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Help Spot my mistakes - Lease vs Buy with RVG

Discussion in 'Model S: Ordering, Production, Delivery' started by sachinsc, Dec 12, 2014.

  1. sachinsc

    sachinsc Member

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    Hello All,
    I am looking to pickup an inventory car that is priced at ~$87,800 and am trying to determine if I should lease the car or buy it with the Resale Value Guarantee. I spoke to Tesla finance and they said that the best 60 month loan rate is 2.25%.
    The lease residual if I wish to buy the car at the end of the lease is $52,875 at the end of 36 months. I am trying to compare the following 2 lease vs buy scenarios and buying with RVG ends up being the right decision. From my estimation,it makes no sense to lease the car.

    Can the collective hive mind spot any mistakes in the scenarios below that would switch the decision from buy to lease even if I plan to be in the car for only 36 months and no more. Even if I decide to buy the car, it is cheaper to buy it with the RVG.

    Scenario 1 : Lease the Car
    Down Payment and first months's payment = $7,000
    Monthly Payment for 35 months (12K miles) = $1,049
    Total Payments over 36 months = 7,000 + (1,049 * 35) = $43,715

    1a: If I decide to buy the car at the end of the lease, the total cost of the car is = 43,715 +52,875 = $96,590
    1b: If I decide to walk away, I have spent $43,715 for the joy of driving a Model S for 3 years.

    Scenario 2: Finance the car with Tesla's Resale Value Guarantee (RVG)
    Down Payment = $15,000
    Amount Financed=$72,800
    Interest Rate=2.25%
    Loan Term= 60 months
    Monthly Payment =$1,284
    Destination Fee =$1,170
    Tax Credit = $7,500
    Sales Tax = $0 in WA state

    Total Payments over 36 months = 15,000 + (1,284*36) + 1,170 -7,500 = $54,894
    Tesla RVG at the end of 36 months = $42,000
    Outstanding loan balance at end of 36 months = $30,105

    2a: If I decide I want to keep the Model S, I will pay off the car and the car will have cost me= $54,894 + $30,105 = $84,999.
    2b. If I decide to walk away from the car at 36 months and give it back to Tesla, I will use the RVG to pay off the outstanding loan of $30,105 and walk away with (42,000 -30,105) $11,895. So the 36 month cost to own the car will have been (54,894 - 11,895) $42,999.

    Are there any mistakes in the analysis above?
    Thanks for your help guys and gals.
     
  2. sachinsc

    sachinsc Member

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    So should I assume I am good to go ahead and order then? My wife made me switch my mind from the MC Red to Pearl White :). And now she said that the panoramic roof is a must :)
     
  3. spentan

    spentan Active Member

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    Def get the pano roof,

    from all the calcs i've done previously, I've never found leasing to be better than financing. (depending on the rate)

    If you can get a rate of like 1% or so, with some credit union, you may be even better off,
     
  4. sachinsc

    sachinsc Member

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    Thanks Spentan. Yeah, the contrast of the pano roof with the pearl white makes for a very elegant looking car. I think the red reflected the raw power better, but also doesn't hide dirt and scratches as well. What do you think of your red?
    The panoramic roof also made the inside of the car look so much nicer with the black leather seats.

    I'm going to compare the Tesla rate against other rates. I am guessing the difference in rates translates to $1K to 2K in interest over 36 months and the Resale Value Guarantee that the extra interest allows for might convince me to stick with the higher rate. Any comments on that?

    - - - Updated - - -

    Here's the config I am considering

    Pearl White S85
    Black Nappa Leather seats
    Obeche Wood Gloss Décor
    All Glass Panoramic Roof
    Ultra High Fidelity Sound
    Tech Package with Autopilot
     
  5. David_Cary

    David_Cary Member

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    Cary, NC
    Leasing mostly makes sense when you pay pre-tax. Just the tax credit alone makes buying the better deal if there is no tax benefit to a lease. The interest rate is usually pretty close anyway.
     
  6. docgarner

    docgarner Member

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    Yeah, it's about 3k difference between 0.51 and 1.99 over a 4 year 100,000 loan.
     
  7. arg

    arg Member

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    On your own numbers, the two versions of option B comes out very close (43,715 vs 42,999) and to get the lower amount you put up a larger downpayment and paid more monthly - so your personal cash-in-bank is an average of about $10,000 less than it would be for the lease. Depending how you value that $10,000, it makes the two options very close indeed.

    OTOH, actually exercising the Tesla buy-back is a worst-case scenario. There's also an option 2c of selling the car for market value (hopefully greater than the guaranteed value), in which case the purchase could work out much better.
     
  8. LaTache

    LaTache Member

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    One other factor...about 18 mos ago I was rear ended (bumped) while I was at a full stop for a red light. While the other driver's insurance covered the repair to the bumper and trunk, when I went to trade in the car (last month), I was given about $5K less because it was reported as having been in an accident despite a full repair, no frame or mechanical damage. Frustrating because this was not my fault in any way.

    So if you lease, obviously you have no residual value risk. If you are the owner via a loan, you absorb this risk. While unlikely, you never no when you will be in a fender bender. Very hard to predict the residual value on these cars as well. Kind of like owning an iPhone for three years. Hopefully, in 3 years the new models have much better range, even faster charging, and who knows what else.
     
  9. breser

    breser AutoPilot Nostradamus

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    That's what a diminished value claim is for. Based on your location and your story you probably can even still make the claim.
     
  10. sachinsc

    sachinsc Member

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    Yes, the 2 options are very close, but "buying" has a larger down payment. If I reduce the down payment to the same amount as the lease ($7K), the difference is reduced even further ~$200.
    Agree, that the Tesla buy back is a worst case scenario and would only need to be exercised if S85 prices crash and the car is worth a lot less than ~48% of the sale price. Hopefully if I do decide to get a newer car, I will be able to see at a higher price than the Tesla Resale Value + Extra cost of finance.

    - - - Updated - - -

    Wait, if you have an accident in a lease car (no fault of yours), there is no additional liability at the end of the lease? I did not know that. Can you please confirm this? I have never leased a car before. I have always bought slightly used cars that are "new to me". In the last 15 years, I have owned -
    * $10K - 1997 Jeep Wrangler
    * $18K - 1998 Jeep grand Cherokee (5.9 Limited) - Both jeeps were great for 4-wheeling
    * $24K - 2001 Mercedes Benz SLK 320 - Fun roadster
    * $25K - 2006 Acura TL - This is my current car and I've had it since May 2010 when my little one was born and I had to get rid of the roadster.

    The Tesla which I just put down a deposit on (super excited!!) was ~$93K. More than all of the above put together. It is also my very first brand new car. So I am trying to mitigate as much risk as possible.
    Tesla Financing doesn't offer GAP insurance. Any idea where I can pick that up from?
    My inventory car gets here from the Portland early next week. It feels like Christmas! Wait, it will be....how perfect! :biggrin:
     
  11. randompersonx

    randompersonx Member

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    As long as the car is repaired to the Manufacturer's specifications, there is no additional liability at the end of the lease. Basically this translates to using a shop authorized by the manufacturer.

    Leases tend to be very forgiving on damage, When I leased both a BMW and a Porsche, I was told that as long as dings were small enough to be covered entirely by a business card, it would not be counted as excessive wear. On the secondary market, a ding the size of a business card would hurt resale pretty bad.

    - - - Updated - - -

    Any auto insurance company should offer Gap insurance. Progressive certainly does.
     
  12. jstepy

    jstepy Member

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    If you lease GAP coverage is included automatically in your payment. So for a small business owner a lease is a much better option for tax purposes as well as its nice to know if you have a major accident and its totaled you can just walk away.
     
  13. sachinsc

    sachinsc Member

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    I'll have to look into GAP coverage. Though I decided to put about 20% down, so I don't know if I truly need it. I decided to buy the vehicle instead of leasing and take that small risk of having to deal with depreciated RVG if I get into a fender bender. Here's hoping that I don't jinx myself. It's also unlikely that I will turn the car in at 36 months unless Tesla comes up with some amazing feature that I must have.
     
  14. rallykeeper

    rallykeeper Member

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    You should probably consider the time value of money. In your example, you are counting the back end recovery of 11,895 from the RVG in today's dollars. Even if you just discount that future value at a very weak 1.5% rate of inflation, it knocks off $520 in present value to 11,375.

    If you instead use a higher rate of 3%, you've cut off $1,010 to a PV of $10,885. You've now paid less for the lease in present value terms.

    You should probably also discount the extra monthly payments, but you get the idea.

    If you do all that, you'll probably find that tesla priced the lease at parity to the RVG at a 2.25% discount rate. In other words, if you have better risk-adjusted investment opportunities than 2.25% annualized over 5 years, you should lease. If you don't, you should buy with the RVG.
     

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