Model X California Leasing

[engle]

Exactly. No one in his/her right mind who knows how leases work would be so dumb as to put down $32,550 towards the reduced cap cost! People gotta understand that it's not the monthly payment that's most important, but the total cost of ownership and potential liability. While saving interest by putting down a large deposit is nice, one has to also factor in what happens if the car gets totaled - that $32,550 is GONE if the car is condemned. This isn't a purchase where the insurance company would indemnify you for all costs associated with replacing the vehicle. Rather, insurance is only going to pay off the remaining balance of the lease payments plus the residual value, not the entire total original cost of the lease. Anyone who leases should always put down the minimum amount of money required at signing.

For those who already know this, apologies for lecturing. For those who disagree with the above, flame on!

Here is the details on what happens for a total loss with Warren Buffet's GEICO:

https://www.geico.com/claims/claimsprocess/total-loss-process/

 

[Blastphemy]

"If your policy covers a total loss..." is the key phrase in that advertisement. "Your policy covers..." = higher premiums.

 

[FlatSix911]

Exactly. No one in his/her right mind who knows how leases work would be so dumb as to put down $32,550 towards the reduced cap cost! People gotta understand that it's not the monthly payment that's most important, but the total cost of ownership and potential liability. While saving interest by putting down a large deposit is nice, one has to also factor in what happens if the car gets totaled - that $32,550 is GONE if the car is condemned. This isn't a purchase where the insurance company would indemnify you for all costs associated with replacing the vehicle. Rather, insurance is only going to pay off the remaining balance of the lease payments plus the residual value, not the entire total original cost of the lease. Anyone who leases should always put down the minimum amount of money required at signing. For those who already know this, apologies for lecturing. For those who disagree with the above, flame on!

This is what GAP insurance is designed to cover.

 

[Blastphemy]

Perhaps for a purchased vehicle, but not for a leased car. Guaranteed Asset Protection Insurance is the difference between the actual cash value of a vehicle and the balance still owed on the financing. In the event of a total loss, it pays the difference between what you owe on the car and what your insurance company determines it's worth. That's it. If the calculation is upside down due to an unusually large down payment, then GAP insurance pays nothing.

EXAMPLE: You buy a car that stickers for $24,000 and rolls out the door with taxes and fees for $26,500. You put down only $1,000, sign your financing papers, get a car insurance policy, and drive off the lot. Nearly a year later, your new car is totaled out. You file a collision claim with your insurer and find out that the actual cash value of your vehicle is only $19,200. This means after your $500 deductible is taken out, your car insurance company will pay out $18,700 to your lienholder. You still owe $23,500 on the car, so you're left with a difference of $4,800. With a GAP insurance policy that includes coverage for your deductible, this whole amount would be covered. If you didn't get GAP insurance, you're left paying the difference out of your own pocket for a car you no longer have.

However, if in the above example your down payment was $11,000 instead, then after your $500 deductible is taken out, your car insurance company would pay out $18,700 to your lienholder and GAP would pay nothing. Since you owe the lienholder less than what the car is worth ($13,500 vs $19,200), then there's no gap in coverage and no additional indemnification is necessary.

That's not to say some GAP policies may have Replacement Cost Coverage built in (not that I've ever seen it bundled together), but the contract would have to explicitly state such (and the premium would be higher).

Straight up GAP insurance does not cover:

• a down payment for a new car
• an extended warranty you add to your car loan
• the diminished value of your car after an accident
• car payments in case of financial hardship, job loss, disability, or death
• repairs to your vehicle
• the value of your car or balance of a loan if your car is repossessed
• a rental car while your vehicle is in the shop
• carry-over balances on any loans you rolled over into your new car loan

 

[MikeC]

If you :love: your Model X and decide to buy it outright at the end of your lease, and if you went go over the mileage you paid for, you don't have to pay the $0.25/mile fee. Instead, you would pay the residual value plus a purchase option fee of $350. See paragraph #10 in my OP for Model S Sample Lease, above.

Russ

PS. I plan to pay my lease off and keep my X since my Production serial number will be < 100 and perhaps even < 50 since I'll pick it up at the factory. I've leased four ICE Mercedes for business, including 2 diesel "Bluetecs" (I wonder if their diesel emissions will be judged honest or not like VW/Audi/Porsche -- has anyone read about this?). My current one is just a stop gap waiting for Model X. I've returned the first three, and the my last and final ICE will be returned, too. :biggrin: I don't know what Tesla's return policy is, but for Mercedes, they use a "credit card test". This means that if damage can be covered by a credit card, it isn't chargeable to you. They never charged me for wheel rash, either. You're supposed to get front windshield glass replaced if it takes a stone hit, but one time it happened right before my lease expired, so I had to get epoxy injection and was not questioned when I turned it in and the lease return guy inspected it. That ML 350 Bluetec was also past its "B" service, etc., etc., but since I was replacing it with another Benz, the sales department ate the cost. When I return my last Benz ICE in 2016, I plan to explain I'm waiting for a 2017 model so they don't nickel-and-dime my return inspection.

- - - Updated - - -



If you don't want to pay 3.84% interest, if it works like Mercedes, then you can prepay all or part of your lease. That's what I did. Mercedes calls it a single payment lease. I'm not a CPA, but my understanding is you have to spread out the lump sum payment over the tax years the vehicle is "in service" when you deduct. A CPA can correct me if I'm wrong.

If one is planning on buying, it seems like it would make the most sense to lease the Model X for 3 years as business vehicle (deducting that entire cost) and then to buy it at the end of 3 years for a nominal $350, rather than purchase it new?

 

[ptsagcy]

Exactly. No one in his/her right mind who knows how leases work would be so dumb as to put down $32,550 towards the reduced cap cost! People gotta understand that it's not the monthly payment that's most important, but the total cost of ownership and potential liability. While saving interest by putting down a large deposit is nice, one has to also factor in what happens if the car gets totaled - that $32,550 is GONE if the car is condemned. This isn't a purchase where the insurance company would indemnify you for all costs associated with replacing the vehicle. Rather, insurance is only going to pay off the remaining balance of the lease payments plus the residual value, not the entire total original cost of the lease. Anyone who leases should always put down the minimum amount of money required at signing.

For those who already know this, apologies for lecturing. For those who disagree with the above, flame on!

As an insurance broker for 50 years, I can tell you that @Blasthphemy is absolutely correct. It is dangerous to put a large down payment on a lease. He is also spot-on with his explanation of GAP coverage.

@Engle - I disagree with your statement that leasing is better than buying, particularly as respects the MX. I have decided to lease because I am certain that there will be significant improvements over the next 3 years (e.g. larger batteries). Historically, the older vehicles without the new features took a substantial depreciation hit. The out of pocket cost to own vs. lease is very similar, with the monthly 3 year lease payments being substantially less than the 6 year loan payments, but at the end of 3 years it is much easier to get out of a leased vehicles than to sell it. In three years I would probably buy as the MX will be more "mature" at that point and I would plan to keep it for many years.

 

[engle]

As an insurance broker for 50 years, I can tell you that @Blasthphemy is absolutely correct. It is dangerous to put a large down payment on a lease. He is also spot-on with his explanation of GAP coverage.

@Engle - I disagree with your statement that leasing is better than buying, particularly as respects the MX. I have decided to lease because I am certain that there will be significant improvements over the next 3 years (e.g. larger batteries). Historically, the older vehicles without the new features took a substantial depreciation hit. The out of pocket cost to own vs. lease is very similar, with the monthly 3 year lease payments being substantially less than the 6 year loan payments, but at the end of 3 years it is much easier to get out of a leased vehicles than to sell it. In three years I would probably buy as the MX will be more "mature" at that point and I would plan to keep it for many years.

Thanks, Blastphemy and ptsagcy as an insurance broker for confirming it!! I was totally ignorant of what would happen if my vehicle was totaled, since knock on wood I've never had a chargeable accident in 40 years driving. I just focused on avoiding interest since I don't pay interest for anything except 1.7% on a large HELOC I invested for interest rate arbitrage (dividends) during the Great Recession when most of the equities were on sale.

I'll make the minimum down payment for my 36 month lease, keep the mileage log, take my business write-offs, and most likely pay-off the residual + $350 at the end to keep it since my P##### serial number will be < 50. I'm pretty sure that superior batteries will be available after the Gigafactory goes online, but I'm OK with 250 miles EPA for now with the excellent Supercharger coverage for road trips.

We get an 8-year warranty on battery and drivetrain, so I figure the first battery probably lasts at least 10 years if they can warranty it for 8? Anyway, I fully expect when it's time to replace my battery in 2025, it will have EPA 400+ based upon Elon's statement to expect about a 5% average annual increase in battery range.

 

[Blastphemy]

I'll make the minimum down payment for my 36 month lease, keep the mileage log, take my business write-offs, and most likely pay-off the residual + $350 at the end to keep it since my P##### serial number will be < 50.

If you're going to buy it at the end of lease for sure, then you're better off buying it from the start instead of leasing. You can put down a larger down payment, save on interest, and get a replacement cost insurance coverage rider instead of GAP insurance.

 

[MikeC]

If you're going to buy it at the end of lease for sure, then you're better off buying it from the start instead of leasing. You can put down a larger down payment, save on interest, and get a replacement cost insurance coverage rider instead of GAP insurance.

But can't you deduct more from taxes for business expenses if you are leasing?

 

[Blastphemy]

No idea, but I would never spend more just so I could deduct more. That's like buying a more expensive house so that you can deduct addtional mortgage interest, in effect spending 100% to save 25%.

Whatever the depreciation tables are for a purchased asset vs. a leased asset, that's a question for your accountant.

 

[engle]

But can't you deduct more from taxes for business expenses if you are leasing?

Yes, much more if the vehicle in question is classified as a "passenger vehicle", since annual depreciation for those is very limited. I'll have to look up the tax code that will apply to me in 2015 vs. 2016 depending on when mine will be scheduled for delivery. The X GVWR is > 6,000 which puts it in the non-passenger vehicle category, but I understand the tax laws have been tweaked.

There is a secondary benefit to leasing mentioned by someone upthread, which is if there is a dramatically improved (range, etc.) Model X2 vehicle in 3 years, you can walk away from X1 and buy or lease that. Since my production serial number will probably be < 50, I plan to keep it in the family, but my wife is attracted to the easy turn-in after 36 months feature.

 

[Watts Son]

No idea, but I would never spend more just so I could deduct more. That's like buying a more expensive house so that you can deduct addtional mortgage interest, in effect spending 100% to save 25%.

The above looks like he wants to spend LESS (up front out of pocket)and deduct more