[Editor’s Note: Those of you who have been waiting for the audiobook version of The White Coat Investor’s Financial Boot Camp, your wait is now over! If you’ve never tried Audible, give it a try. If you go through that affiliate link, you’ll even be helping to support the site by doing so.]
How’s that for a clickbait title? I have apparently started a lighthearted “brawl” online with Tesla owners. I now get hate mail from them. To be fair, I don’t really hate Teslas and it’s not REALLY hate mail, but it does make me shake my head a bit and wonder what it is about this particular brand that causes people to go a little nuts.
What kicked it all off is that I often use Tesla as an example in my blog posts. When I need an expensive consumer item, or car, or individual stock, it comes to mind much more readily than a Bentley or a Porsche or a BMW. So I toss it into the post or the podcast and move on. Then Tesla owners take it as a personal assault on their lifestyle and sound off. I’m sure this post, in particular, will generate even more of these emails, personal conversations, and comments below the post. In a moment you’ll see that I talk about Tesla a lot because YOU talk about Tesla a lot. Here are some fun examples of what I’m talking about from my email box:
The Mail Box
Thanks again for all that you do. My older self thanks you a lot. Had you never started a site and wrote a book, I’d probably be driving a Tesla and have $180k in student loans left.
See, it’s not just me. Lots of docs view a Tesla as a colossal waste of money.
Currently, I would say we have loosened the purse strings quite a bit, but only in comparison to the way we used to live— not when compared to some of our friends and colleagues. We love eating out at nice restaurants, and we travel with our daughter as often as we possibly can. I lease a pretty sweet car for $400/month, because I decided that the peace of mind in not having to worry about expensive/time consuming repairs on an older/owned car was worth it to me. It’s no Tesla, but it’s well-appointed and it fit within the budget with which we were comfortable.
This one cracked me up because the doc seems convinced that a car lease is just fine because it isn’t a Tesla being leased.
I am a 43 year old cardiologist [living] in San Diego (so high cost of living) and drive a Tesla (so spend some money) but also think my wife and I do an OK job of saving. I have always maxed my retirement options and have about $1.3M in retirement accounts, $250K in taxable accounts, and over $100K in each child’s 529.
This doc can actually afford the Tesla, but still views it as a luxury. Now let’s get into the letters from docs who want me to quit using their favorite brand as an example.
I am sending you this email because of something that irks me. Your advice: books, email letters, blog etc are all great and have helped a lot of people do the right thing – mostly in regards to financial decisions. I am by far not as savvy as you and have to think most of your advice is really, really great, even if I sometimes disagree with your priorities.
We have decided to invest mostly in ESG funds due to how we believe there are a lot of companies that are not good for our future. A total index fund would technically invest in many of these companies. Even if our very small investments make no difference to the world as a whole, just like my bike commutes and its effect on the environment.
But you on the other hand – your views reach a lot of people and not just physicians; you have become an “influencer”. This is the reason I am taking the time to write this email. You keep bringing up “buying Tesla” as if this is the worst financial decision anyone could make. I know a few things about Teslas and I agree that Model Ss and Xs can be very expensive but I am not sure if people buying Teslas are making a poor decision.
We finally felt comfortable with the price tag and purchased a model 3 with the long range (bigger battery). We paid more than we ever have for a car, but will receive $11,000 in tax credits (Colorado) the car cost us $60,000. That puts the car in a more normal nice car price range, after tax credits. We can look forward to minimal maintenance and electricity is cheap compared to gasoline.
Maybe the Tesla website is misleading since it compares their cars to 20 mpg cars, and many Tesla purchasers owned Priuses and other types of fuel efficient vehicles previously. With the inversion and horrible air quality we see where we live, this is again one of the things we can do to make a small difference when driving in the city. When going to the mountains to have fun, we also don’t leave the same carbon-footprint behind.
I think cars that are more fitting to “bash” are Range Rovers, Bentleys, any expensive truck (Raptor?), Lamborghinis etc. I can give you more examples if you need them. If it was up to me every listener of your blog would buy a Tesla or another kind of electric vehicle.
I really like this one because not only does this doc want to justify this purchase to me, but seems to want me to convince all of my readers to buy Teslas. The next email came in after I mentioned on Twitter that I get Tesla “hate mail.”
Hello! Love the website, longtime follower. I think you probably get Tesla hate mail because your articles that mention them seem to focus on it only being a status symbol and it being unreasonable priced. I’m a first year attending (wife in residency, HPSP), paying loans back on a 5 year repayment plan. High cost of living area, maxing all retirement accounts/IRAs, and putting money into taxable index fund accounts. My first purchase as an attending was a Tesla. It’s one of the safest cars on the road, I use it every day, and it’s truly a joy to drive.
Is 50k expensive? Absolutely, but you have to drive something, and it took less than 7 months to pay off while also doing all of the above. Tesla owners understand it’s not the most fiscally responsible thing to do, but they’re priced now to the point that it isn’t unreasonable. The difference between a new Model 3 (starting at 32k after tax rebates) and the 3 year old civic you would recommend (10k?) is a lot of money, but realistically 25k isn’t that much for a 6 figure income when you figure you’ll drive it for 7-10 years. And it’s WAY more fun to drive.
Hopefully this doesn’t come across as hate. But your articles tend to make it seem like Tesla owners are all dropping 100K+ on vehicles they can’t afford and are doing it just for the status. That’s just not a fair description.
This one made me laugh for two reasons. First, because the doc admitted buying his Tesla on credit in his first year out of residency while carrying student loans and second because he somehow decided a 3-year-old Civic is my recommended car for him.
How I Really Feel About Teslas (and other expensive items)
I don’t care if you buy a Tesla. I really don’t. I also don’t care if you buy another expensive car. Or a wakeboat. Or go heli-skiing each year. But you need to understand that they’re all really the same thing. Luxuries. They’re NOT transportation (mostly). Reliable transportation costs $5K. If you have to borrow to get reliable transportation (and as a doc this should be an exceedingly rare event that only occurs early in your career) then go ahead and borrow $5K.
What does $5K get? It gets you an 8-year-old Nissan Sentra with some scratches in it. It’s not flashy, but it’ll get you to work and the grocery store. It will almost surely last throughout your residency and/or the 2-5 year Live Like a Resident period that will ensure you will become a wealthy physician. It will give you plenty of time to save up to pay cash for your next car, whether it be a $10K 3 year old civic or a $120K Tesla X.
So, if $5K is reliable transportation, and you’re looking at a $100K Tesla (or the “$32K Tesla” mentioned by the emailer above), then you are buying the following two items:
- $5K Basic Transportation and
- $27-95K Luxury
That’s just the way it is. So quit pretending it is something else. It isn’t. Yes, you have to drive something and you have to eat something. But you don’t have to drive a Tesla and you don’t have to eat at a Michelin 3-star restaurant. There is no financial justification to buy this item. None at all. So admit it is a luxury and let’s move on.
Luxuries Are Fine…If You Can Afford Them
I don’t have a problem with you buying luxuries. I really don’t. I buy luxuries. I now spend tens of thousands of dollars every year on vacation. By definition, going on vacation is just pissing money away. That’s why vacation insurance makes me laugh too. If you need to insure your vacation, you probably shouldn’t be taking it.
My family buys luxuries all the time. My wife drives a fancy SUV with Bluetooth, leather seats, and all kinds of safety features. It costs more than some Teslas. She also has a sweet wake boat she lets me use sometimes that cost even more than that car. Sometimes we use a helicopter to go skiing just so we don’t have to ski over other people’s tracks through the snow. All of those things have similar annual expenses when you take depreciation into consideration.
But guess what? We can afford all of those luxuries. How do you know if you can afford something? Because you can pay cash for it. It’s really very simple. As Steve Martin now knows, “Don’t buy stuff you can’t afford.” We can pay cash and still be on track to meet our financial goals. (In our case, we’re already financially independent so technically we can afford to spend 100%+ of our income each year on luxuries.)
If you are in a similar position, go buy your Tesla and enjoy it. Enjoy how fast it goes. Enjoy how wonderful it makes your commute. Enjoy how good it makes you feel about reducing smog and saving the planet. Park it out front so the neighbors can see it if you’re into that sort of thing. (Although I’m sure no car owner would ever admit that is part of their motivation for buying it even though they think it is for many other people buying the same car.)
Saving the Environment
A Tesla, unlike a Bentley or a Range Rover, is a dual status symbol. Not only do you get to say “I have more money than you” but you get to say “I care about the environment more than you.”
Let’s set this environmental argument upon the table so we can all peer at it. First, we’ll assume that buying a brand new electric car and ditching your old gas-guzzling sedan is actually good for the environment, although there are some arguments out there that this may not be the case. (That sentence is really going to get you Tesla owners fired up!)
That assumption out of the way, let’s examine this argument more closely. Here’s the argument: “I’m buying a Tesla to save the environment.” The problem with the argument? It’s a false dichotomy. Supposedly the only two options are to drive your F250 with a bad catalytic converter to work or to buy a new Tesla. There are more options:
- Move closer to work
- Ride the bus
- Get a bike and ride that ($500)
- Get a really nice bike ($10K)
- Buy a 5-year-old Prius ($12K)
- Buy a brand new Nissan Leaf ($29K) or Chevy Volt ($32K)
- Buy a bare bones Tesla 3 ($43K)
- Buy a Model X P100D with Ludicrous Mode ($155K)
Which one is best for the environment, your health, and your budget? There are at least 5 options on that list that are better for the environment than Ludicrous Mode. There are also 2-3 of them that are just as good for the environment and also provide similar basic automobile transportation at a fraction of the cost. Even if you don’t care about the health benefits of cycling, if you are trying to save the environment AND make a smart financial decision, you probably should not find yourself at the bottom of this list.
A Few Thoughts on Tesla Stock
I also use Tesla as an example of an individual stock. Personally, I think picking stocks is stupid. It adds uncompensated risk to your portfolio (any risk that can be diversified away has no expected additional return). It’s not particularly fun and when you consider how much that hobby costs, I don’t think it’s fun at all. Would you rather lose $10K a year in opportunity cost or take your kid heli-skiing for a week in Canada? Easy choice for me.
What do I mean the hobby costs a lot? Well, you can’t pick stocks well enough to beat a boring old index fund that just buys all of the stocks at a very low cost, especially when you consider fees/commissions, additional taxes, and most importantly, the value of your time. So the difference between what you would have earned in index funds and what you did earn picking stocks is the cost of that hobby.
Oh, you think you can beat the market? Then why are you only managing your own money? If you could reliably beat the market by 1% a year over the long run, you should be managing BILLIONS of dollars, not just your own $250K portfolio, and charging “2 and 20” to do so.
Tesla stock is not somehow an exception to the rule.
This is a chart of Tesla stock (dark blue) against a Total Stock Market Index ETF (light blue) over the last five years. Not only did the overall market outperform, but it did so with dramatically less volatility. Trying to pick stocks well enough to beat the market is a fool’s errand, even if “everyone knows this company is going to change the world” and even if the company outperformed the market in the past. I have no idea how TSLA will do in the next year or the next 10 years. Maybe it will beat the market. But you’d be stupid to bet a large chunk of your portfolio on that happening.
The Choice is Yours
Two roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood…
I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.
My climbing partner is on his second Tesla. Sometimes we take it to the crag. Sometimes he leaves it in my garage when we go on a climbing trip in my car. He commutes an hour to work 16 days a month, working 9-12 hour shifts at all hours of the night. He finally bought life and disability insurance about the same time that I canceled mine. Thanks to a nice physician income, he will probably have enough to have a nice retirement at traditional retirement age.
I work 8-day shifts a month at a hospital 16 minutes away by choice. I never work after 10 pm (and could make that 2 pm if I wanted.) I go on vacation every month. I could buy a Tesla every day this week with cash.
Although they do not lead to the same place, we’re both happy with the choices we’ve made. Now it’s your turn. Which path will you choose? Will you use that extra $100K you made between residency graduation and Christmas to pay off your loans, or will you use it to enjoy Ludicrous Mode and speculate on Tesla stock? Choices have consequences, like two ends of a stick. You can’t pick up one end without picking up the other.
But let’s be very clear about Teslas. Whether you buy it because it’s fun to drive, to impress your neighbors, to save the environment, or some combination of the above, you should only do so if you can afford to do it without borrowing money or impacting your important financial goals.
What do you think? How did Teslas become such an important status symbol among doctors? Which model do you drive and why? Do you think it’s okay to buy an expensive car and individual stocks in order to help save the environment? Comment below!