Lease FSD depreciation costs seems high?

[JulienW]

Looking at a lease. One thing I find a little odd is the difference/costs of FSD. The option is $5,000 but you will pay $3000 over the 36 months or 60%. Ran the numbers on 19” wheels/tires option and get the same 60% deprecation results. Seems options are hit hard and VERY expensive on the lease program. Know options are HIGH profit's and add less to the residual value of the car but is this standard through the industry?

If so it almost seems ironic that Musk is almost promoting FSD as an appreciating asset while simultaneously depreciating it the same as a frivolous option. Of course I know that after lease turn in the FSD can easily be switched on but still…

Just for kicks here is some of the configurations and lease numbers I ran.

Standard Plus, Blue/Black, 19” $547/$4253/10K - $501/$5696/10K
Standard Plus, White/White, 19” $572/$4267/10K - $526/$5721/10K

Standard Plus, White/White, FSD 19” $657/$4352 - $611/$5806/10K


LR AWD White/White, 19” $742/$4437/10K
LR AWD White/White, 19” $755/$4450/12K
LR AWD White/White, 19” $696/$5891/10K
LR AWD White/White, 19” $710/$5905/12K

LR AWD White/White, 19”, FSD $826/$4521/10K
LR AWD White/White, 19”, FSD $841/$4536/12K
LR AWD White/White, 19”, FSD $781/$5976/10K
LR AWD White/White, 19”, FSD $796/$5991/12k

 

[run-the-joules]

Wow, it’s almost like unsubsidized leases are expensive and make little sense for anyone besides businesses who have tax incentives for using them.

Leasing a Tesla for individual use has always been pretty questionable. The model 3 is no exception.

 

[SSedan]

Cars are a money loser, period get over it.

If you need to "justify" the cost buy a 1yo Aveo or entry level Kia

 

[woodguyatl]

Wow, it’s almost like unsubsidized leases are expensive and make little sense for anyone besides businesses who have tax incentives for using them.

Leasing a Tesla for individual use has always been pretty questionable. The model 3 is no exception.

Cars are a money loser, period get over it.

If you need to "justify" the cost buy a 1yo Aveo or entry level Kia

Guy makes post noting observations regarding new lease options and CEO’s specific claims. Two people make sarcastic or condescending replies. Welcome to the internet.

 

[dmurphy]

I don’t think it’s just the options - I suspect the residual on the Model 3 itself is also 40%, with a high APR to boot.

The only positive of the lease to me is that they’re not letting lessees buy out the vehicle at the end. That’s bad for the lessee, good for purchasers - stops cheap used vehicles from dumping on the market.

 

[voip-ninja]

Looking at a lease. One thing I find a little odd is the difference/costs of FSD. The option is $5,000 but you will pay $3000 over the 36 months or 60%. Ran the numbers on 19” wheels/tires option and get the same 60% deprecation results. Seems options are hit hard and VERY expensive on the lease program. Know options are HIGH profit's and add less to the residual value of the car but is this standard through the industry?

If so it almost seems ironic that Musk is almost promoting FSD as an appreciating asset while simultaneously depreciating it the same as a frivolous option. Of course I know that after lease turn in the FSD can easily be switched on but still…

Just for kicks here is some of the configurations and lease numbers I ran.

Standard Plus, Blue/Black, 19” $547/$4253/10K - $501/$5696/10K
Standard Plus, White/White, 19” $572/$4267/10K - $526/$5721/10K

Standard Plus, White/White, FSD 19” $657/$4352 - $611/$5806/10K


LR AWD White/White, 19” $742/$4437/10K
LR AWD White/White, 19” $755/$4450/12K
LR AWD White/White, 19” $696/$5891/10K
LR AWD White/White, 19” $710/$5905/12K

LR AWD White/White, 19”, FSD $826/$4521/10K
LR AWD White/White, 19”, FSD $841/$4536/12K
LR AWD White/White, 19”, FSD $781/$5976/10K
LR AWD White/White, 19”, FSD $796/$5991/12k

Do you have some actual justification for choosing a lease? The only reason to do a lease is that you hate your own money, can't stomach making a higher payment (or putting more money down or just paying cash) or you are convinced that resale value will tank even below what the absurd low residual value of a lease pegs it at.

 

[bijan]

I don’t think it’s just the options - I suspect the residual on the Model 3 itself is also 40%, with a high APR to boot.

The only positive of the lease to me is that they’re not letting lessees buy out the vehicle at the end. That’s bad for the lessee, good for purchasers - stops cheap used vehicles from dumping on the market.

I'm not so sure. I mean those cars have to go somewhere. Tesla is saying it'll be ride sharing on FSD, but realistically Tesla will probably end up selling those cars to someone... Unless they put drivers in those ride sharing cars. I don't think driverless ride sharing is going to be a reality by the time those leases are up.

 

[DIYDanCars]

And I thought Porsche's lease numbers were bad. Those numbers are horrific! IMO with those numbers, it seems silly to lease when you could buy and have something to show for it. I like to keep my cars between 6 and 8 years. If you amortize the cost of the vehicle over this time period, buying seems like a much better deal -- buying will give you equity vs having nothing at the end of the lease. IMO rarely are leases "good deals" on luxury cars.

 

[zer0cool]

Tesla has terrible lease numbers. Basically the company would rather you buy because it's not really well built to sell pre-owned cars.

Thus if you want the car, just buy it, don't lease.

 

[ewoodrick]

I believe that the bottom of the line is that Tesla wants to sell cars, not to be a bank.
In the case of the leases, Tesla has decided to kill two birds with one stone. They'll provide the precious leases that so many people feel the need to pay excess money for, and at the same time, build a fleet of cars for taxi service.

That's Tesla actually putting money down on FSD. And people will help them pay for it!!!

 

[zer0cool]

And I thought Porsche's lease numbers were bad. Those numbers are horrific! IMO with those numbers, it seems silly to lease when you could buy and have something to show for it. I like to keep my cars between 6 and 8 years. If you amortize the cost of the vehicle over this time period, buying seems like a much better deal -- buying will give you equity vs having nothing at the end of the lease. IMO rarely are leases "good deals" on luxury cars.

Leases can be very good deals on many luxury cars if you know you want a new car every 3 years. This is particularly true when you see the cars marked at 60+% residuals when it would be hard for you to get 50% when trading in (after 3 years and 40k miles). The fact is bid-ask spread on luxury cars is huge (frequently >$10k on cars $35+k at resale) so the dealership can still make money even though the residual is set much higher than what you would be able to trade the car in at. Basically leasing in such cases are forward sells at preset prices that you know are better deals than the open market. So if you know you will sell (get a new car after 3 years), it would actually be financially stupid not to lease in such cases (assuming similar interest rates, etc.).

 

[bijan]

As to the Tesla FSD taxi fleet... I'm in Canada and autopilot is basically unavailable half the time when there's snow on the road. I've even had navigate on autopilot disengage when it was raining hard (bad weather feature not available). So are there enough places where it never rains (I can accept that there are a lot of places without snow), to make the taxi service viable? Or is that something they can fix with the HW3 computer?

 

[voip-ninja]

Tesla has terrible lease numbers. Basically the company would rather you buy because it's not really well built to sell pre-owned cars.

Thus if you want the car, just buy it, don't lease.

Elon has stated a couple of times now that the final hurdle to get more people into the car is to make it "more affordable" (paraphrasing). He said something along the lines of "people love the car but they can't afford it".

Unfortunately many people, especially Americans, suck at math and finances. They have a budget in mind for "car payment" and it doesn't matter if you try to smack them upside the head with a calculator showing them that they are getting robbed blind by doing a lease on a car with a high interest rate and terrible residual.... they are focused on "muh car payment" of, say $500 a month without putting an arm and a leg down.

 

[JulienW]

Guy makes post noting observations regarding new lease options and CEO’s specific claims. Two people make sarcastic or condescending replies. Welcome to the internet.

Thanks, my post is not out of ignorance of understanding that cars depreciate nor is it intended to justify whatever my “unreasonable” perceived reasons are. I’m trying to understand the way options are depreciated or more specifically if Tesla is using an industry standard or deviating from the norm. As we know when buying many options can depreciate 100% instantly. Some options in 3 to 5 yers can even add back more than 100% of their original cost and overall resale-ability to the car, though rare. Most of course fall in-between offering a token addition or small percentage back to the trade in price.

Does anyone know if OTHER car companies depreciate options at a higher rate than the base/underlying model vehicle on leases? And if so is there an overall average or standard for option depreciation percentage since we are ALWAYS presented with an overall vehicle depreciation on leases.

 

[M3BlueGeorgia]

Thanks, my post is not out of ignorance of understanding that cars depreciate nor is it intended to justify whatever my “unreasonable” perceived reasons are. I’m trying to understand the way options are depreciated or more specifically if Tesla is using an industry standard or deviating from the norm. As we know when buying many options can depreciate 100% instantly. Some options in 3 to 5 yers can even add back more than 100% of their original cost and overall resale-ability to the car, though rare. Most of course fall in-between offering a token addition or small percentage back to the trade in price.

Does anyone know if OTHER car companies depreciate options at a higher rate than the base/underlying model vehicle on leases? And if so is there an overall average or standard for option depreciation percentage since we are ALWAYS presented with an overall vehicle depreciation on leases.

The problem is that lease rates are often used by manufacturers as ways to hide massive discounts off price, without changing the MSRP.

Many people are therefore tricked by those pricing games and are left with a weird perception of lease rate to MSRP.

Currently Tesla don't appear to be hiding discounts in these lease rates. Don't sweat that.
Leasing cars is right for some narrow use cases, and most people buying a car shouldn't lease, they should buy on a long-term loan for a low(er) monthly payment.

 

[TT97]

Does anyone know if OTHER car companies depreciate options at a higher rate than the base/underlying model vehicle on leases? And if so is there an overall average or standard for option depreciation percentage since we are ALWAYS presented with an overall vehicle depreciation on leases.

When leasing first started getting popular in the 90s, options typically had lower residual value than the base car, however, it is much less common now (if at all). The closest I can think of now is Audi that has a lower residual on their "Prestige" trim than their other trims (although the lower residual is on the entire car, not just the options). Of course, it is common for manufacturers to inflate residuals on specific models. For example, the MB C300 almost always has a higher residual then their C43.

Leasing has several benefits, especially in states that don't offset sales tax on trade ins. In California, when you lease, you only pay sales tax on the payments, saving you thousands in sales tax. Also, many manufacturers inflate their residuals (notably BMW & MB) or offer subsidizes interest rates (lease factor) making leasing more attractive. The issue is many people lease to be able to afford a car that they couldn't afford otherwise.

 

[voip-ninja]

Thanks, my post is not out of ignorance of understanding that cars depreciate nor is it intended to justify whatever my “unreasonable” perceived reasons are. I’m trying to understand the way options are depreciated or more specifically if Tesla is using an industry standard or deviating from the norm. As we know when buying many options can depreciate 100% instantly. Some options in 3 to 5 yers can even add back more than 100% of their original cost and overall resale-ability to the car, though rare. Most of course fall in-between offering a token addition or small percentage back to the trade in price.

Does anyone know if OTHER car companies depreciate options at a higher rate than the base/underlying model vehicle on leases? And if so is there an overall average or standard for option depreciation percentage since we are ALWAYS presented with an overall vehicle depreciation on leases.

At most I've seen different option packages affect the residual value by maybe 2-3% on your typical 10K/12K annual lease. On cars that allow lots of customization you very rarely see this, but you might see it on something like a Honda or Acura where they have clearly different step-ups (LX vs EX, etc.) to different standard equipment levels.

Almost always techy/gadgety options depreciate more than the car itself hence the lower residual value.

 

[zer0cool]

TT97, yes BMW & MB and many others inflate their residuals; but it means they still can make money on those residuals. They wouldn't be in the leasing business if leasing at those rates cause them to lose money. It points to the efficiency these dealerships have - that they can still make money selling pre-owned cars even with supposedly inflated residuals lowering leasing costs for consumers (a benefit to consumers).

If Tesla also were able to make money selling at higher residuals, they would also lower their lease payments so more people would be able to get into Teslas (which is actually Elon's goal). As of now Tesla is terrible/inefficient at selling pre-owned cars so have decided they simply don't want a bunch of lease returns by making lease payments really unattractive so people wouldn't lease them to begin with.

 

[voip-ninja]

TT97, yes BMW & MB and many others inflate their residuals; but it means they still can make money on those residuals. They wouldn't be in the leasing business if leasing at those rates cause them to lose money. It points to the efficiency these dealerships have - that they can still make money selling pre-owned cars even with supposedly inflated residuals lowering leasing costs for consumers (a benefit to consumers).

If Tesla also were able to make money selling at higher residuals, they would also lower their lease payments so more people would be able to get into Teslas (which is actually Elon's goal). As of now Tesla is terrible/inefficient at selling pre-owned cars so have decided they simply don't want a bunch of lease returns by making lease payments really unattractive so people wouldn't lease them to begin with.

Keep in mind that BMW dealers have zero control over residuals, those are set by BMW Financial Services which is effectively a bank that is owned by BMW.

BMW has got leasing tuned down to a science. They know that a lot of customers (Americans) like driving a newer car every three years and that buying/selling/trading cars is a hassle.

So BMW subsidizes the leases and they are able to tune those lease subsidies on a monthly/quarterly basis in order to drive the sales numbers they need to keep their production high. BMW would cost even more globally if they didn't spit out so many US leases.

BMW sets the residual and the money factor and the dealer is allowed to mark the money factor up a bit to make a small additional profit. BMW then sorts through the lease returns and picks the best ones to get certified as factory pre-owned cars and this provides higher profit vehicles for the dealer to sell a 2nd time.

The lower quality or less in demand ones go off to auction and potentially BMW makes little to negative profit on those, but there's a good chance that the customer is about to lease another BMW so win win for them.

For Tesla, not being able to do the lease financing completely on their own will eventually hurt them, because it limits what they can set the residual at and Tesla will make less money on the financing since whichever bank is doing the funding wants the finance profit piece. Tesla doesn't sell used cars so the most they can do is theorize that they will be able to repurpose some of these cars into a ride share fleet in 2-3 years time... I'm pretty skeptical on that guess we'll see.

 

[Axtrader]

There is large depreciation up front with no lease buyout option so Tesla can have an inexpensive fleet of Robo-Taxis in 3 years. Smart move to throw that risk on the original lease owner.