On the fence between leasing or purchasing? (Slightly revised figures)
Everyone has their own opinions and this won’t apply to everyone. I used to be 100% against leasing until I did the math and realized the error of my ways several years ago. Haven’t “purchased” a car since. Since there was an earlier debate, figured I’d share my reasoning and calculations for anyone interested.
For me, the most important factor is: What does it cost me from the time I walk in to pick up the car and the time I turn it back in or trade it back into Tesla? A few other end of lease/purchase options after three years also noted below. The following is just an example. Everyone’s situation may result in variances of the final figures. Hope this helps.
Tesla probably has one of the worst lease programs of all manufacturers in that there are no special deals ever offered. Similarly priced cars from other manufacturers often have much lower payments than Tesla. Even with all of that, based on the calculations below, I believe it still makes sense to lease a Tesla in most scenarios. Most certainly in my personal scenario it does. I'm not one that keeps cars longer than 2-3 years. If you only buy a car once every 5 or 10 years, read below as a lease still may be the best option.
If you're one that almost always trades in their car rather than selling it private party, then this heavily applies to you. If you regularly sell your cars private party when you're done with them, purchasing may be the better option, or not.
OK, here’s the simple math for Purchase vs. Lease –
Based on a custom order of a new P100D – Black, standard wheels, glass roof, “leather” (whatever the material is now?) interior, EAP, no FSD. Nice round price of $140,000.
All lease and purchase figures pulled from Tesla's website.
Lease Payment (based on 12,000 miles per year) = $2,028 before tax. $2,211 per month (Includes 9% L.A. CA tax rate).
$2,170 X 35 payments = $77,385 + $9,424 due at signing (includes 1st payment, so only 35 payments to be made after) = $86,809
$86,809 total spent from the time you walk in and sign the lease, until the time you turn in the keys after 3 years.
Purchase Payment (72 month loan) = $1,920 per month = $69,120 after three years + $20,774 required down payment (including tax, delivery, license)
Total out of pocket after three years $89,894.
Loan balance after three years $68,066.
Let’s assume the car is worth 50% of what you paid for it (generous as Tesla’s old price guarantee does not pay 50% for options. They paid 50% only on the 75 kWh version’s base price, I think it’s 40-45% for anything above). But we’ll give purchasing the benefit of the doubt. That means your car is worth $70,000, assuming you put the same 36,000 miles on it. Either scenario is a 25 cent per mile reduction in value per Tesla. So that means you have $1,934 in equity after three years.
$89,894 less $1,934 you’ll get back from your equity = $87,960 is the amount the same Tesla cost you out of pocket on the day you trade it in.
Of course you can try to sell it for more. But this analysis assumes having the same no hassle luxury of not having to deal with selling the car after 3 years and turning it in or trading it in to Tesla.
$87,960 to buy it and trade it in to Tesla after three years.
$86,809 to lease it and give it back to Tesla after three years.
$1,151 cheaper to lease the car from the time you walk in the door until the day you drop off the keys. (Savings are higher if you live in a state with a sales tax rate less than 9%) If you drive more miles, 25 cent mileage penalty is the same for both lease and Tesla's guaranteed buy back program.
Based on pricing noted in my prior posts, my $130,000 car maybe could bring me $80,000 today, after only 2 years of ownership, if I sold it privately (Tesla just offered me $66,000 on a trade in). Another year from now? Being generous, maybe $75,000? (probably only $60,000 on a trade in) Which equals 57.6%. So on a $140,000 car, 57.6% is $80,640 if you sell it private party.
Assuming you can get $80,640 for it private party, then you come out $11,423 ahead having purchased the car instead of leasing it. But, you have the hassle of selling it yourself. And that’s hoping you get that price for it? With all the CPO's available, obviously quite a few people don't want to sell private party and just trade their cars in. I barely got that percentage for my 2 year old car on the private market and it was a pain in the rear having to sell it. Based on my trade in offer, if I bought the car instead of leased it, costs you another $15,000 more than the figures reflect, so your options only get worse on a purchase. And your $11,423 profit now becomes a $3,577 loss if you don't have the price guarantee from Tesla (Not sure if they even offer that anymore?).
But, as I’ve also previously noted, US Bank, who does most of Tesla’s leases, has always offered to let me buy my leased vehicles for well below the residual value. In the past, on other cars, it’s been around a 20% discount (sometimes even more). With an estimated residual value of around $75,000, that would mean a $15,000 reduction in price (could be more, could be less). But, if that’s the case, then you just purchased your Model S for $60,000 after 3 years. Add in $5,400 for sales tax plus the $86,809 it cost you for the first three years and the car cost costs $152,209 and you own it free and clear.
On a purchase, you’ve spent $89,894 out of pocket after three years. You owe $68,066. So to own it free and clear after three years and pay off your loan, your total is $157,960.
In this scenario, having started off with the lease, by the time you pay everything off and own the car free and clear, you’ve saved $5,751.
That means, for peace of mind, on a car where Technology changes monthly and based on recent events, prices can plummet instantly, leasing the car may be the best option. Even if you plan on keeping the car for years to come. Under a purchase, if you decide you want out after three years, the responsibility is all on you and you have to hope that another turn of events doesn’t reduce the value of your car and put you upside down on your loan balance. The lease gives you more options after three years, likely at less cost. Based on Tesla's trade in offer for my current car, I'd be upside down in my car by $8,000 and would have to pay that just to get out of the car, in addition to whatever the new car costs.
I didn’t mention the Federal & State rebates. State rebates are still given to those who lease, so there’s no difference. Not everyone will qualify for the federal credit or will qualify for a reduced amount. But everyone’s situation is different. For me personally, I get to deduct 100% of my lease payment. So even on a good year when I can get my tax rate down to 25% that’s a savings of around $530 per month or around $16,000 over 3 years, which far outweighs not getting the $7,500 tax credit (less for my scenario due to business use of the car, so my benefit is even greater). Check with your accountant to see where you stand based on your own tax structure. Also, on a lease, you only pay sales tax on the amount of the payments you make. On a purchase, you pay sales tax on the entire price of the car. In my state and city where sales tax is 9%, that calculates out to $6,230 paid in sales tax rather than $12,600. So I save $6,370 in sales tax. Making the loss of the $7,500 tax credit negligible. Plus, on a lease, the federal rebate is figured into the pricing, so that means you effectively get the credit either way, even those that wouldn't otherwise qualify for it on their tax returns. Again, everyone's situation in this will be different, which is why I left it out of the calculations. For me, I come out WAY ahead in the tax department on a lease versus a purchase. Those that live in states with no sales tax, will certainly have more incentive to purchase the car IF they qualify for the full $7,500 tax credit.
Other benefits of leasing:
1. Options, options, options: I believe you have more options available to you on a lease than on a purchase. On a purchase, again, if you sell your car private party and values have held up, then you may come out ahead. But, if US Bank holds true to form and offers to sell you the car at a discounted price, this likely balances out that difference. If you're one who trades in your cars, then you certainly have better options starting off with a lease. If Tesla doesn't offer a 50% price guarantee after three years for a purchased vehicle, based on the trade in numbers I noted, your losses grow even more having purchased the car to start, especially if you want out after three years.
2. How quickly the battery degrades is of no concern to you. If you want to charge at 100% every time, the adverse long term effects on the battery are of no concern to you. You don’t have to deal with it.
3. Do you really want to own the most technologically advanced car that has proven VERY costly to repair if something breaks outside of warranty, without a warranty? I know I don’t and wouldn’t. So add in another $5,000 for that peace of mind to buy the extended warranty.
4. Paying $2,000 a month for a new car is a lot of money. But at least it’s new. How will you feel when you’re still paying $2,000 a month on a 4 year old car that has no warranty? That’s one of the reasons why I lease. If I’m spending that much, might as well have something new. Leasing means, you still have the payment, but you’ll have a shiny new car every three years and feel like your money is going towards something fresh and new.
Yes, you could own it free and clear after 6 years, but then you own a devalued car that’s 6 years old and are responsible for all repair costs.
If you’re someone who only buys a car once every 10 years and can’t afford to pay off the car after three years, then a standard purchase and loan is your best option. If you pay cash for your cars, then the above doesn’t apply. Although, at 0.99% financing, doesn’t make a lot of sense to tie up $150,000 when Tesla is willing to loan you that money practically for free. $150,000 can certainly earn you more than 0.99% if put to work elsewhere.
If you’re ready to lease/purchase, be sure you have a referral code. Saves you $1,000 and gets you free supercharging for as long as you own the car. If you have a friend / family member that owns a Tesla, ask them for their referral code. If not, plenty can be found on the forums. Still seems silly to me that Tesla mandates a referral for new buyers to receive free supercharging! If you're not able to find one, mine can always be used as a last resort. http://ts.la/nicholas7346 . Just use the link from a friend, family or this one to start your order and the $1,000 discount is automatically applied along with registration for free lifetime supercharging.
Hopefully the above adds some useful information to consider. My conclusion is that, a lease offers you a guaranteed easy exit out of the car after three years, likely at a lower cost. If Tesla offers you a 50% price guaranteed buy back after three years, then you still have the luxury of a guaranteed easy exit from the car after three years. If that offer doesn't exist, then its a gamble on if you'll be able to sell the car for an amount high enough. On a private party sale, you may come out ahead. If you trade it in, you'll likely come out well behind having purchased the car instead of leased it. No matter which way you go, you'll certainly enjoy the heck out of the car!
Side note: Be sure to ask your Tesla representative for availability of new inventory vehicles. The Tesla website often doesn't show all that are available. But typically they have a long list of cars available and at discounted prices. Have recently seen the same $140,000 Tesla offered at greatly reduced lease prices. Remember seeing lease offers at between $1,500 to $1,600 for the same car that a custom order reflected a payment of over $2,000. The sale prices were only slightly less (within $10,000), but a lease at $500 per month less certainly adds another variable not reflected in this post that could reduce your cost over 36 months by as much as $18,000. Do your homework.