Why Tesla and other EVs are, and are not, luxury cars

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With a Model S price point starting at around $70,000and a competitive set that includes BMW & Audi, a Tesla most certainly is a luxury car, or is it?

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RMI

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Chatting with an RMI colleague recently, I made the “mistake” of referring to a Tesla as a luxury vehicle. He immediately and passionately objected. “A Tesla is a performance EV, but it’s not a luxury car,” he argued. The colleague went on to point out that when you take into account upfront cost, an electric vehicle’s relatively minimal maintenance, registration, insurance, and most importantly, an EV’s dirt-cheap per-mile cost to drive (thanks to the superefficient electric powertrain), a Tesla can actually start to be pretty affordable, especially if you’re a high-mileage driver.

I’m fully aware that calling a Tesla Model S “affordable” will sound absurd to plenty of people. So to be clear, I’m no luxury car driver with deep pockets. My first car was a used 1987 Dodge Shadow; I got it from a family friend around 1995, put in a $700 rebuilt transmission to make it roadworthy, and drove it for about two years. Then in 2001 I bought a used 1999 Jeep Cherokee that was coming off a lease; I drove it for 9 years and 175,000 miles. Meanwhile, my wife’s 2001 Nissan Sentra was totaled in a car accident. We replaced that with a 2009 Honda Accord that we still drive today. And then there’s the Nissan LEAF I’ve most recently been driving for the past year. The LEAF—with an MSRP around $31,000—is easily the most expensive car I’ve ever owned or leased.

I countered my colleague, noting that with a Model S price point starting at around $70,000 (and easily exceeding $100,000) and a competitive set that includes BMW, Mercedes-Benz, and Audi, a Tesla most certainly is a luxury car. But now I’m starting to think otherwise.

WHEN LUXURY PERFORMANCE AND LUXURY COST DIVERGE

My “Tesla isn’t a luxury car” colleague pointed out that “luxury” isn’t part of any description on the Tesla website. Doing my due diligence I checked, and sure enough, he’s right. Tesla Motors talks about the car’s advanced powertrain; about how it’s an evolution in automobile engineering; about how it’s progressive, safe, unique, and inspired; about how it’s crafted with exquisite materials; and, of course, about its performance, performance, and more (exhilarating) performance. But not once did the word “luxury” appear.

By contrast, Audi talks about building “the most sophisticated and elegant luxury performance vehicles on the road today.” Mercedes-Benz boasts about being “Luxury, elevated. Performance, exhilarated.” And BMW of North America talks about its dual “luxury/performance vehicles.

Was Tesla’s choice not to use the word luxury a deliberate marketing position? A mere oversight? Or was it possibly evidence of something else: that my colleague might have been right. Maybe a Tesla wasn’t a luxury car. In fact, maybe no EV—despite critiques of their upfront cost premium—should qualify as a luxury car … at least not on the pure basis of sticker price.

WHEN UPFRONT COST FAILS AS A PROXY FOR LUXURY

For decades upfront cost has been a reliable proxy for luxury in automobiles. The more you pay for a car, the better the performance, the better the luxury, and the higher the total cost of ownership—capital cost, per-mile operating cost, maintenance, etc. But with a Tesla, and with EVs generally, that proxy fails. If you own a Tesla for long enough and/or drive it for enough miles, your total per-mile cost of ownership starts to look at lot more like a Toyota than a Lexus, more like a Honda or Nissan than a Mercedes or BMW.

A luxury automobile—at least as I see it—comes down to luxury in two forms: 1) high-end finishes and features, such as leather seats and a better sound system, and 2) high-end driving performance. High-end finishes and features are powertrain agnostic. It doesn’t matter whether the engine under the hood runs on gasoline or electricity. But high-end driving performance is where EVs are subversive, because EVs decouple superior driving performance from per-mile cost to drive.

This leaves me with at least two conclusions.

First, upfront cost no longer holds as a reliable measure of a vehicle’s relative luxury status. On one hand, you can have decidedly “average” electric cars like my Nissan LEAF that come at a price premium relative to something like a Nissan Versa; neither is a luxury car. My LEAF is surprisingly fun to drive, but its finishes and features are definitely middle of the road. On the other hand, you can have a high-performance Tesla Model S—that in some respects I’d still call a luxury car—and have it prove far more affordable to own and drive than its pure sticker price would suggest.

Second, there’s the possibility that EVs—thanks to their superefficient electric powertrains that have next-to-nothing per-mile operating costs—make so-called luxury cars more affordable for more Americans. The challenge is in convincing more drivers to go beyond evaluating a car purchase on the basis of MSRP sticker price and possibly MPG or MPGe. We need to take a more holistic view of our cars that considers our driving habits over a specified period of time to more fully understand the per-mile cost to own and operate the car.

That’s a big pivot away from where we are today. But if we can do it, we can overcome the stigma of sticker price and realize that—with EVs—luxury driving performance is within economic reach for far cheaper than many of us would imagine, even as we separately decide if we want to pay a premium for luxury finishes and features that look and feel the part.

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7 Comments
  1. Baz 5 years ago

    This would also apply to Australia’s luxury car tax, from what I have read in this article the tax should be adjusted for EV’s.

    • OnionMan77 5 years ago

      I thought the Australian luxury car tax was to offset the Federal governments car industry subsidies.
      It would be nice if losing the local car industry (Mitsubishi gone, Ford going, GM going, Toyota going) meant no more luxury car tax.

  2. Ronald Brakels 5 years ago

    Fortunately this discussion is simple in Australia. A luxury car is one that costs $61,884 (48,270 US) or if it is fuel efficient, $75,375 ($58,793 US). A fuel efficient vehicle is one that gets 14.29 or more kilometers per liter. Therefore, the current model Tesla is a fuel efficient luxury car. Luxury cars get taxed at the rate of 33% for the portion of their price above the threshold. When Tesla releases their planned lower cost model it won’t be a luxury car by Australian standards.

  3. Peter Campbell 5 years ago

    I wonder what a second-hand, 3-4 year old Tesla model S will cost in a few years time? There might be a good window of opportunity ordinary folk to buy them.

    • Ronald Brakels 5 years ago

      Yes, if the super rich keep flipping their sports cars for newer models every few years, or even every year, as many currently do, there could be a number enertering the second hand market around then. But I’m pretty sure they’ll command a good price. I don’t think “ordinary folk” will be generally be the ones to buy them. But Tesla is going to produce a much cheaper electric vehicle that should be well within the grasp of middle income earners.

    • Miles Harding 5 years ago

      The NZ used car review mag ,The dog and lemon guide’s, description of luxury cars as “a rich man’s toy and a poor man’s downfall” likely doesn’t apply to a Tesla, at least not until the battery needs replacing.

      Pretty much no matter what happens to cell prices, the huge 85kwh battery will be expensive to replace, although its replacement doesn’t have to be the same capacity. One plus is that the big Tesla battery can suffer a lot of degradation before the car becomes functionally useless.

      It will be interesting to see how Tesla navigates this as their first cars age. Badly managed, it may turn consumers off EVs, although there may be no alternative by then.

      • Peter Campbell 5 years ago

        For what it is worth, I have been using the battery of my home-converted electric car for almost 6 years and they have done 46,000km. I don’t expect my early, relatively cheap, chinese LiFePO4 cells are of the quality that Tesla uses. Nonetheless, I can now only just slightly discern the beginning of a slightest hint that the cells might not be quite precisely at the same performance they were when new. I can only tell from measurements, not anything I would notice from driving performance. I expect my cells to be good for a decade at least and Tesla should be able to do better still having access to resources I don’t have as a DIY amateur. I would be more confident in the cells in a used EV than first time EV buyers so buyer confidence or lack of it might contribute to bargains being available. Right now you can get a 3 year old, returned from lease Mitsubishi iMiEV for about $17K.

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