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BEWARE of Tesla Lease for M3

BEWARE of Tesla Lease for M3

I've always said, Tesla is a tech company that sells cars. Tech declines in value. Hence, I would never buy one of these cars. I've leased my prior Tesla's and been very glad I did so. For those that keep cars for more than 5 years, leasing doesn't make sense. If you keep cars for 3 years or less like I do, do the math leasing almost always pencils out cheaper in the end. Even with Tesla's higher than average lease prices based on pricing of the car.

I always penciled in the option to purchase following the lease end.

However, just read Tesla is offering a lease for the Model 3, basically at more than the loan cost. $2,000 less down. Payment is about $50 less, BEFORE SALES TAX, so it's actually higher. And it says "YOU DO NOT HAVE TO OPTION TO PURCHASE AT THE END OF THE LEASE".

I certainly hope people read that fine print. Other than GM's EV back in the 1990's, which cost $1,000,000 per car to build, I've never heard of an auto lease where you couldn't buy the car at the end? Wow. The EV1 by GM was like $400 per month, so it was a bargain for a $1,000,000 car. Tesla wants to charge you the same as it costs you to buy it, then keep the car at the end. For people that give their cars back at the end, may not matter, but takes away the option of being able to sell the car if it's worth more than your buyout or simply if you decided you want to keep it.

Another off the wall move by Tesla. No clue how this is going to go over with customers. Again, time will tell.

Posting this just to make sure people read the fine print.

While I would lease any other Tesla, absolutely wouldn't enter this kind of lease for a Model 3.

cravenrx | 11 aprile 2019

I’m trying to decide if leasing is a good deal or not. It worked out for me on my last Audi. I got hit by people not paying attention while driving twice during the last year of the lease so the car would have been worth wayyy less than what the residual was. It’s a gamble either way but the not having the option to purchase is odd.

cravenrx | 11 aprile 2019

I’m trying to decide if leasing is a good deal or not. It worked out for me on my last Audi. I got hit by people not paying attention while driving twice during the last year of the lease so the car would have been worth wayyy less than what the residual was. It’s a gamble either way but the not having the option to purchase is odd.

jjgunn | 11 aprile 2019

I drive WAY too many miles. I could never lease any vehicle.

Carl Thompson | 12 aprile 2019

I was just about to post a similar thread: the Model 3 lease is a _terrible_ deal.

Take the example of the cheapest Model 3 at $39,500.

Total cost of the car: $39,500 - $3,750 (tax credit)
= $35,750

What Tesla wants you to pay for the lease: $504 (payment) * 36 months + $4,199 due at signing
= $22,343

So by leasing you are paying all but $13,407 of the total retail price of the car for only 3 years of use and up to 30k miles.

Put another way how would you like to buy a 3 year old Tesla with under 30k miles for only $13k? You'd love it! And that's the deal you're giving Tesla if you take this lease.

Carl Thompson | 12 aprile 2019

So what I'm saying is:

Very low residual value + no option to buy at end of lease = you are a sucker.

lilbean | 12 aprile 2019

Rentals usually cost more.

gmr6415 | 12 aprile 2019

What about property taxes on top of the lease? I have no idea what other states do, but when we were in VA if you leased a car you were also responsible to pay the property taxes on the car while you leased it.

How is that handled in other states?

Shock | 12 aprile 2019

IMO the reason they are not allowing purchase out of the car is because it lets them charge a sky-high lease price without showing all their math. Lease rates are based on (and residual below is always a manufacturer set figure but decreases as more monthly miles are put on):

(Purchase price - residual)/months of lease

Then throw a few bucks more on per month courtesy of the money factor (lease version of an interest rate). This simple math also shows that residual on the SR+ is around 45%.

This very low residual is why the payments are so outrageously high per month on a $40k car.

Bighorn | 12 aprile 2019

Here's why
https://cleantechnica.com/2019/04/12/tesla-will-use-model-3-lease-return...
$500/month is outrageously high? I haven't paid that little in decades. Oh, it's Shock--notoriously inaccurate and not an owner.

M3BlueGeorgia | 12 aprile 2019

IMHO, unless you have specific tax reasons to lease, buying is generally better. But Tesla's lease deal is quite good compared to a long term loan, provided you can live within the mileage.

Ex: US$39,500 base vehicle, plus $1,200 delivery plus (say) $200 for tag & title plus (say) 7% sales tax: $2,765
Total: $43,665.
With 15% down-payment ($6,550) and borrowing for 72 months at 3%, that's a $564 monthly payment.

This compares to their lease deal with a $6,700 upfront and 10,000 miles per year for $504 plus 7% tax for $539 monthly.

S

Maxxer | 12 aprile 2019

Leasing is really a good deal

for Tesla

Mike83 | 12 aprile 2019

Leasing for businesses and people who want a new car every year or two is a good option. Every situation varies.
Its a bad deal for some and a great deal for others. Believing that everyone is the same is kind of childish.

creativeguy | 12 aprile 2019

How is it going to go? Just like leasing any other car. It doesn't make much sense to lease a car and buy it at the end anyway so Tesla will actually save people from making a financial mistake.

Rt002k | 12 aprile 2019

Every time I've evaluated a lease vs buy, it's always penciled out as better to buy, unless you know 100% you are not keeping the car in the end.

Bighorn | 12 aprile 2019

Buying makes sense if you're confident you can sell the car for fair market value when the time comes or plan to keep them for their natural life. I fall in the latter camp.

Mike UpNorth | 12 aprile 2019

BEWARE......of annoying OP

jordanrichard | 12 aprile 2019

OP, there is no fine print. It is clearly stated in their announcement. You make it out like they are slipping this caveat in at the bottom of the screen is font size 2.

I find it hilarious that people spout off on how it makes now sense to pay rent on an apartment, that you are better off buying a house. Yet they rent their cars and that is what you are doing, renting the car. Either you own something or you are renting something. Technically those who finance a car, don't own it until the note is paid off, but what that owner can do that a renter can't do, is sell/trade in the car anytime they want. They are also not under pressure to find another car because their rental agreement is coming to an end.

2015P90DI | 12 aprile 2019

@jordanrichard, we have no idea where the "print" (fine or not" is in the actual lease. Not everyone reads Tesla's blog or forums. All that matters is making sure they realize it when actually signing the lease. Until they produce a copy of the lease agreement, nobody knows if it's in fine print or not.

Shock | 12 aprile 2019

"How is it going to go? Just like leasing any other car. It doesn't make much sense to lease a car and buy it at the end anyway so Tesla will actually save people from making a financial mistake."

Wow. So they are doing to this to help people.

lbowroom | 12 aprile 2019

A lease protects you from a potential financial loss if the value of the vehicle plummets. This protection is paid for by a higher rate. I leased a FIAT 500e because of the lease structure. $32,000 MSRP, $19,000 residual after 3 years. Actual value after 3 years around $8,000. If I bought it, I'd be screwed.

Tesla's lease isn't as favorable but in a worst case sceneario (Tesla goes bankrupt and disappears), people leasing will be saved a financial loss.

Carl Thompson | 12 aprile 2019

@M3BlueGeorgia:
"Tesla's lease deal is quite good compared to a long term loan ..."

The numbers you provide suggest the opposite.

Carl Thompson | 12 aprile 2019

@lbowroom:
"A lease protects you from a potential financial loss if the value of the vehicle plummets."

It's hard to believe the value of a Tesla at 3 years old and under 30k miles would plummet to the $13k level the residual value in Tesla's lease deal suggests (for the base $39,500 version). And with no option to buy at that residual value it's a sucker's deal.

andy.connor.e | 12 aprile 2019

Buying also makes sense if you're going to keep the car. If you're going to get rid of the car every 3 years, i dont see why you wouldnt lease unless it was a mileage-per-year issue.

lbowroom | 12 aprile 2019

hard to believe, sure. Improbable, sure. Impossible, no.

So when I call it worst case.....

kcheng | 12 aprile 2019

"Carl Thompson | April 12, 2019
I was just about to post a similar thread: the Model 3 lease is a _terrible_ deal.
...
So by leasing you are paying all but $13,407 of the total retail price of the car for only 3 years of use and up to 30k miles."

You're doing the math wrong. You can't apply the full payment to the car's depreciation. A large portion of it is the finance charge.

kcheng | 12 aprile 2019

Let's just run some round numbers to get a ballpark on the money factor and residual value. If Tesla wants $504/m and $4200 down, extrapolate that $4200 over 36 pmts and you get around $620 a month.

Using a round figure of $40k for sale price, and a residual value %age of 55% and an interest rate of 4%, for a money factor of 0.00167; you get a RV of $22k. Run the numbers, depreciation is $500 a month. The finance charge would be $103 a month. Total, $603 a month, pretty close to $620, so I'm going to guess the RV is either just a hair under 55% of MSRP, or the lease interest rate is a little higher than 4%.

Of course, Tesla keeps the tax credit. Typically, they try to pass that thru to you but it doesn't appear to be the case here.
Those are in the ballpark of what one would expect for a non-subvented lease.

Bighorn | 12 aprile 2019

@kcheng
Details;)

patrick40363 | 12 aprile 2019

Their lease programs have always been bad. No change now.

M3BlueGeorgia | 12 aprile 2019

@Carl Thompson

You said my conclusion was wrong, but failed to identify the reason for that, despite that I provided a very detailed analysis.

BTW: I don't lease cars. But have run the numbers and in the short-term and with a careful driver without too much mileage, leasing can sometimes be advantageous. Its not for me because we do lots of miles (17K already in 9 months).

This ignores the frequent lease case where the manufacturer hides a substantial discount off MSRP in the lease rate. One dramatic example was given above by @lbowroom for the Fiat 500e, and we've seen that in the past for Nissan Leafs, where the implied vehicle price (from extrapolating the monthly lease) was as much as half that of the ridiculous MSRP.

Carl Thompson | 12 aprile 2019

@kcheng:
"You're doing the math wrong. You can't apply the full payment to the car's depreciation. A large portion of it is the finance charge."

Purchasing (for most people) has finance charges too. For both leasing and purchasing the finance charge is variable depending on the circumstance. I chose to ignore finance charges for both.

But it doesn't matter. Whether or not a significant portion of the lease payment is going to finance charges you _could_ instead buy the car, make the same payments, and have only $13k left due on the car. That's my point. Even if you're going to get rid of the car at that point it makes much more sense to buy if you think the car will be worth more than $13k at that point.

Carl Thompson | 12 aprile 2019

@M3BlueGeorgia:
"This ignores the frequent lease case where the manufacturer hides a substantial discount off MSRP in the lease rate."

For sure this is often done. But I've never heard of Tesla doing it! And we're talking about Tesla leases...

walden324 | 12 aprile 2019

@Carl Thompson
Thanks for the info...I have decided not to lease based on your logical explanation. RV of 13K after 3 years is ridiculous. IM OUT!

GraceGibson164 | 13 aprile 2019

Some might argue the Model 3 is not a luxury vehicle, but with its brand image and current average transaction price, Hall said: “there is no doubt in my mind that they are in the luxury category.” https://www.walgreenslistens.us/

noleaf4me | 13 aprile 2019

It all depends - as others have said if you like to churn cars -- i.e a new one every 3 years -- then leasing is normally the way to go. If you keep your cars longer then buy.

However there are exceptions especially if you believe the residual may be off at the end of the lease. I leased a 2013 Leaf for next to nothing -- the residual was supposed to be near $20k -- yet at the end of the lease I was able to buy it all in for just over $10k. We still have the car and it has been great for my teenage kids getting around town. I could still likely get $7k plus for the car if I sold it tomorrow.

Not having the option to buy the car at the end is a deal breaker for me.....

joe.lynn.atp | 13 aprile 2019

“I chose to ignore the finance charge”

Sure, because that makes your story more sensational. If Tesla has an option to pay the entire lease charge up front, you could do that. But when you are paying for the use of a car over time, there are finance charges involved.... you will see an APR quoted in the fine print of any manufacturer’s lease.

gballant4570 | 13 aprile 2019

I figured out 40 years ago that leasing a car is not a wise use of your money. I also figured out about the same time that financing a car is not a wise use of your money. Far better to give that money to yourself, until you have enough accumulated to buy the car.

I would advise against either leasing or financing, but many people simply budget a car payment into every month of their lives. So if you want to make payments, who do you give the extra money to? A bank, or The Mission?

Hal Fisher | 13 aprile 2019

Tesla’s stance on anything is like the weather in the summer on the tropics, wait a minute and it will change haha! I’d bet this will change before the leases run out.

Hal Fisher | 13 aprile 2019

gballant wake up, it’s not 40 years ago when rates were at 19%. It’s always better to borrow now!

Bighorn | 13 aprile 2019

@walden
You've been led astray if you believe the RV is $13k. Fake math on Carl's part if you didn't read the whole thread. Pity the fool. You need smarter friends.

Bighorn | 13 aprile 2019

Realish numbers:
I used a base price of 39,500 with a $4000 downpayment and 3.9% financing rate and came up with a monthly payment of $502. The residual was $20,700 or better than 52% after 36 months. Taxes and tax credit not taken into account. Tax credit will be $1875 shortly, through the end of the year. Whether that is rightly the car's owner's or is passed along to the lessee is debatable.
https://www.bankrate.com/calculators/auto/auto-lease-calculator.aspx

Carl Thompson | 13 aprile 2019

@walden324:
"Thanks for the info...I have decided not to lease based on your logical explanation. RV of 13K after 3 years is ridiculous. IM OUT!"

As @kcheng and @Bighorn say the RV probably isn't really $13k. The money factor could just be really, really high.

Either way if you can buy the car it doesn't matter as I said. If you make those same payments toward the car for a _purchase_ at the end you'd only owe $13.4k. Even if you need to finance the car through a bank and pay an APR on the loan it would almost certainly work out much better for you to buy the car and sell it after 3 years than to use this lease.

This is a _bad_ lease deal.

Carl Thompson | 13 aprile 2019

@joe.lynn.atp:
"But when you are paying for the use of a car over time, there are finance charges involved.... you will see an APR quoted in the fine print of any manufacturer’s lease."

I was comparing leasing to financing. For most people, both require financing and finance charges. But those charges are tailored to the individual and the situation so I chose to compare without them. If you think that makes the comparison invalid well you're probably right.

Nevertheless, to me, this looks like a bad lease deal. It's expensive and there's no option to buy the car at the end if it turns out the car is worth more than the residual.

If you think despite those things it's a good lease deal then we disagree.

Carl Thompson | 13 aprile 2019

Actually I see @kcheng and @Bighorns point more clearly now. The lease deal already has the finance charges baked in but I was comparing to a purchase without finance charges.

My mistake; they are correct.

Nevertheless, it's still a bad lease deal. It's expensive and there's no option to buy the car at the end if it turns out the car is worth more than the residual.

Magic 8 Ball | 13 aprile 2019

Will the doublespeak and back petalling (getting the spelink degree soon) ever stop?

geedub1023 | 13 aprile 2019

IMO...Beware of a lease for ______ (fill in the blank with Tesla, Ford, BMW, etc., etc.). I know too many friends and family who have leased and then saying "I'll never do that again" due to being limited in miles (to the extent of getting paranoid about driving it when they need to), and the horror stories about turning the vehicle in only to get "nickle and dimed" for every little ding/scratch, etc. Lease at your own risk once again, IMO.

Carl Thompson | 13 aprile 2019

@Magic 8 Ball

I don't most people would consider admitting when you made a mistake "doublespeak and back petalling[sic]."

You should try it some day.

Magic 8 Ball | 13 aprile 2019

@Carl I don't need to, I stay true on course and don't speak out of both sides of my mouth.

Carl Thompson | 13 aprile 2019

@Magic 8 Ball:
"I stay true on course and don't speak out of both sides of my mouth."

LOL! In other words, you're never wrong. Good to know.

Magic 8 Ball | 13 aprile 2019

A "bad deal" is a matter of opinion. You had a course.

Rt002k | 13 aprile 2019

Oh great now we chastise someone for admitting they were wrong, after spending the entire thread for chastising them for being wrong? What's the point of the debate then if you will not allow him to be convinced and admit an error?

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