Leasing pros and cons

I haven't leased but have thought long and hard about it. The key seems to be that a lease will strongly pressure one to keep the mileage low, as in 10,000, or 12,500 miles per year. If that's all you drive, it may work out well, but it sounds like you are closer to 20,000 per year, as do I. Or if you are looking for incentives not to drive the car more than necessary, ok. On balance, I concluded that paying the loan is not that different from paying the lease, and gives me the right to drive whenever the need or fancy arises. I didn't even go for Tesla financing that would have given me a guaranteed buy-back deal, in part because I have better financing and in part because that also requires keeping the mileage low or selling early.

Leases may make sense for short ownership periods, typically 2-3 years. However, they are mileage restricted with a per mile fee above your allowance (you can buy an allowance of 10k, 12k, or 15k miles per year). With you high mileage use, leasing is probably not a good idea for you.

Personally, I keep my cars 8-11 years, so buying is best for me. Hopefully others can give their leasing thoughts as well.

Keeping a car that is tech heavy for 8-11 years is going to take a lot of patience dealing with such outdated technology. I don't know about you, but using a smartphone from 8-11 years ago is out of the question.

for me, not only are the tax incentives for small biz owners great- but leasing gives me the decision to keep the car after 3 years or trade up to a new one every 3 years with fresh technology and features, and of course a fresh battery with the bonus of the new car smell. I look at the Model S like I do like a monthly internet, phone, and DirecTV fee- it's a monthly service fee with the added bonus of eliminating my gas bill- and I'll gladly pay that fee to use the car and not own a piece of expensive depreciating technology.

I look favorably at leasing, specifically because of how tech-heavy the car is. In 3 years, they will have new hardware. I'm almost sure I'd want to upgrade. Even with the mileage restrictions, you can drive an extra 10,000 miles/year for $2500. I think I'd rather hit the end of a lease than wonder how well the tech holds up for resale.

krisg81 said:

Keeping a car that is tech heavy for 8-11 years is going to take a lot of patience dealing with such outdated technology. I don't know about you, but using a smartphone from 8-11 years ago is out of the question.

for me, not only are the tax incentives for small biz owners great- but leasing gives me the decision to keep the car after 3 years or trade up to a new one every 3 years with fresh technology and features, and of course a fresh battery with the bonus of the new car smell. I look at the Model S like I do like a monthly internet, phone, and DirecTV fee- it's a monthly service fee with the added bonus of eliminating my gas bill- and I'll gladly pay that fee to use the car and not own a piece of expensive depreciating technology.

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True but an 8 year old Model S is likely going to be still technologically superior to a Mercedes S class They are still wasting time with BS hybrids. It's like it is anathema for them to create a car without sticking a gasoline engine in there.

If anyone has done the math, how do the lease terms compare to the guaranteed buyback terms. Specifically where there is no business benefit to the lease.

IbePatience said:

Has or is anyone leasing their Model S? I have never leased a vehicle and I've heard more bad than good about leases but I thought I'd ask. I do not keep my vehicles long, I seem to get bored quickly I have had my Sonata for almost 4 years and I have about 75,000 miles on it. I do take excellent care of my vehicle though. Any advice or experiences? I think I'm having trouble swallowing the large purchase price and trying to find a way to justify it.

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Based on your mileage on the Hyundai, you'll need to do 15,000 per year on a Tesla. Something tells me you'll want to drive it a LOT (it is a great car) and that would be your main limitation. It makes good sense financially to lease the car, but leasing isn't for everyone. People often like to have something to show for their investment, or the mileage limits, etc.... but if you're able to comfortably afford the car, go for it! Remember, insurance costs go up too with a car of this cost.

Another VERY important benefit of the lease is that some people will not be able to utilize the $7500 tax credit-- with the lease, this doesn't matter. No matter who you are, that $7500 is factored into the monthly payment. So for that group, leasing makes great sense.

brkaus said:

If anyone has done the math, how do the lease terms compare to the guaranteed buyback terms. Specifically where there is no business benefit to the lease.

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Funny you should ask this, as I was discussing this very exact matte with someone earlier today. We configured a car for around $93k that had a $1,100/mo lease payment. There was a $6800 down payment for the lease, and a $9,300 down payment for a loan. The payment for the loan was $1275'ish for 72 months. Here in my county of Ohio sales tax is 8%-- assuming you decided to pay that tax up front, that is $3,168 tax for the lease, versus $7440 tax for the loan. You'll owe tax on the lease down payments, so another $544.

Effectively then the lease is $10,512 down if you decided NOT to pay tax monthly.
Effectively then the loan is $16,740 down if you decided to pay all tax up front there too (again doing this just for apples to apples comparison)

The difference there is $6,228 approximately... buying gives you a tax credit of $7500, so you'll be $1272 ahead of the game. But since your payment will be $175 more for the loan, if you look 36-months into the lease you'll be actually $5,000 worse off. Now this was based on 10,000 miles per year... let's assume it would be around $50/mo if you went up to 15k/year. Even then, you're still $3,000 better off leasing at the 3-year mark. Of course, if the car is worth more than you owe (on the loan), then you could stand to profit. But is that a risk you want to take?

With the loan you get the safety net at 3 years of course.... but you're paying more per month and typically more up front (10% of any car tends to be more than $5000 + acquisition + 1st month). But you get the tax benefit, which almost entirely offsets that. IMO leasing makes great sense if the mileage limits aren't a problem. Personally, I also love the idea of knowing 3-years later you can easily swap out for a different car, should yu want to. That being said, we're leasing my wife's Tesla, but I did a loan on mine. Because $0 down...

Thanks for the numbers arijaycomet, I was just about to sit down and run numbers on Lease versus Purchase myself.
It might come out pretty even if you can get a loan with a 1-1.5% interest rate. I am assuming your loan numbers above are with the 3.0% rate Tesla shows in Design Studio.
Although, you would not have the resale value guarantee option.

On cheaper cars with the $7500 credit, leasing is a sweet deal! I leased a Smart ED for $150 a month.

Yup, $150 a month. The car is a blast. My TDI sportwagen sits in the garage attached to a battery tender.

There are other reasons, but for instance, a retiree may not have $7,500 of tax due. It is a non-refundable credit, which means you do not get money back if you do not have $7,500 of tax liability to use up the credit.

What is the lease residual if one were to keep the car?

brkaus said:

What is the lease residual if one were to keep the car?

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If you plan to keep your lease car you are out of luck because Tesla is using the tax credit against you if you wish to purchase your lease car. Basically they take the $7,500 and rather than subtract the cost of the car they add it to the residual making it financially disadvantageous for you to buy the car at the end of the lease period. And you also end up paying 4% interest on a essentially a car loan.

IMHO the Tesla lease is not a good deal especially because they take away the $7,500 making it financially disadvantageous for you to buy the car at the end of the lease.

The only way leasing makes sense after going through the financials in great detail is if you lease for business purposes and get to deduct the lease payments in your taxes. If you have no tax advantage it is a bad deal. If you are considering leasing personally, you can get a car loan for a better interest rate making your monthly payments very similar. The benefit is you can put as many miles as you want, you receive the full $7,500 tax benefit and at the end of the 3 years you can always sell it.

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brkaus said:

What is the lease residual if one were to keep the car?

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I have not been able to get a straight answer. According to the lease document specs I received, they are saying 52-63% based on various factors but so far they have not shared the formula with me. It seems they adjust this very important figure on the fly and I wish it was more transparent. There is a huge difference with it being 52% or 63% and it seems leaving such a wide margin allows them to play with the numbers and that's unfortunately reminiscent of the games car dealers play.

MsElectric said:

The only way leasing makes sense after going through the financials in great detail is if you lease for business purposes and get to deduct the lease payments in your taxes. If you have no tax advantage it is a bad deal. If you are considering leasing personally, you can get a car loan for a better interest rate making your monthly payments very similar. The benefit is you can put as many miles as you want, you receive the full $7,500 tax benefit and at the end of the 3 years you can always sell it.

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I'm not sure I agree with this.

If we were to lease a Model S, at the price point we expect the Model X, it would cost just under $50,000 over the 3 years.

If we were to purchase the vehicle, and then try to sell it after those 3 years' it would be $56,000 and an unknown resale value (but also not taking into account the tax credit). Not to mention the initial cost of the vehicle is a few thousand higher at signing.

Personally, I see no reason to purchase your lease vehicle, at the end, unless you really like the car and just are unable to afford a new one. Point being, leasing doesn't seem to be a "bad" deal, though the possibility that you would end up spending less money, if you purchase, is there...it's not guaranteed.

Perhaps I'm not looking at the whole picture here? I am the first to admit that I'm a bit out of my element both with the cost of the vehicle, and our consideration of a lease (never done it).

I picked leasing because I know that I always want the newest features even if the math doesn't work out. I'd be annoyed if I was locked into the pre "d" model S.

jcjj said:

Thanks for the numbers arijaycomet, I was just about to sit down and run numbers on Lease versus Purchase myself.
It might come out pretty even if you can get a loan with a 1-1.5% interest rate. I am assuming your loan numbers above are with the 3.0% rate Tesla shows in Design Studio.
Although, you would not have the resale value guarantee option.

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Right. I did it all based on Tesla's figures to compare apples to apples. Especially because the moment to leave their financing umbrella, you have far more options. For example I've had rates quoted like you for lower (more like 1.99% for me, but still, better). And also those rates didn't require 10% down (maybe 2% to 5%). So really when you look at this, I was trying to really do an apples to apples scenario. But since everyone's financial are so different, it is hard to project what works for everyone. You have to make do with your own personal data, and figure out the best option(s) of course

MsElectric said:

The only way leasing makes sense after going through the financials in great detail is if you lease for business purposes and get to deduct the lease payments in your taxes. If you have no tax advantage it is a bad deal. If you are considering leasing personally, you can get a car loan for a better interest rate making your monthly payments very similar. The benefit is you can put as many miles as you want, you receive the full $7,500 tax benefit and at the end of the 3 years you can always sell it.

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Totally disagree here. But again your statement is a generalization about what does or doesn't make sense. Not everyone looks at a car the same way-- some people buy cars knowing they want to keep them past their payoff, to a point where you are driving a car w/o a payment. Some people pay cash for the car. Others will replace the car at the end of 3 years, no matter what. So I'll say that I disagree because everyone's situation is different.

For an example: my wife is leasing a car with a $500/mo payment. We make decent money, but given the poll on these forums that asked people their household income, we're at the lower end of the affluence scale of Model S owners. That being said, we didn't want a $1000+ payment for her car. Even purchasing a rather low-end car for a modest 72-month term, we found ourselves with $10k out of pocket and a payment that still hovered around $1,000 or more. However, we managed to find a discounted inventory car that is $71k after discount. If we did a 6-year loan with Tesla our payment was still $1,015 per month (after sales tax, and with 10% down). For the same cash out of pocket, we're able to lease that car for 36-months at a rate of $650 per month because of the HUGE discount (almost $14k inventory car, plus the $7500 tax credit is part of the lease structure).

Now I agree this would not be the normal case, but even for us if we had gotten a brand new car, we did the math and the savings on the lease was about $2,000 less out of pocket and around $200/mo savings. So the $7,200 savings over 36-months basically negated the benefit of the tax credit (which we are eligible to claim if we wanted). However, this is my wife's car, which we'll barely break 10,000 miles annually. And it doesn't have all the latest/greatest features, so knowing the car is something we can walk away from is nice. What Tesla doesn't really point out is though they will guarantee your price in 3-years, that doesn't necessarily mean you'll be upside down or right side up. I'd have to look at a loan amortization schedule to determine how that really pans out, but in a 72 month term I am willing to bet with 10% down you're basically going to be break even. In which case yes, the loan gives you "more options" at the 36 months window, but for some people that just isn't even a concern. If you have the means, however, the loan w/guarantee is the "best" because it leaves the most possible doors open. But for many people, that still causes a monthly payment that just doesn't make good sense. (in our case, for example)

^ +1 to the gentleman above. I have never leased before. We tend to buy sports cars and the leasing package on a Porsche is pathetic. It just made sense to buy it. My partner also loves to pay his cars off. I, on the other hand, am the opposite. I've had my Aston Martin for 18 months and I'm already bored. I figured it was time to buy a Tesla since we're adding solar to the house next month and timing was perfect.

When we priced out the cars, the loan payment was a couple hundred dollars above the lease payment. And those numbers didn't include the 8.3% tax imposed in Arizona. After considering that the technology, batteries, and hardware would most likely improve over the next decade a lease just made more sense. I would be much happier (and have less chance for boredom) by replacing my MS with a new model every few years.

Also considering that lipos do lose efficiency after many charge cycles, I feel that replacing the car would be a less expensive option than replacing the pack after a number of years.

Usually the residual is pretty fair on the lease. If your car is worth more you can buy it out and be ahead of the game. If the car is worth less, someone else is exposed to that capital risk.

Teslas have held their value pretty well, excluding what happened to the P's and P+'s with the D rollout (likely a short term issue caused by a glut from wealthy early adopters upgrading), so there may not be huge capital risk. On the other hand, today's cars may be like 1st gen iPads in 3 years depending how far the world has moved on.

While you can't really compare a Smart and a Tesla, I leased the Smart thinking not only would I be ready for something different in three years, but also recognizing the car may get hammered like early Volts, which are selling for +$5000 less than their residual value.

Be very glad you didn't buy a volt.

Another thing to consider is that Tesla REQUIRES you to perform the yearly $600 service if you lease. That's $1800 extra to add in to the equation.

They don't really know what the penalty is for not being compliant with this (I asked). They just said that anything that required a repair when I turned in the lease I would be responsible for. I asked how that could be since the car is still under warranty and they had no explanation.

So if you buy the car you can opt to not service it annually and in 3yrs take it in and if anything is wrong it'd be covered under warranty at no cost to you or you can lease it and (for some unexplained reason) be stuck with repair costs that should be covered under warranty.

I had lengthy discussions with service managers at the Dania, Tampa, and Palm Beach stores to confirm this.

I ended up buying the car as they don't really seem to know what to do with leases.

Jason

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JimmyAZ said:

^ +1 to the gentleman above. I have never leased before. We tend to buy sports cars and the leasing package on a Porsche is pathetic. It just made sense to buy it. My partner also loves to pay his cars off. I, on the other hand, am the opposite. I've had my Aston Martin for 18 months and I'm already bored. I figured it was time to buy a Tesla since we're adding solar to the house next month and timing was perfect.

When we priced out the cars, the loan payment was a couple hundred dollars above the lease payment. And those numbers didn't include the 8.3% tax imposed in Arizona. After considering that the technology, batteries, and hardware would most likely improve over the next decade a lease just made more sense. I would be much happier (and have less chance for boredom) by replacing my MS with a new model every few years.

Also considering that lipos do lose efficiency after many charge cycles, I feel that replacing the car would be a less expensive option than replacing the pack after a number of years.

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But the battery is warrantied for 8yrs. You would not be out any money if it needed replacement. By the tone of your post, it seems unlikely you'd ever keep the car for more than 8yrs.