# TCO Normal Car vs Tesla > Analysis

Hi Mustachians,

I am considering switching my VW T-Roc for a Tesla (3 or Y) and I make some calculations that I hope to refine with your feedback, wishing that this also comes in handy for other Mustachians who are about to make a similar decision.

You will tell me that getting a Tesla is not the best Mustachian move but, unless I am off somewhere in my analysis, it looks promising. Here is the spreadsheet:

[TCO Analysis] (TCO: VW vs Tesla - Google Tabellen)

Contrary to some analyses out there, it turns out to me that:

1. Switinch to a Tesla is more cost-efficient than keeping my VW T-Roc

2. Financing it with a Loan is the best option. The biggest advantages of a Loan are:

• Deducting from my taxable income the yearly loan payments of ~8K CKF with a marginal tax rate of ~35% I get back ~2.7K CHF per year
• Selling my current car worth ~30K CHF and putting 20K CHF into stocks at ~5% return. The remaining 10K CHF is for the downpayment.

What are your thoughts? What did I miss?

Happy for face punches that help me make the right decision!

Thanks, guys!

P.S:

I tried to make the spreadsheet self-explanatory but just in case some references are needed:

1. Data table is the source data I used in the analysis
2. Summary of cost table summarizes all direct costs, depreciation, and some other minor costs (these minor ones were not taken into consideration in the analysis as they were minor)
3. Depreciation table: 15K annual milage, AVG depreciation rate at 5% and 6% for VW and Tesla respectively.
4. Casflow Analysis: Colum U is the NET value of this 5-year (assumed) project
1. Cash: T Roc vs Tesla Model 3 only
2. Loan: Model 3 vs Model Y
3. Leasing: Model 3 vs Model Y, here I did not consider the option of purchasing the car at its residual value as I am not sure this is actually possible.

Your tax deductions of 8k seems incorrect. You can deduct the interests paid from your revenue and the debt from the wealth. But not the reimbursement from the revenue.

Or did I miss understand your sentences?

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As far as I know, itâ€™s typically called the principal component of the loan payment.

Like Ardius, the tax â€śsavingâ€ť seems off to me. Unless you fall into a very rare niche, by taking a new interest payment, your final costs (post interest and post taxes) will be higher than they would be without the interests (because you canâ€™t deduct more than the interests you pay, no matter what).

Moreover, because of the amortization requirements, the payments made on your loan canâ€™t be considered to be expenses occurring on the long term (you actually have a short term investing horizon with them). Leveraged money invested in the stock market will be subject to stock prices fluctuations and unlikely to return something close to 5% during that timeframe (it could be more or it could be less).

If the rationale is that you are actually drawing from your future revenues to invest them now, and those said revenues will then be used to amortize the debt and pay the interests, then what you are trying to achieve is simply to leverage your assets. IBKR currently offers margin loans in CHF at a rate of 2.5% / 2.786% for the 35K amount of debt you are willing to incur, way below the 4.4% you would obtain with a car loan. On top of that, provided you fulfill margin requirements, margin loans are not subject to amortization requirements.

What really kills the profitability of taking a loan and investing the difference arenâ€™t the interests (well, they can be if they arenâ€™t low enough) but the amortization requirements. Iâ€™d run a simulation on the duration of the loan with amortization running to see if I can actually get increased returns by taking it (having done the exercise for myself, my guess is it wonâ€™t work out). That really only leaves margin loans, mortgages and derivatives as relatively interesting ways to leverage a portfolio in Switzerland.

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I did a similar analysis beginning of the year and I decided to purchase a Tesla Y. Some other things to consider after having the car for a while:

• because it is quite cheap to drive the car and it is much more fun, we started to drive more. Especially in the mountains (where consumption is quite low compared to the petrol). So you should be aware that you will drive more per year with a tesla.
• in some places we went the consumption cost was zero, as in some shops (like lidl) the charging is free. Some hotels provide free charging. In some countries where are not so many superchargers the usage of them is free.
• also, you should compare the consumption based on power. At the end, tesla has 500+ horses with instant torque. It is also lot of fun to drive because of that.
• if you live in an apartment you might have to pay more for the charging at home. Because it needs some additional things to balance the consumption with the building needs.
• tesla has also a premium subscription which costs about 12 chf per month I think which you probably would want. Includes internet everywhere (also outside of Switzerland) and sentry (which might decrease your insurance for parking) and map in high details with traffic, and all online services dependent on internet.

But, overall, I am quite happy with the purchase and with the extra comfort and fun of driving an EV or Tesla.

I took it with leasing, as had lower interest rate and I can invest the money i would otherwise spend per loan now till the amortization, as I dont have to pay also in principal now. And the residual rate (if interest rate good that time) I can cover it with margin loan from IB.

If you want more details, you cam PM me and I can also give you a referral code which brings you a 500 CHF discount and for me a free acceleration boost:) to 4.2s per 100km/h. You wont get that feeling in a VW and you should add in the calculation also the non monetary benefits as they count for many years to come.

We have a Tesla Model 3 since June 2022 and I could also share my thoughts.

I also have a referral code

It seems at odd with the car life expectency of 5 years in your model.

Is the amortization over 5 or 20 years ?

A correct depreciationformula would be: (purchase price - expected sale price) / nbr of years

From a tax point of view, a car is considered fully amortized after 5 years

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â€¦ depending on the canton (as usual).
E.g. 0 CHF in BS, up to 9 years (1%) in ZH.

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Thank you, interesting table !

Technically by using a â€śdegressivâ€ť method, there is always a residual value > 0.

I love this, and I had made a similar a very TCO spreadsheet this weekend to Â´downgradeÂ´from my range rover to a Kia EV6.

One thing though, where are you getting a KwH for 0.095c? In Geneva at least itÂ´s around 0.24c. WonÂ´t change much your calculation I suppose, but wondering if you went for some kind of home solor option.

Thanks, everyone! I worked on your feedback and the table is now updated. Still Loan seems to be winning option so far so I look forward to keep improving it.

Good point Ardius, I missed that and I took into account the entire Monthly Payment (which includes the Principal) and not only the Interest. I corrected that in the file.
Question, I can calculate the impact of deducting Interest from Income with my Marginal Tax rate, but how do I calculate the impact of deducting Debt from Wealth?

Awesome feedback, thanks Wolverine. 100% with you, but how would you then take into account those returns into the analysis? If the investment horizon of that money is 10-20 years, would it not be safe to just take that 5% as an AVG?

Great option, I need to study that one in details, I am still early in my financial-investment literacy, if you got any advice on where to learn more about this, please let me know. I will start doing some research online and when ready I will add to the analysis a 4th option with a Margin Loan.

I run the simulation and added a new tab to the spreadsheet with it. I used that to get the yearly Interest that Iâ€™d need to pay to calculate the impact on my taxes. But, what do you mean with increased returns exactly?

What would I need to consider exactly?

Any idea by approx how much?

Awesome, thanks! I will PM you as I also want to understand if you made a similar exercise and why you ended up with a Lease. Today interest is about 2%, was it much lower when you took it?

Thanks sir! How did you finance it and why if I may ask?

I did not consider it only 5 years, what I did was looking for the price of the same car today but with the KMs and Age that it will have in 5 years from now (which is the time horizon I used to compare) and adjusted an AVG depreciation rate ato get to that number. Concretely, today is worth 30k CHF, in 5-years will be 20k CHF, and therefore it loses an AVG of 5% yearly. Thoughts?

I live in Vaud, close to Lausanne, the provider is Romande Energie and thatâ€™s the cost that I pay, which is for houses with power less than 100 kVA. Anyways, I have got solar panels, so in principle I should eliminate the energy cost completely but I though that leaving it there would make the comparison more realistic.

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I think youâ€™re mixing 2 datas 1) the price of the electricity you buy from Romande Energie vs 2) how much Romande Energie pays you for the electricity you send back to the grid

You pay A for an electricity consumption of B
You receive C for the kwh (D) you send back to the grid

At the end, there is a netting between what you consume vs produce

Looks fine

A preliminary note that I think I am taking this thread away from where you intended for it to go. I understand that what you want to do is optimize a one time purchase (and assess whether it is worth it in and of itself). What I am trying to do is to emphase that money is fungible and taking a loan to optimize a purchase has other consequences on the risk profile of someoneâ€™s financial situation (and, as such, that maybe your actual investments differ from the profile coming from your personal risk assessment). That being said, Swiss investors tend to have conservative allocations that largely allow for temporary increased risk coming from a loan and margin trading is not for everybody so using occasional traditional loans instead of constant margin (or no leverage at all) can usually be done without harm.

For the investment horizon for that money to be 10-20 years, you need to maintain your level of leverage during that period. If you instead use the salaries you will get during the next 5 years for your debt payments, letting the debt diminish during that time until it is fully paid of 5 years later, then what you have done is bring forward a part of those salaries. What you have induced is a temporary small tilt of your allocation toward more stocks that will be gone after 5 years, hence a max 5 years time horizon for most of the money issued from the loan.

For the purpose of calculations, Iâ€™d keep a theoretical 5% average annual returns for stocks but Iâ€™d qualify it with a huge margin for fluctuations that could actually mean a net loss of 50%+ after 5 years. The question, to me, would be if the expected gains are worth that.

In your situation, there are two questions that I would assess separately:

1. Does buying the Tesla in and of itself make sense, without considering the loan parameters at all?

2. Does getting leverage (i.e. taking a loan) make sense in your global investing strategy and, if so, what are the cheapest terms available to you?

I mean to question if, all fees and taxes being taken into account, you end up with more expected money at the term of the potential loan by taking it or by not taking it. What may lack in your second tab is a column showing your expected returns. Doing it quickly, it seems that you would indeed turn a small profit, absent fees. Though thatâ€™s not taking into account stocks price fluctuations vs linear debt payments.

I donâ€™t have specific sources in mind at the moment, Iâ€™ve basically built my view through reading a bunch of posts and articles. Iâ€™d say the best way to build your understanding would be to keep reading and try a few Google searches. Investopedia may be a good place to start, Iâ€™d search for â€śleverageâ€ť, â€śmargin loansâ€ť, â€śleveraged ETFâ€ť and â€śfuturesâ€ť, for the more relevant ways to get leverage as a Swiss investor. To note that investing on margin is not for everybody and one should not do it unless they assess that they have proper understanding of what they are trying to achieve and of the instruments they intend to use, and particularly of the tail risks linked to them (everything goes well while everything is going well but things can also go terribly wrong when they do go wrong).

Edit: this thread on Bogleheads.org is a good cautionary tale regarding overusage of margin: A different approach to asset allocation - Bogleheads.org

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Just a side info from my side as I am monitoring Tesla lease interest rates since 2 years now.

In the past leasing interest rate was around 3.9% which was totally no go for me.
Now itâ€™s about 1.9% or something similar if I am not wrong, still not okay for me

In the past year - at least two times a year - I am getting promotional communication emails from Tesla for leasing interest rates 0.9%. Once around year end (October/November for model to be delivered within the year)

Not mentioning the last yearâ€™s discounts on Tesla models plus the 0.9% interest rate, at least made my leasing calculations much more attractive for a Tesla model.

Maybe you would like to consider thisâ€¦

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You are right, thanks for the catch. I have updated the cost to 0,18 CHF / KwH.

After some homework, I understand I am not ready to go for Margin Loans. Too risky for my current profile.

I will delay making a decision for now and let it sink for a bit.

Such an interesting resource, thanks so much for all your feedback @Wolverine !

That would definitely improve the numbers ! Please keep us posted if you hear those lower rates are available again !

Thanks again, everyone!

The price is not correct. You need to include federal and cantonal taxes (around 0.03), city tax (around 0.03), local network (0.0782) and national network (0.174). So a correct number would be more 0.32 CHF/Kwh
You could also select a night price, it would be around 0.25 CHF/Kwh

@bapt In summary of. cost, there is 1025 for tires. Do you plan to change the four tires each year?

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Thatâ€™s the yearly cost. Tiresâ€™ life considered to be 2 years (just to be conservative). Total cost for the 4 of them is 2,150 CHF directly from Tesla.

Skip that and sort your own out from reifendirekt or such.
Should be at least half if not even less than that.

the problem is to find the right rims for the tesla, any suggestion? Tyres are easy to find.

I just bought a new Tesla Model 3 from stock Rear Wheel Drive with 620km of autonomy, it was discounted by Tesla since they are renewing this model aparently so the price offered was 44â€™850 CHF.
I took a leasing at 1.99% and this is what I am going to pay for 60 moths, 25â€™000km/year

• downpayment 12500 chf
• 59x monthly paymenet at 327.15 CHF
• Residual value after four year would be 14â€™801 CHF
Total value paid after the 5 years = 46â€™853 CHF (assuming purchasing the car at the end)
Total value paid after 5 years adjusted to annual inflaction of 3% = 43â€™298 CHF

To be honest, I dont know how the leasing company calculates the %, but in my view, if they are borrowing me 32â€™100 CHF, I would pay 2003 CHF interest, which translates to 1.25% interest rate. Let me know if I am wrong with that.

Hope this helps!

Donâ€™t count years for tyres (the better ones can easily go 6-8 years), but rather kmâ€™s driven.
30k km is not the end of a good set of tyres (rather 40-50k), if youâ€™re not deliberately killing them.

One more thing to add if you live in a rental is wallbox cost. They tend to come with a monthly fee, in our building itâ€™s 35CHF/month and you canâ€™t buy the damn thing.

For the life expectancy of the car, calculate 4 years (warranty) or 8 years (battery warranty) rather?

I wouldnâ€™t assess the T-ROC at 30k, as you donâ€™t have to buy it again, and you might be surprised when you sell it for the purchase price.

The thing that kills the â€śnew EV purchaseâ€ť is that they depreciate about 12-13% on average per year, which for Tesla is like 5k a year at least. You can pay that down either way you like (leasing or cash), but chances are you wonâ€™t keep the car past 8 years and noone really knows whatâ€™s going to be its resale value or if the battery is going to need a 25k replacement by then - I see 2019 M3P models (that used to be 70k+) now selling for 30k. Thatâ€™s 10k depreciation cost a year. The way Tesla is speeding up its AI story, the current MY might be a strong legacy that noone wants in 2028.

Your T-ROC is still going to be 10k worth in 5 years.

That said, the Model Y is probably the better car in most aspects. Just donâ€™t expect miracles.

hereâ€™s my calculation: EV car economy calculator - Google Tabellen