Electric Car Leasing: When It Makes More Sense Than Buying

Electric car leasing gets unfair treatment. For U.S. drivers, an electric car lease rarely serves as a last-ditch financing option. For most drivers, it’s a reasonable financial choice for a quickly evolving technology. Battery range, the speed of charging, the software and driver-assistance technology, the models available, and potential resale values can all change dramatically in a few years’ time. A lease allows a driver to use an electric vehicle for that period of time without taking the load of depreciation on themselves. The case for leasing an electric car is straightforward; if your primary goal is to use the electric vehicle for transport rather than hold it as a long-term asset, a lease lowers the cost of entry, limits the uncertainty of depreciation, and makes it easy to replace the vehicle when it begins feeling outdated. Of course, leasing is not always cheaper, and it’s definitely the wrong choice for long-distance travelers. But the advice that buying is always the right choice because “you build equity” is oversimplified. Cars and electric vehicles at that should be considered as tools rather than long-term investments. EVs change the dynamics of buying versus leasing. Each new electric vehicle has the possibility of arriving with a significant advancement in battery technology that offers more range and better charging speeds. Your input to this assignment includes a Research component. It’s very important that you submit all required research form components to your instructor, as incomplete submissions may not receive a Grade. Incentives and manufacturer pricing decisions can also influence the new and used EV market. This can also bring risks for customers. If the resale value of a vehicle drops more than expected, the customer loses money when they trade in or sell the vehicle. When a lease ends, a lessee returns the vehicle as long as the terms of the contract were followed and the vehicle was in the lessee's possession. The leasing company takes the risk that the EV’s preset residual value does not align to the market’s value. Electric car leasing justifies this risk because for most drivers, the risk is too great and too much to bear. Drivers have a hard time predicting how the used electric vehicle market will be in the future, what will affect new battery technology, or how EV manufacturers will be pricing their vehicles in the market in the future. Leasing an EV does not mean the driver of the vehicle is not exposed to depreciation costs, it shifts the exposure of the cost to someone else. Leasing an electric vehicle is most useful to customers that like to drive technology forward. If you are looking to drive the newest mainstream EV technology each year, then customer ownership is more cumbersome. Leasing an EV makes the trade-in cycle easier. Many people think of depreciation when thinking of leasing, and it is important to note that there is much more that goes into a lease payment than just the expected depreciation value of the vehicle. You don't pay the purchase price all at once as a traditional buyer. That's why leasing an electric car is often cheaper per month than a normal purchase would be. It is especially the case if manufacturer offered lease deals.

Leasing also helps customers maintain cash flow for more important purchases like charging equipment. It is also helpful for funding emergency savings and insurance since it reduces the stretched budget. Some less tight budget leasing options also provide customers with the ability to buy an EV that fits their requirements for range and safety.

Just remember that a low lease payment is not always a good deal, and you cannot base it on that. It may have hidden costs that are easily missed, or a very limited trim level, an enormous payment due at signing, high credit, low distance allowed to drive, or a lot of other fees. Do not compare just the monthly payments, compare the total payments you would have to pay during the time that you would keep the vehicle.

If you think of signing the lease, ask for a lease worksheet first and take a close look at the total cost. The cost will include the price of the car, the price that gets reduced, the value that is expected to be returned, the cost to finance the car, the fee for ending the lease, and the costs that are imposed at the time of the signing. If a dealer doesn't give clear explanations, don't trust the payment quote.

Here is one last piece of advice: carefully look at the reasons you may want to give a large down payment at signing a lease. It will lower your monthly cost, but you will not create equity. Customers should be aware that this money may not be recoverable due to the nature of auto theft or total loss cases. Lucky for them, an affordable upfront payment lowers this risk.

Lease Incentives Can Be More Attractive for EV Customers, But Don’t Just Take the Deal.

Lease incentives for electric vehicles often overlook the numerous unique factors that qualify buyers for them. Leasing an electric vehicle offers a great workaround for the driver for various commercial clean vehicle tax credits. Leasing companies may decide to include some value for this eligibility in the cost of the lease.

Again, there is a degree of may. Just because a salesperson says a lease “qualifies” does not mean an incentive has been built into the lease. Buyers must consider where the credit or rebate is incorporated into the lease in order to determine if it is reflected as cost reductions, lease cash value, or other similar adjustments. Buyers must compare the deal to other financing offers to avoid assuming that the presence of an incentive establishes a competitive lease.

There is some horrible advice out there; like “just buy because tax credits make leasing unbeatable.” There may be some truth behind this advice, but it varies. The purchase of a car may be a good choice, but that is best considered on a case to case basis. A buyer who keeps the car for a long period of time and qualifies for the incentive will likely be better off. A lessee with a great manufacturer backed deal, and short expected ownership time combined with concerns over the potential resale value, may find leasing the smarter financial choice.

Mileage Limits Are the Biggest Practical Constraint

With the uncertainty of annual mileage and high mileage driving, the lease deal on an EV quickly becomes questionable. Most leases set limits on annual mileage and cost premiums. Drivers that exceed these limits end up paying a claims penalties. Drivers planning on a lot of driving, frequent long distance driving, or drivers expecting to go on a long distance move may find the leasing deal is more expensive.

Do not assume a driving mileage figure. Use real records of your current vehicle’s odometer. Add in a safety buffer to include driving to a family member’s house, unexpected work trips, and driving to long anticipated vacations. Selecting a low mileage lease to get a lower payment is one of the most common mistakes made and results in a terrible leasing deal.

High mileage drivers, frequent driving for work, and long distance driving (particularly to remote areas) should really buy a vehicle to spread the cost over a longer period. High mileage users get penalized by leasing arrangements as leasing is a bet on the status quo.

Charging Access Should Be Settled Before You Lease

While leasing may have financial advantages, leasing doesn’t address poor charging solutions. Prior to signing a lease on an electric car, ensure you understand how you plan to charge it during a typical workweek. Reliable home charging is the most popular charging method for EV owners, but it may not apply to you. If you live in an apartment or condo, check available options, as accessibility may vary. Having charging stations may be convenient for some drivers, but it depends on reliability, speed, price, and local availability. Don’t be tempted to lease a car with a daily charging routine that you will come to hate after a month.

Take the charging setup of the vehicle and your local charging infrastructure into consideration as well. This is important if you need to make long trips because the route planning and charging services may be poorly integrated. You may have a lease that guards you against uncertainty in resale, but you are stuck with a vehicle that has limited real world utility.

Electric car leases come with the loss of flexibility. For starters, you're not the owner, you cannot sell it, and you may be subject to additional financial obligations at the end of the lease for excessive mileage or wear beyond the normal lease expectations. You may also be required to have higher, risk-adjust insurance coverage because the vehicle will be of financial interest to someone else.

Limits also apply to personal customizations. Shift Star Date: 2023-01-09 When returning your leased vehicle, any accessories installed or upgrades made to the suspension, wheels, etc. may potentially negatively impact the depreciation evaluation and lead to a more costly return. The same applies to home charging. A home charging station may be a worthwhile investment if you plan to charge several EVs at your home in the future, but it should not be your reason for getting a short-term lease. Most of the time, leasing doesn't make financial sense after a few leases. Drivers who lease vehicles one after another pay more in the long run, as they are always in the expensive years of vehicle depreciation. Purchasing a vehicle and keeping it for many years statistically makes more sense long-term (again, as long as it meets your driving needs and you are ready to take the risk of reselling it and incurring repair costs.) This is a great counterargument. Long-term ownership is the best way to have low overall ownership costs and minimize the number of vehicles needed over many years if driving needs are less than 12,000 miles annually. Leasing a vehicle doesn't make sense financially, as it is shorter, and more expensive. It only makes financial sense if controlling the risk of ownership is more valuable than the ability to eventually own the vehicle. Rethought How To Evaluate An Electric Car Lease Offer The first thing you should look at when deciding to lease a vehicle, is the vehicle itself. Check if it has everything you need: good range, solid charging and seating, weather suitability, cargo capacity, insurance cost. An EV lease at a discounted price is still not worth it if it can’t meet your transportation needs. Then compare multiple dealer offers for the same model and trim whenever possible. Have each dealer share the full lease details, not just a lease payment. Pay attention to the selling price, incentives, lease term, and the allowable miles. Additional details include the money factor, the residual amount, amount due at signing, and all feeding requirements. Negotiate the selling price, if possible, as many people focus on the lease payment and lose negotiating power.

See if the lease covers gap insurance, and understand your insurance policy in the context of the lease. Check the end of lease process, including the wear and use policy, turn-in fees, and the policy to purchase the leased car. The buyout price is used to determine the lease purchase price. It is important because it impacts the decision to purchase the car. If the market value is higher than the buyout price, it is better to lease the EV. If the market value is lower, it is better to return the leased EV. Finally, a car dealer should not pressure you to sign a lease just because of an expiring lease offer. Incentive offers change, but reviewing a multilease agreement should not be rushed. Leasing works if the consumer understands what they are leaseing. Lease EVs are great for people with set mileage limits, dependable access to charging, and want the latest models. Mostly, leasing is good for people who want to try EV ownership while avoiding the risk of buying something that will depreciate a lot. This might be appealing to someone who has switched from a gas owned vehicle, who isn’t sure about building up good habits with the charging of an EV, or who isn’t certain if an EV is good for their household travel. Generally, financing the purchase of an EV is smarter for people who plan to drive their vehicle a lot, or who plan to hold onto their vehicle for a long time after financing ends. Drivers who want the freedom to change their vehicle many times in the future should buy an EV. It’s also smarter to buy an EV for someone who has done the research on how much it will cost to own the EV in the future, and EVs that are being sold for less than the average purchase price. More people should lease because it is not as financially inferior as people believe, and leasing rather than buying is good for the majority of people who would be buying an EV. Leasing electric vehicles is good because it puts limits on how much it will cost to own an EV in the future, and it has fixed lease terms for people who want to buy a newer model of an electric vehicle in the future. Leasing an EV is good for drivers who want to commit less in the future. Acknowledge how many miles you drive, make sure you have the charging plan you actually need, look over every penny you'll have to pay, and try not to pay too much upfront. Think about the total cost, not the monthly cost you'll have to pay. Leasing an EV for a few years will let you drive a newer model, but also lets you buy new EVs whenever you want without being stuck in long-term ownership. Leasing is often the more rational decision.