OT-Cash or Lease an EV car?

[PeregrineA1]

We are looking at a replacement for our Prius, which has been moved on to the recent college graduate.

We have always been cash for cars.

Some recent discussions have led to a train of thought that the technology is moving fast enough that leasing may make sense.

The Prius had 40K miles in 7 years so excess mileage fees would not be an issue.

Thoughts?

[Shortsocks]

Pm me. We have 3 Ev's in our household.
Over the past 4 years, currently 3, got another one on Monday.

[NHAero]

The company I work for installs solar electric systems as one of our businesses, so we've been interested in EVs. We just leased an eGolf, thinking that the battery tech is evolving rapidly. A co-worker got a great lease deal on a 2014 BMW i3, too.

[velomonkey]

Couldn't tell you, however, yesterday I test drove a Tesla P85D or something to that effect.

Buddied up with sales guy. He put into the fastest mode and let me go 0 to 60 a total of 3 times.

Don't ever, ever, ever try to race one of those cars. I wad literally giddy. The torque and the lack of gears is incredible.

[Ralph]

In the past, I always payed cash for my cars. Took pride in doing that. Took even more pride in being able to do that.

But recently have decided it's not so smart. Calculate the return I'm missing, return I could make elsewhere with money (opportunity cost) plus depreciation of vehicle.....and that "paid cash for it car", especially if you trade often......becomes a very expensive car. Better and cheaper to lease, or at least make payments and pay for it as you use it up.

Now on the other hand.....if you're not in a position to pay cash (don't have the cash working), and therefore don't have an opportunity cost.....then leasing is more expensive than making payments over time.

I think, for a lot of folks who don't have much money, leasing is a (very expensive) way to drive a vehicle they really can't afford to own.

[ofcounsel]

For me, it made complete sense to park my gas powered car and lease an EV.

I leased a VW Golf EV. I paid $2500 down and $229 + tax per month, for 36 months (15k miles per year). My all-in cost is almost $290 per month with tax and insurance.

I received a $2500 rebate back from the State of California.
I save about $260 a month in fuel costs when I park my gas car and drive the electric car.
I get 18kW hours worth of free electricity to charge my car with each day at work (this gives me enough electricity for my round trip to and from work)
I switched my home electric service from a tiered rate billing method to a special EV only "time of use" electric rate offered by my electric utility. The Time of Use rates save me anywhere from $75 to $200 per month, depending upon how much electricity I use at home.

So, by leasing the car, I can literally drive the Golf for free, and it puts a little extra money in my pocket each month. :D

[jlyon]

Looking back a these cars that are now a few years old the resale % is very bad.

Makes leasing the only way to go IMO.

Or you could risk buying one of these used ones for pretty cheap. (Excludes Lexus and Tesla models)

[zap]

New EV lease.......or purchase a slightly used Nissan Leaf for around US$12K

[fogrider]

I'm seeing some pretty good lease deals...for 500e and egolf. the egolf looks like a normal car with the same functional space as the other golfs for 229 a month and 2,350 down. and you get the 2,500 california rebate to use towards the down payment. right now I'm spending more about 200 a month on gas on my car.

[Brian Smith]

The manufacturers seem to be offering some attractive lease options on EVs (with exceptions) possibly as part of a need to reach down to meet buyers on these models. The state tax implications, assuming value is the only decision factor between leasing and purchasing, may shift favor toward one option or the other. Your post doesn't indicate your state. The choice of a lease agreement precludes your collection of available income tax benefits just a few months away. The advancement of the technology as a decision factor is a bit of a red herring, imo, but makes for good conversation. The additional models to become available by the end of any current financial agreement entered today for an EV is possibly significant. Whether you want to eventually own it, and how you get there may also be influential. If the product fits your needs, the financial agreement probably won't be the determining factor in the decision, as the differences among them seem generally designed to not be so.

[Steve in SLO]

I leased a Fiat 500e and felt as though that was the best way to go, given the speed at which technology is moving. Resale of my car will likely be not much at the end of the three-year lease, so if I choose to buy the car at the end of the lease, I might be able to negotiate an attractive buyout amount. On the other hand, I might lease or buy a new or EV at that time that has a longer range.
Like ofcounsel, I end up with money in my pocket... what a concept for car use.

[Mark McM]

So, the question here is about the depreciation and resale value of EVs in a few years. But these issues will exist whether a car is bought out-right or leased - the only difference is who has to face the potential costs, the car buyer, or the car leasing company. Since the expected depreciation/resale value is built into the pricing of a lease, won't the leasing company have built those costs into the lease?

It seems to me the real question is about how rebates and tax incentives are distributed. Since the leasing company buys the car the from manufacturer, aren't they the ones who are eligible for the rebates/incentives? If so, they can lower the lease price to make it look like a good deal, while still making a good profit.

Before jumping it a lease, one should examine how all the numbers roll out between buying and leasing - including all the costs, and the rebates/incentives. Keep in mind that leasing companies aren't in business to lose money, so their operating costs generally add to total costs to the end user. When you add it all up, for a private individual it almost always cheaper in the long run to buy rather than lease a vehicle.

[fogrider]

You hit the nail on the head, in california, I know someone that just leased a 500e and he got the state rebate but not the federal.

So, the question here is about the depreciation and resale value of EVs in a few years. But these issues will exist whether a car is bought out-right or leased - the only difference is who has to face the potential costs, the car buyer, or the car leasing company. Since the expected depreciation/resale value is built into the pricing of a lease, won't the leasing company have built those costs into the lease?

It seems to me the real question is about how rebates and tax incentives are distributed. Since the leasing company buys the car the from manufacturer, aren't they the ones who are eligible for the rebates/incentives? If so, they can lower the lease price to make it look like a good deal, while still making a good profit.

Before jumping it a lease, one should examine how all the numbers roll out between buying and leasing - including all the costs, and the rebates/incentives. Keep in mind that leasing companies aren't in business to lose money, so their operating costs generally add to total costs to the end user. When you add it all up, for a private individual it almost always cheaper in the long run to buy rather than lease a vehicle.

[ofcounsel]

So, the question here is about the depreciation and resale value of EVs in a few years. But these issues will exist whether a car is bought out-right or leased - the only difference is who has to face the potential costs, the car buyer, or the car leasing company. Since the expected depreciation/resale value is built into the pricing of a lease, won't the leasing company have built those costs into the lease?

It seems to me the real question is about how rebates and tax incentives are distributed. Since the leasing company buys the car the from manufacturer, aren't they the ones who are eligible for the rebates/incentives? If so, they can lower the lease price to make it look like a good deal, while still making a good profit.

Before jumping it a lease, one should examine how all the numbers roll out between buying and leasing - including all the costs, and the rebates/incentives. Keep in mind that leasing companies aren't in business to lose money, so their operating costs generally add to total costs to the end user. When you add it all up, for a private individual it almost always cheaper in the long run to buy rather than lease a vehicle.

In California, the leasing company gets the federal incentive ($7500) and the Lessee gets state incentive ($2500). The Leasing company uses the $7500 to help reduce the cost of the lease. That's why you see all the great leasing terms on EV's that have MSRPs ranging from the low to high $30k price points.

In terms of leasing the EVs, there aren't any "hidden" numbers. For me, a private individual, it was much cheaper to lease than buy. But then, as always, YMMV.

My eGolf's residual after 3 years is around $13,100, if I recall correctly. It may or may not be worth that in 3 years. I may or may not purchase it....I'll examine the deal then. Since it really costs me --nothing-- to drive it right now, so it doesn't really concern me much. I may buy it or I may not, as it's a 4th car for me. My other vehicles are a 2009 Ford F-150, a 2013 BMW 328i M Sport and a 2001 M3 convertible. I use the EV strictly for my daily commute. I don't use it for anything else, really.

A very big driver in my decision making will be whether California keeps on letting EV's to use the carpool lanes. That was the biggest factor in me giving up driving my BMWs. I save almost an hour in commuting time each day. That's pretty huge. If that goes away, then I'll likely just give up on EVs and go back to driving the 3 series or M3, as I enjoy driving them much more.

[PeregrineA1]

We are in CA.

Leaning toward leasing, but as stated above, will be looking closely at how it pencils out.

My only other leasing experience was expensive, but that is because I drive a lot. Then there is my former business partner that is owned by Mercedes Benz of North America leasing.....all to support his "image".

[1centaur]

When I was a young analyst I modeled out leasing vs. cash buying vs. financing, extensively.

On a purely financial basis, unless you earn an after-tax return on your money greater than the interest cost built into the lease, then cash buying is cheaper than leasing and leasing tends to be better than financing. That assumes that the residual value is the same under all three scenarios.

But sometimes car companies are more willing to assume a high residual than to give a bigger upfront discount because they want to move the iron and they are willing to face the consequences later (maybe hoping to beat up the customer on wear and tear). An artificially high residual can move the comparison in favor of a lease. A lease is also a way to avoid getting stuck with a lemon.

For an EV, the key question is whether the residual is mispriced, if the only question is dollars and sense and the buyer has the cash to do what he wants. But there may be some psychic income in not thinking about the risk of a very low residual due to technological change over the course of the lease.

[shovelhd]

How do low interest rates like the 0.9% I have now factor into your conclusion?

[ofcounsel]

When I was a young analyst I modeled out leasing vs. cash buying vs. financing, extensively.

On a purely financial basis, unless you earn an after-tax return on your money greater than the interest cost built into the lease, then cash buying is cheaper than leasing and leasing tends to be better than financing. That assumes that the residual value is the same under all three scenarios.

But sometimes car companies are more willing to assume a high residual than to give a bigger upfront discount because they want to move the iron and they are willing to face the consequences later (maybe hoping to beat up the customer on wear and tear). An artificially high residual can move the comparison in favor of a lease. A lease is also a way to avoid getting stuck with a lemon.

For an EV, the key question is whether the residual is mispriced, if the only question is dollars and sense and the buyer has the cash to do what he wants. But there may be some psychic income in not thinking about the risk of a very low residual due to technological change over the course of the lease.

Lol. I think you're over-thinking it in the case of current EV lease deals.

[carpediemracing]

How do low interest rates like the 0.9% I have now factor into your conclusion?

Not sure if you're talking financing vs leasing, but lease "interest" is about 1% right now, from what I'm seeing.

[carpediemracing]

I was looking at an eGolf. I told the Missus the long term plan would be solar panels (means we have to move since we can't put solar panels up on this house) and at least one EV car. Her commute is 3 miles each way so an EV would be interesting. Mine is 18 miles? and I'd consider an EV for that. However I think her commute has a high chance of staying the same, my commute has a super high chance of changing.

With the new eGolf priced at $30k MSRP (no nav, lesser steering wheel, halogen lights, cloth seats, lower rated charger thing, no heat pump), and, in CT anyway, $7500 + $3000 rebates, that's a pretty attractive "buy it" price, especially considering we have a paid off and reasonably recent Golf TDI. Even the 2015, loaded with nav, LED, leather/ette, high charger, heat pump, is $35k MSRP.

As I qualify as an employee of the VW dealer I get a killer deal if I get a car there, so the eGolf would cost substantially less, relatively speaking.

Of course then there's the Touareg TDI, which is what I want, to replace the Expedition tow vehicle and maybe the JettaSW TDI. But that's a different story altogether.

[carpediemracing]

Finally remember that if you lease a vehicle it's not yours.

So, for example, if you get in an accident and total your car, even if it's not your fault, you get no money for the car and you have no car.

This means that if you're looking for low payments by putting a lot down, you're exposed that down payment because it doesn't get refunded or anything if the car gets totaled. Ideally you put as little money down as possible, at least from a risk point of view, so if the car goes away you lose a small down payment plus whatever monthly payments you made.

Not taking into account any gap between book value and insured value.

[1centaur]

How do low interest rates like the 0.9% I have now factor into your conclusion?

It makes it easier to beat the lease rate :) Market geniuses are always better off leasing than buying so they can make 20% on the money they would have put into the vehicle.

Though a seller can trade off the lease rate vs. the car price in some cases.

[shovelhd]

I guess that means I'm no market genius. However I just learned that I'm a 1%er because I own Dura-Ace Di2.

[Ryun]

Ive only been the auto business for 20 years so take this for what it is worth. Or better yet it is probably worth what you paid for it

With very few exceptions, the closer you get to the bleeding edge of tech whether it is a high performance sports cars or alternative powertrains leasing makes more sense. It tends to be less about cost of borrowing funds versus what you could do in the market with those funds but you are in fact hedging yourself against rapid depreciation. The ALG has a bunch of fancy models to predict vehicle values 3-4 years in the future. All based on very sound science. Then the yahoos at the manufacturer adjust this residual to help move cars and make attractive payment option. The thought being spending their money to inflate the residual rather than rebates or direct consumer cash the resale values are protected. All that to say most residuals are fairly ambitious and across brands it is rare to see a lease end buy out that has equity.
As long as you have a sense of what money factor you are paying should be able to secure comparably low cost of funds in your lease.

So the downside to the lease for a number of folks looking at hybrids is that they tend to be high mileage drivers. That's a tough way to lease things, much over 15k and lease models fall apart.

I don't have a ton of data on the last two model years but I am continually trading in hybrids and most of them over 5 years have battery issues. Typically this requires a new/expensive set of batteries. The others end up in the land fill.

With the pace that battery tech is moving, I just cant see hanging onto current tech more than 3yrs.

[dgauthier]

Thoughts?

You are correct to pay cash. Ignore all the fancy formulas -- it's simply a matter of dollars per mile. Buy a car you like for cash and drive it until the wheels fall off.

I drive a '97 Explorer and the wife drives a '98 C280. We recently put about $2500 of repairs into each vehicle, neither of which are worth that much. I wondered whether it's time to buy new cars, and started doing some figuring: "Hey honey, guess how much money we saved driving our cars around for 18 years vs. leasing two similar vehicles? $175,000!"*

Leasing is horribly expensive over time. That's why it's promoted so heavily.

Dollars per mile. Buy for cash. Drive it forever. And if you're considering a car you can't drive forever, maybe you're considering the wrong car.

*: approx. ($550/month + $450/month) * 216 months + drive off charges of $3000 X 2 cars X 6 three year leases over 18 years = $252,000, compared to $77,000 total payments for both vehicles.