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Buy or lease?

Jordan80

New Member
Sep 26, 2019
2
1
Cambridge
I'm seriously considering buying a model 3 AWD long range. We're in the fortunate position that we can just about afford to buy the car without finance. However I've been told I'm mad to consider this. With all the tech updates coming I should only consider leasing. We don't change cars frequently so I can't see any value in a lease. Am I missing something?
 

kkillebrew

Banned
Jun 23, 2019
401
124
austin, tx
Your thinking is correct. Also consider that if you want FSD you are buying a future product that you may not get full benefit from come trade-in time.

Basic sound financial thinking dictates a depreciating asset be bought outright when possible, or financed low enough to leverage your cash. A lease accomplishes neither. The only question here is whether or not a Tesla with FSD is an appreciating asset as Mr. Musk has asserted... I think we need to see one to know for sure.
 

Generator

Member
Oct 10, 2019
255
449
London
Every buyer has different set of needs and circumstances, Leasing is neither wrong nor right, its entrirely down to the individual. You may find a deal that means that you pay less overall over the ownership term than if you bought the car outright, or you may not want to risk all that capital on an asset whose future value is less than certain.

Weigh up 'your' options and the associated risks and costs, and go your own way. Your particular circumstances may make you lean more towards ownership, or pcp, or HP, or a lease. Buying any new car is a quick way to wazz an awful lot of money up the wall, the method you choose to take aim with is entirely down to you.

As for a Tesla becoming and appreciating asset? Doubtful in the extreme... If there were a limited supply, then perhaps, but they're nailing thousands of these things together every week.
 

DJP31

Active Member
Aug 30, 2015
1,672
1,079
UK
With all the tech updates coming I should only consider leasing. We don't change cars frequently so I can't see any value in a lease. Am I missing something?

I think it depends partly on how ‘up to date’ you want to remain. Owners of S & X’s which are little more than a year old have the old MCU unit, so much of the media stuff is unavailable.

Owners with cars 2 and a bit years old (me) have AP2 and not AP2.5. This means I don’t get dashcam or proper sentry mode.

FSD may take even more computing power than they have provisioned for and your car may not support it, or see diminishing benefits as the MCU1 and AP2 owners are. The original AP1 cars have no chance of further enhancements.

Tesla may go bust and you’re in a car with little to no support and zero trade in value.

You may not want to run a car like this out of warranty.

These are all valid reasons why a lease might be more suitable than outright ownership. I think @Generator makes some excellent points, and I certainly wouldn’t see a Tesla as an appreciating asset, that’s an Elon pipe dream.
 
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JCremonini

Member
Sep 11, 2019
285
152
Bucks
Basic sound financial thinking dictates a depreciating asset be bought outright when possible, or ...

It is appreciating assets you buy, not depreciating ones.

New model cars generally start off with attractive lease costs.

My own view on the subject is that while technology in electric cars gains speed you are better off leasing. Why ? Because let’s say battery tech improves such that, in 3 years time, range increases by 50%. You now have a car which isn’t so attractive to the second hand market because the difference between it and the new models is great. If you want a barometer go look at the price of a second hand S. Residuals are not great. In the next 5 years I expect ranges to increase to the point that pretty much every Tesla will have a range which would be attractive to everyone and that would be the best time to start buying them new.

So, I went with leasing a car for £14k over two years versus buying one. The simple reason being I expect residuals of a £52k model 3 to be lower than £38k in 2 years time. And it means I earn compound interest on at least £52-14k rather than ploughing it into a car.
 

gangzoom

Active Member
May 22, 2014
1,280
1,085
Uk
It is appreciating assets you buy, not depreciating ones.

The amount of times this line gets used is just nuts, its essentially a line made up by car sales people to flog new cars to people every few years.

Some very simple maths.

10 year total ownership cost.

A: £52K car bought out right and kept for 10 years.

B: £14k in lease payments every 2 years.

Which is cheaper?

If you want to own the latest and best, lease is great, as regardless of how you pay all new cars depreciate.

BUT if your looking at long term ownership over say 5-10 years buying outright cheaper and by a long way.
 

gangzoom

Active Member
May 22, 2014
1,280
1,085
Uk
If you want a barometer go look at the price of a second hand S. Residuals are not great.

Really??

The cheapest used S is still over £30k, that's for a 5 year old car. Given new prices were around £60-70k that's 50% residual at 5 years, few other cars have such good residuals.

Or put it another way, a £65k S on 2014 selling for £30k now is £588/month in depreciation. Thats identical to your £14k over 2 years lease on a 3, which is cheaper car to start off with, so as relative cost to the car your £14k 2 year lease is much worse value for money!
 
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pmg102

Member
Jul 11, 2019
151
112
Liverpool, UK
You need a spreadsheet.

TCO over a differing number of years.

I worked out that a PCP deal, if I bought at the end of the 4 years then kept until 6, was pretty much the same as buying outright... so I went PCP. It takes away some of the risk - if Tesla go bust, or new tech is suddenly much better than existing tech. It also gave a guaranteed purchase price - which I didn’t like about the company car lease... they’ll no doubt offer me a price, but if the GBP tanks then their offer price will likely be higher than the PCP price.

just do the maths, and understand the risks with each approach.
 

JCremonini

Member
Sep 11, 2019
285
152
Bucks
The amount of times this line gets used is just nuts, its essentially a line made up by car sales people to flog new cars to people every few years.

Some very simple maths.

10 year total ownership cost.

A: £52K car bought out right and kept for 10 years.

B: £14k in lease payments every 2 years.

Which is cheaper?

If you want to own the latest and best, lease is great, as regardless of how you pay all new cars depreciate.

BUT if your looking at long term ownership over say 5-10 years buying outright cheaper and by a long way.

Sure - but the specific example I gave was for a 2 year ownership wasn’t it ? If you want to buy a car new and run it into the ground then great - but hardly anyone does that.
 

ewoodrick

Well-Known Member
Apr 13, 2018
5,285
3,732
Buford, GA
I'm seriously considering buying a model 3 AWD long range. We're in the fortunate position that we can just about afford to buy the car without finance. However I've been told I'm mad to consider this. With all the tech updates coming I should only consider leasing. We don't change cars frequently so I can't see any value in a lease. Am I missing something?

The math is really simple.

You lease a car, you basically pay initial costs minus anticipated wholesale value at time of trade-in, and interest and add a few grand for the leasing company to make money.

You buy a car, you pay for the cost of the car, interest and then when you sale, you can choose the wholesale cost or resale cost of the vehicle.

It's definitely cheaper to buy.

But with a technology car, you ask the question, is it going to be worth anything in 3 years? And trust me, the leasing company has already taken that into consideration.

But, Tesla is the only car that has new features added to it on a regular basis. In general, it seems as if 5 year old cars are doing a great job of holding their value.

I believe that at this time, the market is mature enough that you won't be buying an Edsel.
 
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Torokruger

Member
Oct 4, 2019
147
91
Scotland
Luckily being in Scotland the idea of an interest free loan for the car was the deciding factor for me to buy the car outright. Over 6 years with a car that in my humble opinion is years ahead of any competitor .
 
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gangzoom

Active Member
May 22, 2014
1,280
1,085
Uk
Sure - but the specific example I gave was for a 2 year ownership wasn’t it ? If you want to buy a car new and run it into the ground then great - but hardly anyone does that.

Actually very few people can afford to swap cars every 2 years, the age of the average car in the UK is 8.2 years old. Tesla owners seem to often confuse their own privileged financial position for the norm.

Who doesn't want a new car all the time?

I wish we could afford to lease but when I did the longterm numbers it essentially becomes a second mortgage. Fine if you can afford it, but most people cannot.

Do the maths on wasting £14k every 2 years on a car for 20 years, add in interest and your looking at over £150k, the best bit been, even after spending £150k over 20 years you still own nothing......For most people thats a mad way to run a car.
 
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Generator

Member
Oct 10, 2019
255
449
London
As I said above, everyone’s circumstances are different. There’s no right, and no wrong.

in the past 18 years, I’ve bought 3 new cars outright, bought 2 new cars on PCP, 2 nearly new cars on loans, bought 3 10+ year old used cars to run as daily hacks, and I finally got rid of a car I bought new in 1997 after 18 years of service.

Every one of them carried out the basic function of a car without issue. Some of them cost an awful lot more to run than others. Were the more expensive cars worth paying more for? In the cold light of day, no. But if I bought cars in the cold light of day I’d buy a succession of used Dacia Dusters and drive them until the wheels fell off.

The question is not what method of buying best, or least ‘mad’, or most ‘wasteful’. The question is what does the OP feel comfortable spending, over how long, and how much risk does he want to take?

Judgements of financial prudence among a group of people hosing tens of thousands of pounds down the drain on a four wheeled iPod from a company on shaky financial ground in a marketplace that’s yet to become properly established and carries an appalling level of risk. It’s like the inmates of HMP Broadmoor arguing who is most ‘normal’...
 

PXW1

Member
Sep 16, 2019
31
18
Surrey
The rule of thumb on this is that if you want to keep the car for a longer period then buy it outright, if you want to change within 2-4 years then lease/PCP.

The reason for that is depreciation - the shorter ownership period typically contains most of the depreciation, and the scale of that depreciation is the biggest risk factor to the total ownership cost. So by leasing/PCPing for shorter periods you lay off that uncertainty risk to the finance house (for which you pay in interest). Whereas the annual depreciation as a %age of purchase price is much lower in the later years so the passage of time effectively manages the risk for you.

We are planning to keep the car for a longer rather than shorter period, so for us it made sense to buy outright. If we were planning to trade it in, say for a Model Y in a couple of years then financing the vehicle may have made more sense. But no new car is an appreciating asset!
 

Mr Miserable

Supporting Member
Jul 8, 2019
4,747
8,825
UK
As you can see the lease/purchase decision is not as easy as some think.
If you decide to go down the leasing route, it is definitely worth shopping around - the quotes vary substantially.
The bizarre thing is that in truth there are only a handful of leasing companies but loads of brokers.
You would have thought that these brokers would offer more or less the same quotes when dealing with the same leasing company but in reality that is far from the case.
I found lots of seemingly bizarre anomalies in the quotes I received and so it is worth getting quotes for 2 and 3 years and varying the downpayment.
Look carefully at excess mileage costs. Bizarrely, sometimes it may pay to agree a lower mileage and pay the excess.
I wouldn't bother with any "included maintenance" options either.
In summary, populate a spreadsheet and look at the sums.
Some will be obviously expensive but may come with a "free" home charger or some such gimmick that will need factoring in.

I came to the conclusion that I don't understand the leasing business and there appears to be some 'market disrupters' out there that are doing exactly that. Shop around.

The cash you would use to buy the car outright is going to come from somewhere where it is hopefully working for you eg an ISA or two
Look at the returns that your cash investment is making and is likely to make and then compare over the term.
Money is cheap to borrow at the moment and so you may want to consider keeping your cash investment where it is and borrowing instead.
All in all, don't rush your decision and don't discount any avenue until you have done some analysis.
You will have plenty of time from when placing your order to decide how to pay for it.
 

Durzel

Active Member
Jul 17, 2019
3,250
2,243
Bath, UK
I think I'm likely to go down the PCH route early next year when I order a M3P, for many of the reasons already mentioned.

I'd run all the numbers in a spreadsheet (pre price increase) and over the course of 2 years would've spent ~£23,500 (fully loaded with FSD) on the lease. If I bought the car outright it would've cost (from memory) £57,690. Would I expect it to be worth significantly more than £34k (~40% depreciation) after 2 years in order to make buying outright more pallatable? I don't think there would be much in it.

Also, when I last spoke to the leasing companies they said that Leaseplan are allowing people to buy the car at the end of the lease anyway? That could change in the next 2 years, but assuming are happy to sell me the car then if it turns out the Model 3 is still the best thing since sliced bread by then, and FSD is so amazing that Robotaxis are a thing etc (it won't be) then I could still buy it at that point and be in effectively the same position as if I had bought it 2 years prior. The only difference in this scenario is that I'd either be losing £X a month in depreciation, or paying that amount to cover it.

Everyone is different but at this point I am not certain I would want to keep a Model 3 for 5 years, because of how fast EV tech is moving. Plus I like the mobility from having that ~£50k free to do other things with.

Different strokes for different folks of course.
 

Mr Miserable

Supporting Member
Jul 8, 2019
4,747
8,825
UK
If you are doing a cost/benefit analysis the FSD is a problem.
It is a beancounter problem however it may be worth examining the threads on this forum to see what benefits you get for your £5,800, especially if you are leasing.
 

Kenners

Member
Sep 29, 2019
203
178
London
Lease cost is basically a sum about residuals. Lease company makes a guess, they get it wrong all the time. My old Audi cost me 7.5k leased over 2.5 years including maintenance. I asked to buy, they quoted 12k. Car was 28k new. So to buying via lease would have been 19.5k, big saving over list price!! But this doesn't happen all the time, I got cheap lease as they were trying to meet year-end bonus payments. So I've assumed this unit was a loss leader.

3 residuals should be good. Tech might move on but EV demand will go up and there will be limited second hand supply! So 3/4yr old 3 will be highly sought after still, having benefited from improving software throughout and battery life still being good (unlike a Leaf) and Tesla brand good (it won't go bust, it has cash and can raise cash in the mkt if it needs to). Battery tech breakthroughs take time and lead time for new models is also fairly visible, see VW ID or the Honda city car.

Basically my bet is 3 will be like a Audi Q5 or something which were holding 60-70% of their value after 3yrs. Now if residuals are great, lease company will not want to sell it to you, or charge you more.

So if you can pay cash it probably makes sense. Money earns nothing in bank, so no compounding on that side and no people in lease chain to pay. Reduces monthly cash flows too, which is a thing. But few have 40-50k sloshing around. And if you have company car option its a different deal too due to tax.
 
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Durzel

Active Member
Jul 17, 2019
3,250
2,243
Bath, UK
If you are doing a cost/benefit analysis the FSD is a problem.
It is a beancounter problem however it may be worth examining the threads on this forum to see what benefits you get for your £5,800, especially if you are leasing.
Yup, FSD is a straight cost option that adds nothing to residuals, at least as far as leasing companies go. That speaks volumes about the anticipated value of it during the lease period.

Without FSD the total paid drops to ~£17,150 on my calculator, which when you factor in the interest added (admittedly not a huge amount, it's about £430 extra by my calcs on top of the £5,800 option cost) makes lease even more appealing.
 

pdk42

Active Member
Jul 17, 2019
1,070
1,048
Leamington
In general, running a car that's always less than 2-3 years old means that you are constantly funding the heaviest part of its depreciation curve. That doesn't make any financial sense. Of course, if you're prepared to pay for the privilege of always running a nearly new car then that's an entirely personal decision. Whether you lease or not in that scenario is a moot point since I suspect the lease companies do a pretty good job of handling the depreciation and finance calculations. Probably they'll do a better job than the relatively uninformed end-user buyer can do.

However, that's the "in general" view. Does anything change for Tesla? There's the argument that a Tesla may depreciate faster than other cars (rapid tech change, company stability concerns, battery life, ...). If that's true, then going lease certainly reduces your risk. I personally battled with this point myself, but in the end I decided if a Tesla was really such a bad choice, then I'd be crazy to get one whatever the financing path. If we look at history, we can see that Tesla don't depreciate any more than other cars of similar value, and some could argue that they do a little better than most.

So, I personally decided to buy - since I usually keep cars for 5-6 years. Unless I've got it all wrong and Tesla and its cars go tits up beforehand, it's the better financial proposition.
 
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