How has Tesla handled federal EV tax credits with leases?

[dwalbrig]

Hello - first time poster with a M3LR on order (late Dec / early Jan delivery). with the possibility of a new EV federal tax credit, I'm trying to figure out how Tesla has historically handled these credits with leases. I know the "owner" of the vehicle is eligible for the lease --- so not the lessee (me, if I lease).

Would appreciate any insight and understand that past behavior is not always a predictor of the future
How has Tesla handled federal EV tax credits with leases?

Many thanks!

 

[RichardL]

It is applied to the residual and hence lowers the monthly payment

 

[jjrandorin]

It is applied to the residual and hence lowers the monthly payment

That would be IF (and thats a BIG IF) tesla decides to share any of it with the person leasing, which they absolutely do not have to do (and is the root of the OPs question, actually).

Most car manufacturers do not pass on the entire tax credit. Some pass on some of it, some pass on less, etc. Given the car market right now, even though no one knows, it would be silly to think that Tesla (or any car manufacturer) has any incentive at all to pass all the credit on, in a lease.

Tesla has already raised the price of their vehicles like 5k in the past few months, in effect ensuring that any tax credit effectively goes to them (higher priced car + tax credit bringing it down to pre increase prices = tesla getting the credit on purchases as well, at the end of the day).

OP you will have to wait and see, but also realize that the price increases may not be over, so expect that no matter what you plan for, the effective price will be virtually the same, with or without tesla sharing the tax credit on a lease.

 

[glide]

It is applied to the residual and hence lowers the monthly payment

…but also raises the buyout price.

 

[ArchEtech]

Generally tax credits are not shared And would be taken by an actual lien holder in a lease.

 

[dwalbrig]

Thanks all - seems to be some inconsistency in replies - perhaps the whole question is irrelevant until we know what Tesla decides to do. I generally concur with the sentiment that Tesla has no need to share this tax credit with lessee's ... plenty of backlogged demand that likely won't be affected by such a decision.

Thanks all for your feedback

 

[MP3Mike]

…but also raises the buyout price.

There is no buy-out price on a Model 3/Y lease.

 

[jjrandorin]

Generally tax credits are not shared And would be taken by an actual lien holder in a lease.

While tax credits absolutely go to the actual owner (thus in a lease it goes to the leasing company), Its been my experience that almost all car manufacturers offer at least SOME of that back to the person leasing, in the form of either a cap cost reduction, a higher residual (thus lower payment) or some combination of those to entice people to buy those cars.

Perhaps because I am used to "german cars", where this is done all the time (BMW / Merc / Audi / VW, etc etc) to help move vehicles, I am used to seeing this done. With that being said, as I mentioned, no one needs any help moving vehicles right now.

Other car dealers will just raise the actual price of the transaction (dealer pack), to capture any rebates a manufacturer may offer, and in fact many of those manufacturers will expect them to do so, with the expectation that this is extra profit for them.

Tesla doesnt have a dealership, so simply raises prices across the board. A lot more transparent, which I prefer, but not necessarily "cheaper".

 

[SkepTeach]

While tax credits absolutely go to the actual owner (thus in a lease it goes to the leasing company), Its been my experience that almost all car manufacturers offer at least SOME of that back to the person leasing, in the form of either a cap cost reduction, a higher residual (thus lower payment) or some combination of those to entice people to buy those cars.

Perhaps because I am used to "german cars", where this is done all the time (BMW / Merc / Audi / VW, etc etc) to help move vehicles, I am used to seeing this done. With that being said, as I mentioned, no one needs any help moving vehicles right now.

Other car dealers will just raise the actual price of the transaction (dealer pack), to capture any rebates a manufacturer may offer, and in fact many of those manufacturers will expect them to do so, with the expectation that this is extra profit for them.

Tesla doesnt have a dealership, so simply raises prices across the board. A lot more transparent, which I prefer, but not necessarily "cheaper".

Is this still the case with BMW? Back during the summer, I was considering leasing a new 330e. I had leased two i3's prior and in both cases, BMW applied the entire $7500 as a cap cost reduction. In this case though, my SA informed me that BMW would not be applying any of the ~$5,800 the 330e receives to a lease, and that the chip shortage meant my car wouldn't be able to have things like assisted cruise control or premium sound. So for the low low lease price of *only* ~$800/month, I could replace my i3s REx with a less well-equipped car and raise my monthly by several hundred dollars! lol Needless to say, I turned in my i3 at end of its term and walked away from BMW.

 

[ArchEtech]

Yes sometimes the manufacturer will kick back that tax credit to sweeten the deal. BMW has their own financial group, maybe that’s a factor. Luxury German brands are more likely to do this. BMW usually has better leases than Benz and Audi from my research anyway, though I’ve never leased.

Ford with the Mach E has an interesting lease option with incentive. The thing is with the market the way it is you’re better off buying because resale is so high.

There is no way in hell Tesla kicks that back into the lease and if they do it’s because their MSRP is $7500 more than it was before the credit was available. Tesla has crazy resale which is why I believe in something me cases (maybe all) you aren’t even given the option to buy out at the end when you lease through Tesla. They also stopped letting 3rd party dealers buy you out - I think there is a class action going on about it.

I don’t see the market changing in the next 2-3 years. So you’re going to be able to buy out a lease and sell/trade for more than the buyout. I haven’t seen the lease incentives factor that in at all (at least enough to make up for it) which is why I’ve still never leased. It sucks becuse I like buying expensive German cars faster 3 years and 40% depreciation and super low miles.

My Panamera Turbo had a $198,009 sticker, and I paid $60,000 for it at 5 years old and 35000 miles. That was an amazing car, there is just no way I’m owning it one of warenty. The only issue I had in 4 years of ownership was with the heated steering wheel which was $3500 to fix…. I also got rid of it becuse it was suddenly another $8000 Ahead In equity for no reason.

That kind on depreciation isn’t going to happen for a while. I don’t see the market and supply going back to normal. I don’t see the chip shortage and supply chains improving quickly enough. The 2022 election year is more likely going to scare the market even more with the mudslinging that will happen. It’s better for me so I stop buying a different car every 2-3 years! I’ll probably at lease keep the Tesla though the basic warranty and most of the power train/battery.

I don’t see that deal on a Panamera or 911 happening maybe ever and in that case I’m not sure it will be worth it to me to dump the Tesla for a bit more highway speed that is never use. I’m not wealthy enough for track days anyway.

 

[ATPMSD]

Hello - first time poster with a M3LR on order (late Dec / early Jan delivery). with the possibility of a new EV federal tax credit,

If you get the car this year then I am pretty sure you will not get a tax credit. As to next year, there is a lot of talk, but we need to wait and see what it actually says as to who is eligible and who gets the credit. It looks like the credit might go straight to the buyer. The Bill has not passed yet, so you might want to read this:

EV tax credits: Manchin a no on Build Back Better bill, putting $12,500 incentive in doubt

The House passed Biden's Build Back Better bill in November, but it remains untouched in the Senate.

www.cnet.com

 

[CapeOne]

As has been mentioned, Tesla applied the tax credit to the residual value instead of using it to lower the cap cost. This isn't meaningful on M3 and MY models since you can't currently buy the car at lease end or sell it to a third party dealer. However, if that were to change it would become relevant as by adding the tax credit to the residual, Tesla increases the buyout cost and therefore makes it more expensive to buy or sell to third party dealer. Essentially, you'd be paying Tesla for the tax credit.

 

[TIppy]

As has been mentioned, Tesla applied the tax credit to the residual value instead of using it to lower the cap cost. This isn't meaningful on M3 and MY models since you can't currently buy the car at lease end or sell it to a third party dealer. However, if that were to change it would become relevant as by adding the tax credit to the residual, Tesla increases the buyout cost and therefore makes it more expensive to buy or sell to third party dealer. Essentially, you'd be paying Tesla for the tax credit.

By applying it to the residual, you also pay interest on it, so you don't actually get the same benefit of the $7500 as if it had reduced cap cost.

 

[CapeOne]

By applying it to the residual, you also pay interest on it, so you don't actually get the same benefit of the $7500 as if it had reduced cap cost.

Yes, that too. Applying the tax credit to the residual can make it worse for the lessee multiple ways.

 

[ATPMSD]

Tesla does not have the greatest leases and you cannot buy the car at the end; consider buying the car. Your bank may have better rates. The remaining balance at the end of 3-years will most likely be less than the market value of the car (so you get to pocket the cash directly) and you won’t have to deal with mileage and end of lease costs. Run the numbers yourself before finalizing your decision.