Lease Residual and Lease Payments

[coupedncal]

I have tried to put in the numbers into various lease calculators and the numbers for a Tesla Model S lease are not adding up. If i price out a base 75D, the Tesla website shows the lease payments to be about $1000 with a $5K down. That means over a three year lease, i am paying $41K for the car. Now the CPO or even the market used car prices for a three year old car are no where near $40K below MSRP (they are significantly higher). And the numbers go further wacko once you bring the $7500 tax credit into the equation. So question is why is the lease price so high on the model S? Based on my math, it should be in the vicinity of $500 tops per month.

What am i missing?

 

[coupedncal]

Any takers on this query? Am I voiding some secret handshake unspoken protocol by asking this question?

 

[Daniellane]

One odd thing I recently found out from my O.A. is that the $7500 is excluded from the calculation of the monthly payments & added to the residual. This dramatically inflates the residual. Additionally, the sales tax is divided by 36 and added to each monthly payment.

 

[JasJ]

Buying versus leasing for me was a massive difference - it would have cost quite a bit more to lease for 3 years. I bought. I do take the risk that in the 3 years, the car will be worthless when I go to sell(really doubt it).

For me, the money factor/interest rate was 4x for leasing. The Federal $7500 was basically 'not included' even though they said they included it on the residual. If so, it was a terrible residual.

 

[bpobill]

Buying versus leasing for me was a massive difference - it would have cost quite a bit more to lease for 3 years. I bought. I do take the risk that in the 3 years, the car will be worthless when I go to sell(really doubt it).

For me, the money factor/interest rate was 4x for leasing. The Federal $7500 was basically 'not included' even though they said they included it on the residual. If so, it was a terrible residual.

Have you seen the depreciation? It's no different than any other luxury car brand. You can get a 2015 S P85D for low $70's with a sticker around $120k. That's over $1,300 a month in depreciation.

 

[PARNY]

I have tried to put in the numbers into various lease calculators and the numbers for a Tesla Model S lease are not adding up. If i price out a base 75D, the Tesla website shows the lease payments to be about $1000 with a $5K down. That means over a three year lease, i am paying $41K for the car. Now the CPO or even the market used car prices for a three year old car are no where near $40K below MSRP (they are significantly higher). And the numbers go further wacko once you bring the $7500 tax credit into the equation. So question is why is the lease price so high on the model S? Based on my math, it should be in the vicinity of $500 tops per month.

What am i missing?

Interest. If the car costs $80K and the residual is $50K then there is an average balance over $65K times 4%*3 years = $7,800 in interest. The actual average balance is higher than $65K because you pay more interest early on in the lease. So in your example, you are not paying $41K in depreciation but probably closer to $33K.

 

[coupedncal]

Interesting points. To dissect this further, could someone share a recent 75D lease terms here including the residual and how the $7500 rebate is factored in?

 

[mattack4000]

It leases high because of the residual and the money factor they wish and choose to set. They just have to make it an option for people that don't care how it doesn't make sense financially.

 

[Daniellane]

Here’s a comparative breakdown with real numbers as of today for
Model S 100D ($111,050):

Financing
Deposit: $2,500
Tax: $9,661
Down Payment: $17,500
Total Due At Signing: $29,661

Leasing
Deposit: $2,500
Down Payment: $2,500
Total Due At Signing (includes acquisition and first months payment): $7,959

 

[JasJ]

That makes the leasing look better by asking for 4x+ down payment on the loan side. I had Tesla loan with no downpayment. Plus in Texas you pay sales tax on the full value of the car in a lease (rip off - OP is luckier on this), my delta was $29,000 cheaper over 3 years on the loan side.

 

[coupedncal]

Thanks for sharing this info. Could you elaborate on the residual further?

When you say federal EV credit is part of lease, what does that mean? The adjusted capitalized cost (the final price based on which lease price is assessed) is pre federal credit of $7500 or post federal credit? And if this credit is not adjusted at the start of the lease then does it get deducted at the end of the lease?

 

[Daniellane]

That makes the leasing look better by asking for 4x+ down payment on the loan side. I had Tesla loan with no downpayment. Plus in Texas you pay sales tax on the full value of the car in a lease (rip off - OP is luckier on this), my delta was $29,000 cheaper over 3 years on the loan side.

Here’s a comparisons based on 10,500 down just over 20,000 due at signing with Tax on loan. For both S & X.

 

[Daniellane]

in my state I pay 8.7% net of trade-in. So if I trade it in after 3 years I save ~$5,000 in sales tax on the new car.
That is what tips the scale towards the loan for me.

 

[jbcarioca]

The lease option is always more expensive unless you have a business justified tax deduction.

Basically the higher the residual value the worse teh comparison looks simply because you are amortising 100% in a loan and capitalised cost minus residual value for a lease. Financially a lease is a loan with a balloon payment at the end.
Manufacturers do subvene (subsidise) residual values sometimes and very often money factors (that translate into interest rates). As a general rule such leases also have quite modest mileage allowances and often other restrictions.

Tesla has not subvened either loans or leases AFAIK. The only remotely comparable thing they have done is guarantee resale values (NOT residual values, actually) for both loans and leases. The loans were required to be at least 60% of sales price for a minimum of 36 months. Early payoff terminated the resale value guarantee. If I recall correctly that was Model S only, and ended more than two years ago, sometime in 2015.

 

[n2mb_racing]

I found that when buying a discounted inventory car, the lease option became very attractive. Tesla bases the residual value at a fixed percentage of the MSRP, so discounts off the MSRP reduce the amount of depreciation you have to pay for during the life of the lease. I estimated that their projected residual value was pretty high, higher than I expected the car to sell for used in 2 yrs. Plus, it would be easier to just turn in the car after 2 years, rather than try to sell it and buy a new one.

My lease is up in September, and I might have been wrong. The depreciation might have been less than I expected on my P90DL, because Tesla hasn't updated very much in the last 2 years on the S.

Either way, the lease option was low stress, since I knew I wasn't going to own the car long term. I might do it again in the fall, if there are good inventory lease deals. Otherwise, I will buy.

 

[BrokerDon]

Leasing is also a double edge sword when it comes to TIME. If your lease ends right when the new model you want becomes available for delivery (not ordering), you're golden. If not, you need to negotiate an extension with your leasing company (increasing the cost of your car), buy it at the typically above market residual price, or turn it back in an find something else to drive until you can take possession of the new model you want. Getting the timing right with new Teslas is even more challenging with the "fluid" delivery dates.

Buying puts you back in the driver's seat on TIME since you control when you want to sell, not some leasing company. Buying will almost always cost less than leasing if you keep your car beyond your 30 or 36 month lease term... and the longer you keep it the more you save over leasing.

But if you want the latest shiny new car, smartphone, etc. then leasing is easier since you don't have to sell your asset which can be a frustrating hassle sorting through the unscrupulous flakey unqualified pseudo buyers. Instead you just turn your car back into the leasing (finance) company who make a lot of money satisfying peoples wanting new products... and typically reselling your used car at a profit.

One other advantage of leasing can occur when your vehicle is involved in a major accident... but not totaled. You simply have it repaired at your leasing company's approved body shop... and if the repairs don't restore your car properly AND / OR creates "diminished value" it's not your problem. You simply hand the keys over at the end of your lease instead of having to try to sell your repaired car with repair issues and probably a CarFax accident history entry.

 

[RCFLMA]

A few points to consider -

Leasing is just another purchase option, but one that defers the bulk of the cost to the end since the leasing company essentially still owns the car. This explains why if you want to drive more miles/year, you are "charged" more since you are decreasing the residual value at the lease end. Effectively, the car is sold by Tesla to the leasing company (the "cap cost") and you are paying them for using and depreciating "their" car.

The federal tax rebate is paid to the first owner of the car after Tesla, which in this case is the leasing company. (favors them)

When comparing a lease and a loan, remember that someone other than you is usually benefits more. they are not usually in the business of losing money.

For comparison purposes, you can estimate the cost of money ("interest rate") by asking for the "money factor" and multiplying by 24 to get an "interest rate". In the info above, the money factor was 0.0021 which when multiplies by 24 gives you the corresponding interest rate of a bit over 5%. That is a big part of the difference above between leasing and purchasing. (favors them since most people don't know how to convert one into the more familair other)

The leasing company typically tacks on lease fees at the front and back ends, in this case nearly $1100. Another key part of the difference above. (favors them)

Depending upon your tax situation, you may be able to deduct the lease costs . Most cannot do this unless it is a company car. (favors you if possible)

Always ask for the money factor in writing. I once had a sweetheart deal on a nice car (not Tesla) because the leasing company typed in one too many zeroes on the money factor calculation. As you can see above, there at usually two zeroes after the decimal point. One twitchy finger and my interest rate was one-tenth the going rate. When the lease end came up after three years, I agreed to get a new car as long as they honored the exact same money factor. That's when they caught their error on the first deal. Too late.

 

[Daniellane]

One odd thing I recently found out from my O.A. is that the $7500 is excluded from the calculation of the monthly payments & added to the residual. This dramatically inflates the residual. Additionally, the sales tax is divided by 36 and added to each monthly payment.

It looks like I may have been given misinformation.

I believe sales tax on a lease in Washington is based on ((price -(residual-7,500 tax credit))x.087)/36=128.818/mo
I got another breakdown excluding 8.7% Sales tax which seems to confirm this.
The difference per month is only $130
($4,680 over 36mos vs actual tax of $9,661)

36 month out of pocket on loan side in this example is actually.
$52,668+$9,661+$10,050=$72,379
($64,879 including tax credit)

Lease 36 month out of pocket
58,428+$7,959=$66,387
$1,508 more than a loan
So minimal.

No tax included in lease.

8.7 tax included in lease.

 

[coupedncal]

One odd thing I recently found out from my O.A. is that the $7500 is excluded from the calculation of the monthly payments & added to the residual. This dramatically inflates the residual.

I just read this again and I don't understand this logic. This means, if i am not mistaken, if you happen to love the car and you want to purchase it at the end of the lease then you do not get the tax credit deduction from your payment? Say your normal residual was $50K and your with deduction residual is $57.5K and I want to purchase the car at the end of the lease then i have to pay them $57.5K. Which means i just lost $7500 by leasing the car.

Is this correct?

Also, if the $7500 is being added to the residual then why do you say it is not calculated in the monthly payments? Again, my example above the residual is $57.5K which means your payments (price minus residual divide by 36 plus added interest) does take the $7500 into account.

 

[Daniellane]

I just read this again and I don't understand this logic. This means, if i am not mistaken, if you happen to love the car and you want to purchase it at the end of the lease then you do not get the tax credit deduction from your payment? Say your normal residual was $50K and your with deduction residual is $57.5K and I want to purchase the car at the end of the lease then i have to pay them $57.5K. Which means i just lost $7500 by leasing the car.

Is this correct?

Also, if the $7500 is being added to the residual then why do you say it is not calculated in the monthly payments? Again, my example above the residual is $57.5K which means your payments (price minus residual divide by 36 plus added interest) does take the $7500 into account.

Tesla does not want you to buy the car when the Lease is up. They already gave you the $7500 back over the 36 payments.
This only makes sense if you don’t plan to keep the car for more than 3 years. It’s nearly a wash unless the trade-in value plummets as a result of improvements in batteries/range & tech in newer vehicles. I have an original 1st gen day one iPhone. Works perfectly (makes a great paper weight as well) It’s worth about $10 now.
So your payments are not based on the price of the car, just your portion of the use of it’s value. Think of it as a full tank of gas (11gal tank)
You borrow it from a friend and return it with 6 gallons left (the residual)
You used 5 gallons. That’s what your paying for.
In a lease, your financing the projected depreciation. It’s for half the term, which is why the lease payments aren’t half the loan payments. Shifting the 7500 tax credit into the residual reduced the portion of depreciation you are financing and your monthly payments.
Look at post #18.
I corrected/clarified mis-statements in my prior posts.