Used Car Sales Could Drive Profits for Tesla (TSLA)

Tesla Motors' (Nasdaq: TSLA) Model S sedan starts around $70,000, which is out of reach for many buyers. That's why the company is working on a certified pre-owned program.

Communications VP for the company, Simon Sproule, confirmed the effort to Automotive News on Monday. With the Model S fleet now heading toward the first cars hitting three years old ... we are looking at CPO and how best to structure, Sproule stated.

Last year, Tesla CEO Elon Musk moved to assure buyers of the electric vehicle from an unproven company by guaranteeing the resale value of the vehicle. Under certain conditions, those that financed a Model S will be able to turn the car back in for 43 to 50 percent of its stick value after three years.

That would give Tesla a stream of Model S returns starting in 2016, just about one year after the Model X utility vehicle launches and just about a year before the Model 3 should launch. That last part could be a caveat for Tesla: will potential buyers wait for a Model 3 or splurge on a used Model S?

Tesla will also be able to tap into a lucrative area of the auto market with the sales of used vehicles. The average used-car margin in 2013 was about 12 percent, or triple that of new vehicle sales.

Shares of Tesla are up 2.7 percent Monday.

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