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Tesla is turning to partners to help with a growing used-car business

Key Points
  • Tesla is working with Cox Enterprises-owned Manheim and Kar Auction Services division Adesa to manage and sell a higher volume of used vehicles than it has ever handled before. 
  • Tesla's burgeoning used car business represents a new operational challenge and cost center for the company, but can also help it generate revenue from sales, charging and other services long-term.
Tesla Model X and Model S in Dubai.
Tesla

To manage a growing used car business, Tesla is relying on outside firms, including Manheim and Adesa, according to two people familiar with the situation. These businesses help move and manage used cars, putting them through inspections, reconditioning and sales to wholesale customers.

As it has ramped up vehicle production and sales, Tesla has been grappling with what CEO Elon Musk called "delivery logistics hell. " A burgeoning volume of used cars poses yet another operational challenge to Tesla, while also giving the company new revenue streams and a way to bring electric vehicles to the masses.

This move is something of a departure for Tesla, which operates as a "vertically integrated" business that sells its new cars direct-to-consumer, provides repairs to via its own service centers, and manufactures parts of its cars that most auto-makers don't attempt to, including its own batteries, car seats, and chips that power Tesla Autopilot features.

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Tesla is handling a higher volume of used cars than ever before, in part, because it offered a 2-year lease option for its Model S and Model X electric vehicles back in third quarter of 2016, and 3-year leases before that.

One Tesla employee involved in the growing used car operation said around half of the Tesla vehicles that go to its partners come back retail-ready, allowing Tesla to sell them as certified pre-owned vehicles, or to use them as loaners and employee cars right away. Its partners sell some of the other Tesla vehicles via physical and online wholesale auctions.

Most of what Tesla sends off to its partners are Model S and Model X cars coming off lease, but others are trade-ins (including some made by other auto makers), lemons, or cars repossessed after non-payment, people familiar said. Tesla's used car inventory has barely begun to include Model 3s.

Recent job listings posted online by Tesla to its careers page and Glassdoor.com, including listings for a Used Vehicle Quality Specialist, Remarketing Manager, Used Vehicle Sales Advisor and others-, reveal that the company is targeting a "30-day or less turn-rate in the sale of pre-owned inventory." The job listings also acknowledge that Tesla is working with third-party vendors on "timely and high quality repairs."

Manheim, which is a division of Cox Enterprises, and Adesa, which is part of Kar Auction Services, both declined to comment citing client confidentiality. Tesla also declined to comment.

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