Tesla lease buyout - crazy penalty or error?

[AronAZ]

US Bank Negotiated Buy-Out

Thanks. It’s pretty rare in my experience. As noted in that thread, lessors were taking a blood bath on Volts. Besides some asset book value and loss allowance accounting aspects (although Residual rarely = resell value as most people believe), from what I understand most leasing companies’ deals with the manufacturer gives their turn in dealer first right to offer then it goes into the OEM’s network for offers before the car is opened to the bank network then to auction in extreme cases. If non-OEM backed lessors (like US Bank) let consumers regularly compete with dealers their business would dry up in a hurry. (Buying lease returns still under factory warranty and reselling, often with CPO policies, is a good profit center for both dealers & OEM’s.)

 

[xsi123]

Your residual value is significantly above what the car is worth as a trade-in. The $21K is the price of you buying the car now and selling it to Tesla. Warning, there will likely be sales tax involved on the $65K, and depending on how your state does it, how this transaction is handled by Tesla, and whether there is enough sales tax to be paid on the Model 3, you might get a sales tax credit on $44K towards the lease payments sales tax.

My guess, based on the limited information you provided, is that your best bet is to drive the car till the end of the lease and give it back.

PS> As some others have mentioned, remember that your lease is not with Tesla, it's with US Bank of some other leasing company.

Thanks. Yes, the best option is to wait. I just thought Tesla would/will? provide some incentives to keep me in the brand. But as some others said, Tesla is doing things differently.

My lease is for sure through Tesla and Tesla Finance is the Lessor. Without being 100% sure, I think the process was for them to try and get me a lease through US Bank and when US Bank declined, then Tesla Finance took over and they gave me the lease through them (this process was kind of transparent to me).

 

[cantdecide]

The Tesla finance method for early lease termination is that you pay the difference between the current buy out value and the Tesla trade in value. In our case that was going to be $20k to$30k so we just kept the car

 

[BrokerDon]

Thanks. Yes, it looks like I should wait a few more months and see what happens. With BMW they did exactly as you said. Waived the last few payments. Tesla is probably different. We will see.

I’ll bet BMW didn’t ‘waive your last few payments”, they just gave you less off their inflated“sticker price” when they “helped you into anew vehicle”. Happens all the time to ignorant consumers at car “stealerships”.

 

[whitex]

You said his lease was not through tesla, which is incorrect. Tesla finance is a branch of Tesla which means profits and expenses affect TSLA. The difference in the residual and what tesla is able to sell the vehicle as a used car affects teslas bottom line
The car is also returned to tesla and then they’ll try to sell it as a used car

If his lease was with an outside company then Tesla would have received the entire payment for the car and not be affected by the depreciation nor would they ever see the car again.

Also here’s the Lessor on my Lease agreement
View attachment 399600

If it is Tesla leasing the car, they have very little interest to allow someone to get out of the lease for less than the difference between buyout price and trade-in value - that would immediately show up as a loss in their accounting - basically they would recognize that they missed the residual value estimate and have to eat the difference. Tesla is particularly sensitive to financials right now. If they wait, chances are the car trade-in value will lose less than the ~$9K the OP has left to pay.

Either way, there is no difference in motivation for the leasing company, whether a bank or Tesla, both want to maximize profits and in this case minimize the loss. If Tesla manufacturer was willing to cover the loss in order to make a new sale, they could do it with an outside leasing company just the same, just offer them a $56K trade-in value. Really no difference whether it's an outside company or Tesla Finance, other than Tesla is more sensitive to financials nowadays.

 

[whitex]

Thanks. Yes, the best option is to wait. I just thought Tesla would/will? provide some incentives to keep me in the brand. But as some others said, Tesla is doing things differently.

My lease is for sure through Tesla and Tesla Finance is the Lessor. Without being 100% sure, I think the process was for them to try and get me a lease through US Bank and when US Bank declined, then Tesla Finance took over and they gave me the lease through them (this process was kind of transparent to me).

Tesla or US bank, I don't think it matters. The car is losing less than $1,200 per month in value at this point, so letting you walk away is a loss for the leasing company regardless who it is. Look at it from their point of view, they can get your 7 payments of $1,200 and then trade the car in for $42K maybe, or if they let you walk away today and get $44K for the car.

Another way to look at it, you are basically in what's called "an upside-down" position with the car - you owe more than the car is worth. That difference today is $21K, in 7 months it will be $15K (give or take a thousand). Leasing company would rather be lose $15K in 7 months than $21K now. Tesla is not going to gift you ~$6K as an incentive for leasing a single Model 3.

 

[AMPd]

If it is Tesla leasing the car, they have very little interest to allow someone to get out of the lease for less than the difference between buyout price and trade-in value - that would immediately show up as a loss in their accounting - basically they would recognize that they missed the residual value estimate and have to eat the difference. Tesla is particularly sensitive to financials right now. If they wait, chances are the car trade-in value will lose less than the ~$9K the OP has left to pay.

Either way, there is no difference in motivation for the leasing company, whether a bank or Tesla, both want to maximize profits and in this case minimize the loss. If Tesla manufacturer was willing to cover the loss in order to make a new sale, they could do it with an outside leasing company just the same, just offer them a $56K trade-in value. Really no difference whether it's an outside company or Tesla Finance, other than Tesla is more sensitive to financials nowadays.

Oh I’m not arguing that part, I’m not saying there’s incentive for tesla to let someone out of their lease early.
I’m saying that they should renegotiate the residual at the end of the lease with hopes that the person will buy the car so that they have less work to do taking it back and reselling it
They know how much the car is going to sell for on their used market, and it’s definitely going to be below the residual since over the last 3 years they’ve made so many upgrades which depreciated their older vehicles quite a bit.

Why not just say hey this is what we’re goong to list the car for, if you’d like just write us a check for this amount and keep the car

Yes it’s going to be a loss but it’s going to be a loss either way. This way at least their staff has less work to do selling their used cars which as we have seen is a complete mess

 

[willcasp]

Option #3, the leasing company made a bad bet (a really bad bet), and you win! The best solution here is to finish out the lease, turn the car in, and move on.

I leased my 2016 refresh 90D. I have never seen a lease pencil out. Even when told to do it for "tax reasons"... you are just trading opex for bottom line. Generally, a lease is a really big waste of money. Banks are not charities, yet, with these crazy margins they still seem to lose out on leases. When Tesla offered leases on these cars, they also had a low interest loan offer with a guaranteed by back price after 3 years. Interestingly enough, the buyback offer price was $7,500 lower than the lease residual. This accounted for the tax credit going to the lease holder. It also gave an excellent back stop for valuation. The total payments, taxes, and money factor on the lease, and residual came to $7500 less than purchasing the car for cash (not even taking the loan), and selling the car back after three years. For those following along, it would have been $15K if I didn't deduct for the tax credit "loss". Now seeing that Black Book pricing on my car is as low as $53K.. that means the bank comes up $21,500 short on this deal. My lease is up in July. Running projected numbers, a new lease would be around $18K more expensive than buying the car for cash, and then selling it. I will definitely get another Model S. I will hold out until the refreshes happen. Will pay cash for the next one, without a doubt.

 

[woof]

Tesla did just add an incentive to stay with the brand:

We also want to emphasize the critical impact each of our early Tesla owners has had on advancing our mission, so as a thank you, all existing Model S and Model X owners who wish to purchase a new Model S or Model X Performance car will get the Ludicrous Mode upgrade, a $20,000 value, at no additional charge.

The Longest-Range Electric Vehicle Now Goes Even Farther

 

[rickkop95]

Short story. Don't know how true this is, but on my last lease, I wanted to buy the car and tried to do just that for about 4 months before the end of my lease. Not that it matters but it was a Cadillac ELR. I know, I know everyone hated this car. But as someone who leased on for 3 years, I had no problems and loved this car. The buyout on the car was $35,900. Buy you could buy one in the same condition anyplace for 24 to 26k and that is what I wanted to pay. The GMAC financing would not budge and stuck with their $35,999 buyout. I finally gave up and got another vehicle from another dealer a week before I turned my ELR in. I didn't go with Cadillac because they had since stopped making the ELR and had nothing I was interested in. The day I turned in the ELR, right after I sign the lease return papers, the guy from the sales office comes out and tells me he can sell me the car for $25,900. I just don't understand these guys. I was so mad. They lost a sale and a customer that day. I would have gladly bought the car for that price at any time over the previous 4 months. But now I had already gone another way and had no need for a second vehicle. Anyway here is the point. The sales guy told me that the leasing co. buys insurance so if the car is worth less at the end of the lease, they can stick to their price and not lose any money.

 

[whitex]

Oh I’m not arguing that part, I’m not saying there’s incentive for tesla to let someone out of their lease early.
I’m saying that they should renegotiate the residual at the end of the lease with hopes that the person will buy the car so that they have less work to do taking it back and reselling it
They know how much the car is going to sell for on their used market, and it’s definitely going to be below the residual since over the last 3 years they’ve made so many upgrades which depreciated their older vehicles quite a bit.

Why not just say hey this is what we’re goong to list the car for, if you’d like just write us a check for this amount and keep the car

Yes it’s going to be a loss but it’s going to be a loss either way. This way at least their staff has less work to do selling their used cars which as we have seen is a complete mess

The trade-in price ($44K here) is the price Tesla can move the car to an auction house or to places like vroom, so little to no work required. If they choose to sell it as a CPO, that's no different than if they picked the car up at auction for $44K, so really a completely different transaction.

I once ended a BoA Porsche lease early (similar value as a ModelS). The "trade-in value" was straight from some auction house - a guy from that outfit showed up to take the car after I agreed to it with BoA. I asked him, he told me his company buys cars like this and puts them in auctions, usually selling for just a few grand more than what they pay the bank. So if they buy it for $44K, they sell it for $49K in an auction, make 10%+ in less than a week, not bad. The auction by the way was apparently only open to car dealers too. It must have sold to a local dealer because I saw that car few years later in a parking lot (yes, I remembered the VIN, I also tend to configure my cars "uniquely", for example I paid extra to remove the sunroof when ordering the car - I prefer solid roofs).

While I don't think "here is what we're going to sell it for" is likely to happen, if your car is upside down at the end of the lease, leasing companies do sometimes offer exit deals. Say they know the trade-in value is $40K, they can offer you $44K and see if you bite. They don't base the offer on market value, simply tack on some percentage (like 10%) to the trade-in value and see if that works. The trade-in value of course is totally based on market value, but that is not set by the bank.

 

[whitex]

Short story. Don't know how true this is, but on my last lease, I wanted to buy the car and tried to do just that for about 4 months before the end of my lease. Not that it matters but it was a Cadillac ELR. I know, I know everyone hated this car. But as someone who leased on for 3 years, I had no problems and loved this car. The buyout on the car was $35,900. Buy you could buy one in the same condition anyplace for 24 to 26k and that is what I wanted to pay. The GMAC financing would not budge and stuck with their $35,999 buyout. I finally gave up and got another vehicle from another dealer a week before I turned my ELR in. I didn't go with Cadillac because they had since stopped making the ELR and had nothing I was interested in. The day I turned in the ELR, right after I sign the lease return papers, the guy from the sales office comes out and tells me he can sell me the car for $25,900. I just don't understand these guys. I was so mad. They lost a sale and a customer that day. I would have gladly bought the car for that price at any time over the previous 4 months. But now I had already gone another way and had no need for a second vehicle. Anyway here is the point. The sales guy told me that the leasing co. buys insurance so if the car is worth less at the end of the lease, they can stick to their price and not lose any money.

Their strategy is based on statistics. If they offered everyone the deal, they'd lose the people who were willing to pay the full price (and yes there are plenty of people who do, some because they want the car they know has been taken care of since new, others because they don't want the hassle, so they'd rather overpay than have to shop for a used car - I know a few people like that). Because of this, they will hold on until the last second before offering you the exit deal.

 

[Asterix187]

Given that Tesla is acknowledging the car is only worth $44k, would Tesla be negotiable on the buyout at the end of the lease? In other words, would Tesla take something close to $44k from the OP (if OP decided to keep the car) ?

But surely the car should be worth more now than when you originally got it, thats what Elon said so it must be true!

 

[OilSucks]

7 months? With the changes Tesla makes you'd be better off waiting those 7 months. You never know, the Model 3 might have twice the range by then.

 

[Chopr147]

I would like to buy out my lease and keep my S in August. I have taken good care of it. But, the more I learn, the more I'm leaning towards turning it in and getting another car. Not necessarily a Tesla. My residual is just under 50k and 75D's are around that price. I'm trying to get a buy-out price with taxes and any hidden fees but Tesla has not helped at all. AT least give me a US Bank contact#! My lease has only "Tesla leasing Trust" on it but I was told it's US Bank, no further info. Love Tesla but they can be so hard to deal with sometimes. Their communication is the worst I have ever dealt with in my 40 years of driving and numerous new cars over that time.

 

[robg]

I believe a few people mentioned tesla refusing to budge on the residual.

Which is one of many things that makes no sense when it comes to teslas business practices. They’d rather take a larger loss than renegotiate an end of lease buyout.

To be fair, BMW recenlty started doing the same thing as well. Pretty stupid.

 

[robg]

Lease buyout on a Tesla basically never makes sense because it includes $7500 fed tax credit in residual. Plus Tesla is inflexible with regard to trade up incentives.

I've always wondered why they do it that way. I'm guessing for accounting reasons (since they don't receive the tax credit until atleast a year into the lease it would affect their profit numbers since they'd be "fronting" the tax credit)?

 

[slainla]

I can’t speak to what’s in your contract, but based on several other car leases in my lifetime - you talked to a ding dong. (Not unexpected from the high turnover, low industry experience chaos of Tesla)

Yes, you almost always have to option to buy out your lease. You can do this from Day 2 of lease term to the last day. Your lease document should spell out the formula, but it’s usually Residual + remaining payments + tax. I’m guessing that’s the $65k quoted. I’m also guessing the $44k is Tesla’s offer for your car on trade. So if you go that route, the spread is the $21k you noted. (Their trade offer seems pretty fair to me, I don’t think you’d do much better selling private party.)

Your other option is to simply turn in the car early. Take the car to Tesla, hand them the keys and a check for your last 7 payments plus any disposition fee in your lease terms. So ~$8400.

Tesla seems to do everything different from rest of car world, but all other manufacturers I’ve dealt with waive the last 3 lease payments if you’re trading in on another new car from them. If Tesla does that too, then your cost to swap early could be as little as $4800.

Early termination on a lease is not always that easy. People have to read their contracts. I haven't leased directly from Tesla Financial but what OP says sounds familiar to my experience with Chrysler. It sounds dumb but the contract stipulates an "adjusted lease balance" where they take the market value and deduct it from the residual. If there's negative equity, the leaser owes that on top of the ETF, disposition fee, and remaining lease payments. It's no joke.

 

[Chopr147]

I have read my lease, EVERY line and I cannot figure out who to talk to regarding my lease ending buyout. Tesla store says US Bank, my lease is Tesla Leasing Trust. I then received a call from Tesla to "remind" me my lease is coming to an end. When I asked who to speak to regarding buyout, I got ? I am 3 months out and would like to decide whether or not I'm keeping my S. Love my car but

Their communication is the worst I have ever dealt with in my 40 years of driving and numerous new cars over that time.

 

[Chopr147]

Ok so I did some more digging and found this. Can't call yet, it's before 9:00 A.M. Pacific time

If you are currently leasing a vehicle that is eligible for purchase, contact Tesla Finance at (844) 837-5285 or [email protected] to begin the process.