Lease vs. Cash

[ELRev]

So I thought I had this figured out, but these Model S updates (and the expectation of more to come) have me all upside down and backwards on this question today. I hope this discussion will help others make this decision as well.

My Model 3 will be the first car I've ever purchased OR leased for myself. I had resigned myself to the fact that, assuming I can afford it, I will buy it outright, in cash, for whatever price it is, and use it as often as I want for as long as I can, until I can afford an upgrade or decide to buy a new car. In this scenario, I'd reap the full benefit of the Federal Tax Incentive (assuming I receive my car soon enough to qualify), as well as, in my case, the $2500 California state rebate. I would also, whether in 3 years (if Tesla continues to offer the trade-in price guarantee) or 10 years, be able to sell my call for its full value, in cash, and use that money toward a new car or whatever else.

However...

There is also, obviously, the option to lease the car instead. Generally speaking, leasing a Model 3 would make it easier to take advantage of upgrades in future iterations of the Model 3 by trading in for a newer model at the end of the lease, but, as with all leases, while monthly payments are lower, cost over the life of the car is generally higher. I know very little else about the circumstances surrounding a lease, including whether or not my income, or any number of other factors, affects my monthly payments. I don't drive an obscene number of miles a year to the point where my warranty would be an issue. I don't know what other limitations you're subject to with a lease.

My main hang-up from the recent Model S news is the expectation that my early version Model 3 will become obsolete in short order, and the same driving force that has led me to have purchased every single iPhone since the 3GS (s and non-s iterations included) will make me want the latest and greatest Model 3 tech as well. That may not be the case. And theoretically, I could still get the latest and greatest even if I pay cash for the car. I'm just trying to plan ahead and decide what might be the best way to start my "car buying" future.

For those of you who are 100% set on one option or the other, what are the different advantages and disadvantages to either option as you see them?

For those who are struggling with the decision as I am, what is keeping you unsure?

 

[TravelSD80]

I always thought of buying my M3, as I think leasing is not the best use of funds if you plan to keep a car for a long time. But I'm kind of thinking of M3s as an expensive iPhone, which I do upgrade yearly. If the first batch of M3s is upgradeable to level 4 autonomous driving, then I'd probably be happy to keep a M3 for a number of years and own it. But if it looks like there will be "frequent" M3 updates and only APv1 offered then maybe doing a 3 year lease then buying the then-current model is a better route.

Interested in hearing other thoughts. I know Tesla regularly adds new features to cars, so at some point you do have to be happy with the current model and buy. Like tech, you can't wait for the next best thing as you will be waiting forever. I also think build quality could come into the picture. I suspect a 3rd year M3 will have a lot more kinks worked out than the first batch.

I think we will know a lot more at the Part II unveiling and whether it will be smarter to do a 3 year lease, or outright purchase the car.

 

[ucmndd]

As cars shift towards more of a technology lifecycle, I could see the advantages of leasing becoming amplified. It's said that cars are going to change more in the next 10 years than they have in the last hundred, and I'm really starting to believe that.

That said, I drive far too much for leasing to be practical, so it's an easy choice for me.

 

[joefee]

I paid cash for my 2012 Sig. The plan was to keep the car for at least 8 years (also prepaid service & ext warranty to 8yrs). I never imagined how fast my Sig would become obsolete!

Leasing may have been a better choice to keep up the hyper rate of innovation from Tesla. REALLY hard not to upgrade!!!!!!

 

[Jason Bourne]

The term 'obsolete' is very subjective. Even if Model 3 Gen II comes out a few years after Gen I and has substantial differences, 'obsolete' is only relevant if you care about the differences. If they don't matter to you and you're still totally satisfied with your existing Model 3 Gen I, then it's not obsolete for you.
If you're the type of person that always wants to have the newest features, and if you believe that Gen II will be soon after and substantially different (in a way that matters to you), then you may want to consider leasing.
However, I strongly believe that the resale market for Model 3s will be very strong during the first few years after deliveries start. I think once people start seeing them on the street, they'll want them immediately. And I believe the backlog will still be 18-24 months for the first 18-24 months of deliveries, so buyers may be willing to pay more than a typical used car in order to not have to wait to get it. I think it would not be crazy for you to sell your purchased Gen I within the first few years with the intention of buying a Gen II and not take a huge hit.

EDIT: Also, buying for cash also allows you the flexibility to get a Gen II faster if you didn't want to wait for your lease to end. Sure, Tesla may let you out of your lease earlier, but it won't be gratis.

 

[Az_Rael]

I always drive too many miles for leases. So I will have to purchase. But I do appreciate the leasing model, especially with Tesla that updates the cars much more frequently than a traditional auto maker.

 

[bmenius]

My main hang-up from the recent Model S news is the expectation that my early version Model 3 will become obsolete in short order, and the same driving force that has led me to have purchased every single iPhone since the 3GS (s and non-s iterations included) will make me want the latest and greatest Model 3 tech as well.

That's an interesting point. In my opinion, the S is an example of a vehicle that experiences slower obsolescence than the average vehicle. You may not be able to get Autopilot features in an early S, but outside of that, the S sees somewhat routine firmware updates that add new things. It's unlike any other car in that regard.

I think a highly-optioned 3 will stand the test of time very well. Of course, I have almost no interest in fully autonomous control, and I have relatively little interest in Autopilot beyond the fact that it's a gee whiz party trick. But... I'll still buy it, for future-proofing if nothing else.

 

[NeverFollow]

...I will buy it outright,... In this scenario, I'd reap the full benefit of the Federal Tax Incentive...

I recently filled up my 2015 tax and I noticed that my interest was to use the standard deduction
instead of itemizing. So the only way to get the Federal Tax discount would be to lease.

However I never leased a car and always paid cash upfront, and kept as long as I could.
The fact that the Model S body is made of aluminium would make me consider keeping it longer.

Since the Model 3 is made of metal, this would contribute to lease it.
But I keep my car in a garage so getting any rust has never been really an issue.

For some people, the option of leasing a car allow them to get a car one category above the car
they would have get when getting a loan. They get a little bit of luxury, but at the end of the lease
they don't own anything unless paying back the reaming value, which my be a good choice.

The mileage limitation is also an important issue, especially if you use your car
for weekend trips or vacation, as it is difficult to evaluate your mileage in advance.
Also, in the case of an electric car, the more you drive, the more advantageous
it is to drive an electric vehicule compare to an ICE car.

The tax advantage would be my only consideration.
Otherwise I would always pay cash so I buy only what I can afford
and I can decide any time if I want to keep or sale it.
And I don't worry so much if I get a little scratch on the paint.

 

[hoang51]

I paid cash for my 2012 Sig. The plan was to keep the car for at least 8 years (also prepaid service & ext warranty to 8yrs). I never imagined how fast my Sig would become obsolete!

Leasing may have been a better choice to keep up the hyper rate of innovation from Tesla. REALLY hard not to upgrade!!!!!!

Your 2012 Tesla Model S is old, but not obsolete.

 

[ucmndd]

I recently filled up my 2015 tax and I noticed that my interest was to use the standard deduction
instead of itemizing. So the only way to get the Federal Tax discount would be to lease.

It blows my mind how much misinformation there is about the EV tax credit and how few people actually understand how it works.

Whether you take the standard deduction or itemize has absolutely nothing to do with whether or not you qualify to take the EV credit and how much you are eligible for. The only thing that matters is how much you OWE IN TAXES after you have reported all of your income and deductions.

> $7500? You get the full credit.
< $7500? You get a partial credit in the amount of the TAXES YOU OWE after all of your reported income and deductions (making your effective tax liability $0).

 

[heysteveh]

Things most people don't often consider or realize about a lease:

1. If you lease and the car is in an accident, you don't have to worry about it affecting your resale value in the future when you want to sell (assuming the accident shows up on a Carfax report)

2. If you lease, most lease contracts technically forbid anyone other then immediate family to drive the car.
(this is because the leasing company's name is on the Title so they are concerned about THEIR car).

3. When you lease, you only pay sales tax on each payment you make, not on the entire cost of the car itself (this is true in MOST states, not all). If you decided to purchase the car at the end of the lease, then you would pay sales tax on the remaining/residual value. Theoretically this means leasing a new car every two years would save you money over buying the car, paying sales tax on the whole price, and then selling the car two years later.

4. Regarding Miles Driven on a Lease:
a. Most people think if they drive a lot of miles they can't/shouldn't lease. This is not necessarily true. It is true that a 20k mile a year monthly lease payment would be very high... but likewise the depreciation of resale value on a purchased car that gets driven 20K miles a year will be very steep as well and it can be more difficult to sell a high mileage car.
b. Miles on a lease contract work like cell phone minutes: If you go over your miles, they usually charge you an arm and a leg, if you are under your miles you don't get a refund. So Choose your miles wisely

5. If you lease, you will ALWAYS have a car payment... but it is often less per month then a purchase payment would be.

6. In effect you are paying an interest rate on both a purchase and a lease, but the lease contract uses a "money factor" which is essentially like an interest rate except it makes it difficult to compare actual rates with a purchase. A leasing company can convert the money factor to an interest rate for comparison purposes but most don't want to do this unless you press them.

7. Most leases charge a fee to turn in the vehicle at the END of the lease (termination fee). This is often not disclosed until the deal has been made and they bring out the contract for you to sign (because you don't pay the fee until you turn the vehicle in at the end of the lease). This lease termination fee is usually waived if you lease another vehicle from the same car company when you turn in your old leased vehicle

8. There is no advantage to putting a large down payment on a lease. Unlike the loan on a purchase, it will NOT save you any money on interest. The only exception to this I can think of is if the leasing company offers a special "one-pay" lease where you pay one lump sum for the entire lease up front (thus no monthly payments) and they are willing to reduce the money factor which would reduce the interest amount that you pay.

I'm sure others who are experienced with leases could add to this list of what you should be aware of when comparing a lease to a purchase.

So is it better to lease or purchase? No easy answer to that question as it depends not only on the deals being offered on any given vehicle at any given time but also on the unique situation of each individual customer as well.

My opinion: if you typically get a new vehicle every two or three years you would be foolish not to at least research leasing as an option.

 

[C141medic]

I may end up leasing as well. I turned in my Leaf last year that I had leased for 2 years. I was so glad I leased because although it was a great vehicle, it just didn't have the range (mostly during the winter) for my needs. Here's a site that has some more info on leasing:
Home

 

[LaCostaRacer]

I have bought most of my cars with the exception of the 2013 Nissan Leaf that we leased. Both options have their advantages but it depends on you and how long you like to keep your cars. I think any person who keeps cars 5-10 years will find buying the better option in the majority of cases; however, I was glad I went the lease route with the Leaf.

In my case, we leased the Leaf because we were not sure how the technology would evolve and wanted to see if we liked living with an electric car for 3 years. We really liked the car and invested in a level2 charger and such. Nissan offered us a great deal by discounting our residual value (14,000) by $7500 so I wound up buying the car last month for $8500. My out of pocket expenses to own a $30,000 Leaf wound up being:

$5000 deposit + $8100 of lease payments + $8500.

I paid $21,000 for a car going for $29,000 and then got the $10,000 in federal/state incentives- actual cost of ownership was 11,000 and I still have the car.

The positives of leasing were:
- you have a car for a fixed term and have a guaranteed buyer for the car at the end of term at a set price. If the car is really worth more, you can buy the car and keep or flip it yourself.

-your payments are lower so you can drive a car with more options for a smaller payment.

The issues I had with leasing were:

- you're at a severe disadvantage if you go to the dealer expecting to buy and then wind up leasing. That was me 3 years ago and I got screwed on the money rate and other terms. For example, the dealer made the lease a 15k/year allowance when I requested a 12k/year. It would be hard for us to put 15k/year driving a Leaf with its range limitations. So I bought the car with 29k miles and had an allowance for 45k miles- I paid more for that option. I know how to buy a car but leasing seems more complicated.

- did not really modify the car to my liking like I would have if I bought the car. I didn't tint the windows or buy great tires when they needed replacement.

- double the trouble acquiring the car and dealing with the dealer. We were at the dealer for almost two hours simply buying our leased car which seems excessive when the price was determined and I wrote a check.



Would I do it again? Depends on the situation- I'm leaning on buying a M3.

 

[Christopher Chan]

Given that Tesla doesn't have dealerships like traditional auto makers, does it make any difference to shop around (whether buying or leasing). I've never owned a Tesla before but for the ICE cars that I have owned, I found that shopping around made a big difference. The corollary to not needing to shop around for a Tesla, does that also mean the buyer is at a disadvantage from a negotiation standpoint ?

 

[Siciliano]

I think this will soon be a moot point, at least in regards to Tesla vehicles. At some point, likely in the very near future (around the time of M3 release), each model will no longer need any *hardware* upgrades in regard to autopilot.

Every "update" will shift to software only once all the necessary hardware is in place for full or near full autonomy, so essentially none of the models will become obsolete going forward...

 

[Jason Bourne]

Given that Tesla doesn't have dealerships like traditional auto makers, does it make any difference to shop around (whether buying or leasing). I've never owned a Tesla before but for the ICE cars that I have owned, I found that shopping around made a big difference. The corollary to not needing to shop around for a Tesla, does that also mean the buyer is at a disadvantage from a negotiation standpoint ?

Shop around where, to different Tesla stores? The price of a Tesla vehicle will not vary based upon which Tesla store you buy/pick up from, and there is no negotiating for price.

 

[Borgholio]

Is there anything you CAN negotiate at a Tesla dealerships? Can you negotiate higher lease miles if you have a long commute (like I do) or can you negotiate whether or not they subtract the tax credit from the residual?

 

[gregincal]

Is there anything you CAN negotiate at a Tesla dealerships? Can you negotiate higher lease miles if you have a long commute (like I do) or can you negotiate whether or not they subtract the tax credit from the residual?

Generally there is no negotiating of any kind buying a Tesla, you are just ordering it online like an iPhone (even if you go into a "dealership" you are still just completing an online order). However, since with the lease you are dealing with Tesla Lending I'm not as sure as I am about ordering the car, but I imagine there isn't much negotiation there. Certainly you can choose options on the lease like how many miles are included.

 

[cdub]

I think this will soon be a moot point, at least in regards to Tesla vehicles. At some point, likely in the very near future (around the time of M3 release), each model will no longer need any *hardware* upgrades in regard to autopilot.

Every "update" will shift to software only once all the necessary hardware is in place for full or near full autonomy, so essentially none of the models will become obsolete going forward...

This is EXTREMELY wishful thinking. Tesla is always innovating hardware and software... but just because they bring out new hardware doesn't mean the car is suddenly "obsolete"...

 

[MP3Mike]

My out of pocket expenses to own a $30,000 Leaf wound up being:

$5000 deposit + $8100 of lease payments + $8500.

I paid $21,000 for a car going for $29,000 and then got the $10,000 in federal/state incentives- actual cost of ownership was 11,000 and I still have the car.

How did you get the $7,500 federal credit? I thought only the original purchaser, the leasing company, got that credit. (Which is probably why they reduced your residual by $7,500.