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Any 3/31 reservation holders or owners who won't order until you can lease?
- Thread starter run-the-joules
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- Model 3
The whole point of a lease is basically to scam investors:
- a corporation sets up an off balance sheet entity but in reality the entity is on the balance sheet
- then the corporation sells the vehicle to the off balance sheet entity at a profit BUT with an inflated residual value
- the reason why buyers buy the cars is due to inflated residuals (which reduces the monthly payment)
- most buyers will return the car at the end of the lease
- residuals are SO INFLATED these days that in many cases leasing is a great option and buying a used car has almost become a dumb thing to do.
- It doesn't make sense for the off balance sheet entity to give these deals. The only reason is to boost sales in the short term
- in reality the deal is a losing proposition for the off balance sheet.
So corporations are basically buying cars from themselves and agreeing to buy them in the future at a price that is going to be much higher than the resale value of the car.
Why do they do this? To boost their quarters.
I have no idea why the SEC allows this. Note that there is some exception to this rule. You will notice that in the case of Tesla the leasing entity is totally separate from Tesla. You will notice that leasing a Tesla is very expensive (precisely because of this)
Once you understand leasing you will understand that you will never ever get a good deal leasing a model 3.
- a corporation sets up an off balance sheet entity but in reality the entity is on the balance sheet
- then the corporation sells the vehicle to the off balance sheet entity at a profit BUT with an inflated residual value
- the reason why buyers buy the cars is due to inflated residuals (which reduces the monthly payment)
- most buyers will return the car at the end of the lease
- residuals are SO INFLATED these days that in many cases leasing is a great option and buying a used car has almost become a dumb thing to do.
- It doesn't make sense for the off balance sheet entity to give these deals. The only reason is to boost sales in the short term
- in reality the deal is a losing proposition for the off balance sheet.
So corporations are basically buying cars from themselves and agreeing to buy them in the future at a price that is going to be much higher than the resale value of the car.
Why do they do this? To boost their quarters.
I have no idea why the SEC allows this. Note that there is some exception to this rule. You will notice that in the case of Tesla the leasing entity is totally separate from Tesla. You will notice that leasing a Tesla is very expensive (precisely because of this)
Once you understand leasing you will understand that you will never ever get a good deal leasing a model 3.
Thanks for this perfect answer. I usually buy with a large down payment and pay down quicker as I have extra money.
I figure people who lease can't afford the car and are short term owners who will repeat the new car lease every 2 to 4 years to avoid doing ANY maintenance.
Yeah I should have clarified I meant only for people who can't claim it for business tax deductions.
Oh ok, then with the Model 3, I expect a lot of those who aren't doing it for tax reasons are waiting for the lease so they can get payments more in their budget. It's a drastically different market than the S/X. I'm not quite as familiar with the Bay Area, but in SoCal, there are whole communities where they basically can't be caught dead in anything less than a BMW 3 series (ie Burbank/Glendale or large swathes of OC), even if their incomes aren't quite there. As there are no used Model 3s yet, that leaves leasing. With Tesla though, their leases tend not to be screaming deals as xav- pointed out. Don't think that will stop those people though. And no, they're not representative of all the people waiting to lease, but it still goes back to the "cheaper payment" point.
Sounds about right. It's selfish but I'm honestly hoping that the leasing doesn't happen for a while just to force a wait on the people ahead of me in line who want to lease
On the other hand, I fear that people are going to let emotions push them past what they can afford… I guess that's good for the CPO market after the inevitable repossessions, though?
I've met a lot of them. I don't understand their thought process (or maybe I do, but am astounded that they do this willingly), but yeah. Not really repossessions, but they do trade in/sell quickly once they get too in over their heads financially. Same result. Much quicker used/CPO market supply. A lot of them don't treat the cars well. There's less to break, but also not as easy to fix in a backyard garage so I dunno how good those used cars will be.
My mindset is the complete opposite. Technically, I can afford a S/X. However, I'm still trying to stomach paying this much for even the 3. I really need to get over it so I can start brainstorming business ideas to take advantage of people with that mindset.
FWIW, I tried to talk myself into an S (the X was never really a real consideration for me, I loathe SUVs). The price didn't really bother me THAT much (wayyy more than I've ever paid for a car, to be fair, but workable), I just couldn't consider it acceptable from the "value for the dollar" standpoint, especially with the list of things that bugged me about it after my multiple-day test drive. When I asked myself "is this $35-45k better than the Model 3 will likely be?", I couldn't honestly say yes because the list of positive things the S gives me is pretty small. It's a really good car, just not the right car for me.
If the Model 3 were another 2-3 years away I'd probably have sighed and bought a Model S, but fortunately I'm not too far away now… hopefully.
voip-ninja
Give me some sugar baby
It doesn't matter what the manufacturer does or does not do in order to support their lease business any more than it matters what manufacturers do to boost sales in the way of artificially low interest rates or huge factory incentives in the form of thousands of dollars off of the sticker price of a car.
Why this would be anything the "SEC allows" is beyond me. I don't see that there's anything that BMW (the poster child for this) is doing that is illegal or unethical.
You lease a $50,000 BMW with an inflated residual of 60% and at the end of the lease the car is not worth the $30,000 that BMW says it's worth.... so you turn it in to the dealer. If it is a high demand car then BMW will spend some money, CPO the car and put it on their lot with a $35,000 sticker price and a warranty extension.
If it's not a high demand car then BMW will send it to auction. Perhaps at auction the car goes for $25,000 and they lose $5,000. This is no different on the back end than if they did a $5,000 incentive for the car on the front end with the exception that they are able to play the market and in some cases sell the same car twice and make a profit selling it TWICE.
BMW has the highest margins of any auto manufacturer, so it's in their interest to sell as many new cars as they can, whether they are leased or not, since for them volume is what they need to make it possible for them to manufacture more of the car in house and rely less on outside suppliers.
The primary reason to do a lease is not because of the ability to write it off on taxes (in fact, my accountant assures me that the overwhelming majority of people who do this would end up owing money in an IRS audit because the rules about what a business lease vehicle can be used for are so strict).
The primary reason to do a lease is to take advantage of manufacturer incentives such as inflated residuals, and, most importantly, transfer the risk of resale value to the leasing company (usually the manufacturer).
Car got wrecked and repaired and resale took a huge hit? In a lease it does not matter. New model came out and yours is now worth thousands less? Doesn't matter.
With a lease from a company that does big lease support (BMW) it's almost silly NOT to lease since it usually works out being only marginally more expensive than buying the car and holding it.
Now in the case of Tesla, there is no real strong support, so it's probably wiser to pay cash or finance the car at a very low interest rate and sell it when desired.
Why this would be anything the "SEC allows" is beyond me. I don't see that there's anything that BMW (the poster child for this) is doing that is illegal or unethical.
You lease a $50,000 BMW with an inflated residual of 60% and at the end of the lease the car is not worth the $30,000 that BMW says it's worth.... so you turn it in to the dealer. If it is a high demand car then BMW will spend some money, CPO the car and put it on their lot with a $35,000 sticker price and a warranty extension.
If it's not a high demand car then BMW will send it to auction. Perhaps at auction the car goes for $25,000 and they lose $5,000. This is no different on the back end than if they did a $5,000 incentive for the car on the front end with the exception that they are able to play the market and in some cases sell the same car twice and make a profit selling it TWICE.
BMW has the highest margins of any auto manufacturer, so it's in their interest to sell as many new cars as they can, whether they are leased or not, since for them volume is what they need to make it possible for them to manufacture more of the car in house and rely less on outside suppliers.
The primary reason to do a lease is not because of the ability to write it off on taxes (in fact, my accountant assures me that the overwhelming majority of people who do this would end up owing money in an IRS audit because the rules about what a business lease vehicle can be used for are so strict).
The primary reason to do a lease is to take advantage of manufacturer incentives such as inflated residuals, and, most importantly, transfer the risk of resale value to the leasing company (usually the manufacturer).
Car got wrecked and repaired and resale took a huge hit? In a lease it does not matter. New model came out and yours is now worth thousands less? Doesn't matter.
With a lease from a company that does big lease support (BMW) it's almost silly NOT to lease since it usually works out being only marginally more expensive than buying the car and holding it.
Now in the case of Tesla, there is no real strong support, so it's probably wiser to pay cash or finance the car at a very low interest rate and sell it when desired.
I think it won't be until you keep a car for 6 or more years (and not have any major repair work done post-warranty) does financing make sense nowadays when compared to leasing, even if the interest rates were equal.
True about the advantage of leasing especially when there are lots of lemons when you are not in a jurisdiction with a lemon law.
My insurance in Canada does offer complete replacement value for the first five years but then it's only advantageous for write-offs and not small to medium damages.
True about the advantage of leasing especially when there are lots of lemons when you are not in a jurisdiction with a lemon law.
My insurance in Canada does offer complete replacement value for the first five years but then it's only advantageous for write-offs and not small to medium damages.
Leasing makes sense only if residuals are higher than what you would be able to sell the car in say 3 years (lease term) together with large purchase discounts.
Tesla leases are generally terrible... Like if lease payments aren't much less than loan payments, then why lease at all? Better to buy instead of lease.
If for example the residual is not inflated so it's exactly what you would be able to sell the car at in 3 years, you ll just end up paying a lot more rent charges, which are much higher than loan finance charges, on the lease vs. the loan. So in that case it's mathematically better to buy instead of lease.
BMW leases have historically been really good, but have gotten worse recently. I think MB and Lexus also have good leases at times. Audi and Porsche are known to have terrible leases. Tesla leases are as poor as Porsche sedan or SUV. Basically better to buy.
Tesla leases are generally terrible... Like if lease payments aren't much less than loan payments, then why lease at all? Better to buy instead of lease.
If for example the residual is not inflated so it's exactly what you would be able to sell the car at in 3 years, you ll just end up paying a lot more rent charges, which are much higher than loan finance charges, on the lease vs. the loan. So in that case it's mathematically better to buy instead of lease.
BMW leases have historically been really good, but have gotten worse recently. I think MB and Lexus also have good leases at times. Audi and Porsche are known to have terrible leases. Tesla leases are as poor as Porsche sedan or SUV. Basically better to buy.
voip-ninja
Give me some sugar baby
You are not taking account the biggest advantage of leasing the car which is that the bank is taking on the risk of the car's value being off in 3 years.
You can't predict what the value of the car will be, so when you "purchase and hold" for a period of time you are taking the risk that the resale value of the car will be predictable vs. tanking.
The problem is that car resale values are pretty hit and miss. Car being damaged and repaired, manufacturer scandal (VW diesel), newer/better model being released, all can impact what the residual value of the car "should" be. In most cases where someone might like to get into a new car in 3-4 years (average person in the USA changes cars about every 3-4 years anyway whether leasing or buying) and the value of the car has taken a beating they either suck it up and drive the car longer than they would like (to spread the damage out) or they sell/trade the car at a hit and take the damage in one shot.
Obviously in most cases (maybe 75%) the value of the car will be roughly what it is predicted to be, but those aren't great odds IMO.
So, if the cost of leasing vs the cost of buying were exactly the same I would still generally opt to lease with a "buy" option at the end if the car has proven to be trouble free and worth keeping long term.
What is this lease rent charge you are talking about, being higher than financing interest rates? Is it almost always the case in the States that lease rates are slightly to significantly higher than financing rates?
I guess that's where those security deposits come in to try and drive the lease rate down or close to zero.
voip-ninja
Give me some sugar baby
Lease rent charge is the same as interest except it's calculated with money factor instead of "interest rate". You can easily convert between the two.
Lease interest is generally higher than loan interest on the same vehicle.
Additionally lease has additional fees that are pure profit for the dealer or manufacturer such as lease acquisition charge.
Leasing in most cases is more expensive although in cases where there is strong manufacturer support for leasing (BMW) it's possible to get them pretty close and as I've already pointed out the lease advantage in this case is that the bank/manufacturer assumes risk of car resale value at lease end.
Yes, lease is a spot purchase with a future sale at the same time.
Basically if you see a lease with a 63% residual and you are getting a 10% discount and assuming reasonable money factor, just lease that car, since you ll only be paying 27% depreciation over 3 years + rent charges. In fact leasing this new car is likely cheaper than buying a 3 year old version of this same car and owning it for 3 years.
Basically if you see a lease with a 63% residual and you are getting a 10% discount and assuming reasonable money factor, just lease that car, since you ll only be paying 27% depreciation over 3 years + rent charges. In fact leasing this new car is likely cheaper than buying a 3 year old version of this same car and owning it for 3 years.
galbrecht7
Member
I've experienced both buying & leasing cars, and really see the arguments on both sides. I'm currently 2.5 years into a lease and have liked it. Probably the best part was getting "more" car for a smaller payment. I basically got a fully loaded top of the line model (Mazda CX-5) for a payment that would be equivalent to the base model. I also liked the argument of being able to trade up to newer technologies & safer features every 3 years.
For a majority of the last 18 months since reserving the Model 3, I assumed I would lease it for similar reasons mentioned above. However, lately I've been changing my thinking to buying. One reason is on leases, you basically pay for a capped amount of miles per year, and any overages are a penalty. I don't think I'll drive 45,000 miles over 3 years with my M3, but I also don't know that for sure. Having this car & the supercharger network kind of entices me to plan long road trips, on trips I may ootherwise fly. So I don't want a looming penalty hanging over my head with a lease if I go over the mileage agreement. The freedom of mileage sounds nice with an EV.
Another reason I've thought twice about leasing this car is I think the depreciation won't be as bad as similar ICE cars. I know this is purely speculative, the only thing I'm basing this off of is how Model S's have retained their value better than cars similar to it. If I want to upgrade in 2-4 years to the AWD version, maybe I won't take a bad loss selling or trading in. And I like the flexibility of being able to upgrade on my terms, not a lease term.
Another benefit of leasing ICE cars is you almost never have to pay for mechanical issues or standard wear & tear because of only having the car 3 years. So far on my current lease I've only paid for oil changes. Hence another reason buying a Tesla is a bit more intriguing than leasing. No oil changes, no transmission or engine wear & tear. So maintenance costs are already lower, no real benefit to lease.
So anyways, just my thoughts. Still haven't decided 100% what I'll be doing. Only thing I haven't decided haha, already know my color/wheel choice.
For a majority of the last 18 months since reserving the Model 3, I assumed I would lease it for similar reasons mentioned above. However, lately I've been changing my thinking to buying. One reason is on leases, you basically pay for a capped amount of miles per year, and any overages are a penalty. I don't think I'll drive 45,000 miles over 3 years with my M3, but I also don't know that for sure. Having this car & the supercharger network kind of entices me to plan long road trips, on trips I may ootherwise fly. So I don't want a looming penalty hanging over my head with a lease if I go over the mileage agreement. The freedom of mileage sounds nice with an EV.
Another reason I've thought twice about leasing this car is I think the depreciation won't be as bad as similar ICE cars. I know this is purely speculative, the only thing I'm basing this off of is how Model S's have retained their value better than cars similar to it. If I want to upgrade in 2-4 years to the AWD version, maybe I won't take a bad loss selling or trading in. And I like the flexibility of being able to upgrade on my terms, not a lease term.
Another benefit of leasing ICE cars is you almost never have to pay for mechanical issues or standard wear & tear because of only having the car 3 years. So far on my current lease I've only paid for oil changes. Hence another reason buying a Tesla is a bit more intriguing than leasing. No oil changes, no transmission or engine wear & tear. So maintenance costs are already lower, no real benefit to lease.
So anyways, just my thoughts. Still haven't decided 100% what I'll be doing. Only thing I haven't decided haha, already know my color/wheel choice.
voip-ninja
Give me some sugar baby
I don't do leases because I hate the idea of always having a car payment. Apparently I'm not the average case since I keep my vehicles for 10 years or more (Model 3 will be replacing a 13 year old Acura). Initially I start out with a loan for the majority of the price of the new car, pay it off early, then spend several years saving money for the next vehicle. Eventually I'll be in a position to purchase any car I want, within reason, with cash.
IMO This is especially relevant with EVs and “v1.0” vehicles in the 2018-2021 time window, where there will be (hopefully) a rapid growth of offering (other EVs from many brands with drastically new features in autonomy, safety, battery etc) at the same time as a growing acceptance/adopter profile. From what I observe it seems residual computations from largely ICE manufacturers are taking none of this into account.
I do think Tesla vehicles somehow are above/ahead of this game somewhat. For example, we purposefully leased a M-B b-class in 2015 because their residual value prediction was computed as a traditional car, but it clearly was not reflecting what I could actually sell the car for today given all the spectrum of bolt/m3/leaf2/soulev/rapid charging/ etc available! But besides the car being mostly excellent for out kid commute needs the difference in cash is best reinvested in a change in fleet.
