5 Reasons To Lease, Not Buy, Your Next Electric Car
Though leasing isn’t the best choice for every car buyer, it should be a serious consideration for those planning on investing in an electric car.
The above statement may seem a bit counterintuitive since we often talk about the fact that the U.S. federal EV rebate doesn’t necessarily benefit lessees. However, we’ll touch more on how that works later.
Just keep in mind that the rebate won’t be available forever and many people aren’t even able to qualify for it at tax time. Counting on as much as $7,500 many months after your car purchase – only to find out that you can’t partake – is not a situation anyone would enjoy dealing with.
According to Bloomberg New Energy Finance, a whopping 80 percent of new electric cars are leased. This excludes Tesla since lease data is unavailable and most people buy. Compare this number to only 30 percent for new car sales as a whole. So, why are people leasing EVs and why might it be a solid choice? Below are five reasons, in no particular order of importance.
Bank on manufacturer and dealer incentives
Automakers offer plenty of cheap lease deals and special incentives that change every month. Some include really low monthly payments and others feature a low down payment. Still, others offer special perks to returning lessees (lease loyalty) or competitor discounts (if you return your car and choose a new manufacturer. So, if you have the option to secure a new deal every few years, it may be advantageous.
Take advantage of upgrades
Sure, if you’re leasing a current ICE car and the new model gets standard Apple CarPlay, it’s nice to be able to move up to that model sooner. This is also true of electric cars, but in addition, upgrades to range, battery tech, efficiency, and charging technology can be a much more substantial benefit.
EVs are a fairly new technology and are constantly (and quickly) evolving. Rather than getting stuck in a car with a small range and lack of features, leasing allows you to move up to the automaker’s current offering more often.
Steer clear of depreciation
As soon as you drive any car off the dealer lot, you’re flushing money down the toilet. This is even more true for most electric cars. Data from reputable car review websites like Edmunds cites an average of over 50 percent depreciation in the first year of EV ownership.
Even though these cars depreciate quickly, dealers tend to “play with the numbers” so that leasing is less expensive. As a side note, since we’re talking about depreciation, buying a used EV is another stellar consideration. The huge depreciation means that you can get many used electric cars on the cheap.
First year models and new technology aren’t necessarily trouble-free
As far as we’re concerned, EVs cost significantly less to maintain, and encounter fewer problems than their ICE counterparts. However, for many automakers, this tech is brand new. Many of these cars haven’t been on the road long enough for us to have a clear picture of what the future may bring. There are also concerns about battery degradation (especially related to some brands over others), and the huge costs associated with battery replacement.
EV warranties are different from traditional ICE car warranties, mostly due to the battery. If you lease an EV for two or three years, you shouldn’t have to worry about any out-of-warranty issues.
The U.S. federal EV tax credit can be a lessee’s friend
Yes, we are well aware (as noted above) that the consumer can’t take advantage of the tax credit when leasing. This is also true of many state and local credits. However, there’s a catch.
When you buy an EV, the tax credit is not automatic, nor is it immediate. You have to qualify for the tax credit based on your individual financial situation and then wait until tax time to get it. It’s a sticky situation, and we don’t claim to be tax experts. So, you should have a long conversation with your tax advisor.
This means if you finance an EV (and they’re definitely considerably more expensive than gas-powered cars), you’ll be financing the full amount up front, which means a high monthly payment. Then, you wait as much as a year or more (depending on when you made the transaction) to get the potential credit on your taxes. Many people simply can’t fit a large payment in their budget.
Below is a napkin-math example:
Financing a $40,000 car over six years, even at zero-percent, approaches a whopping $700 per month. Obviously, this doesn’t account for taxes, upgrades, down payment, or your credit rating. These are all factors that can push the payment up or down to some degree. But still, with automakers advertising crazy lease prices (usually for ICE cars) of less than $200 per month, $700 seems nuts!
Though you don’t personally get most tax credits when you lease, the leasing company/lender benefits from the incentives. In many instances, this can positively impact the lease deal. It also gives you some extra bargaining power, since you’re well aware that they’ll be getting a nice kickback from your deal.
To top it off, you won’t have to worry about qualifying for the credit or waiting until tax time to benefit from it. Also, you won’t have to pay some $700 per month for six years on a car that has depreciated hugely and may sell for pennies on the used market.
What do you think?
What are your experiences with leasing or purchasing an EV? If you purchased, were you able to get the full credit? How did the tax incentive impact your lease deal? Which of the above reasons do you feel is most compelling?
Share your experiences in the comment section below or start a thread on our Forum so that we can all learn from one another’s insight and experiences.