yourself a reliable, (probably Japanese) used car. Then take what you would have had in monthly payments and put it into your investment account. Hopefully, in a few years when you need a new car, the savings (properly invested) will make it feel like it’s paying for itself.
Bam. Free cars for life. (Kind of) (Not really, but it could feel like it!)
Elon, you made something very pretty and I hope that it helps the electric car movement to grow, but it’s just not for me. Maybe when someone else has paid the depreciation and they start to show up on Craigslist in 2023, but not just yet.