Tesla Model S Opportunity Cost

I recently received a promotional e-mail from Tesla in regards to the Model S. Tesla said I had one week left to purchase a Model S 60 before the base price increased by $2,000. If I acted now and took advantage of this “great” offer I could lease a brand new Tesla for as low as $817 per month. Seriously? That is undeniably insane to spend that much on a vehicle.

Don’t get me wrong Elon Musk is brilliant. He created a whole new car company and what he is doing with Tesla is truly remarkable in the industry. I also think Tesla makes an amazing car. Every review I have ever read is nothing but glowing and a ringing endorsement for Tesla and their commitment to quality and technology.

With that said, spending $817 each month on a car payment is absolutely absurd. Let’s examine the opportunity cost here. First off, opportunity cost is defined as an advantage that a person could have received, but gave up, to take another course of action. So in this example, what if that monthly Tesla car payments were invested in the market versus spent on a depreciating (Tesla) car asset?

Invest your Tesla payment into the market instead

The base all-wheel drive model of the Tesla Model S 60 starts at $817 per month for a 36 month lease. What if you invested that payment instead into Vanguard Total Stock Market Index Fund (VTSMX), which has average a 9% annual return since its inception in 1992?

Tesla Model S 60 Base Lease for $817 per month

  • 3 years = $32,138.49
  • 5 years = $58,674.10
  • 10 years = $148,951.48
  • 20 years = $501,573.81

Forget the base…let’s upgrade!

What if you decided to upgrade to the Tesla Model S 90 all-wheel drive, which would cost you $1,155 per month? So let’s say instead of $817/month, you invested $1,155/month into the market?

Tesla Model S 60 Base Lease for $1,155 per month

  • 3 years = $45,434.47
  • 5 years = $82,948.09
  • 10 years = $210,574.01
  • 20 years = $709,079.26

I get the Tesla Model S is expensive and this is definitely on the high end for a car payment. Nevertheless, you have to consider your opportunity cost when it comes to your car payment. You get zero return on your “car” investment. That is not the case if you invest into the stock market. This is how you achieve wealth and financial independence.

Now are you thinking about driving your paid-for car a little longer and investing instead?

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