Leasing: Where does the $7500 Fed. tax credit go?

[MsElectric]

My rep just told me the $7500 is discounted over the 36 months of the lease. So, theoretically, the lease should be $208.33 less expensive per month than a comparable lease.

That does not seem to pan out though as stated. Unless they inflate the money factor to "make up" for the "discount." The Mercedes S Class lease I quoted earlier in this thread is for a car with a higher retail price but that lease is less both for money down and the monthly lease payment, without factoring in any $7,500 credit.

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with the BMW i3 lease, they give you the 7500 back towards cap cost reduction...

As it should be. IMHO this is the only honest and transparent way to handle the $7,500 credit. It should be a cap. cost reduction so you have the benefit of it for the duration of the lease as well as if you decide to buy the car at the end of the lease. Also it makes the credit transparent. I have never been able to get a straight answer from Tesla where the math adds up on how they apply the credit.

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You are assuming that the lease company has a tax liability that they can use the tax credit, and you can't carry it forward. Tesla is not paying taxes. B of A in their leases may not be able to use the credit either. The tax credit was made for individuals to benefit from, not corporations with sheltered assets and losses.

It's irrelevant in the sense that any entity that leases the car is eligible for the rebate, corporations included. Furthermore you are not leasing directly from Tesla but from the bank that provides the funding for the car. I don't know of a bank that does not make a profit so the bank is eligible to claim the tax rebate.

 

[GasDoc]

So I ran the numbers for a Canadian vs. US lease using the default 70D that comes up on Tesla's order page.

The US base price was 75000. The Canadian base was 93,300 CDN or 71,729 USD

US Lease payment 838 a month. Canadian 1017 USD/month.

So the monthly savings in a US Lease is $179 or about $6450 over 36 months. Maybe the Federal Tax break is subsidizing that monthly payment discount?

 

[MsElectric]

So I ran the numbers for a Canadian vs. US lease using the default 70D that comes up on Tesla's order page.

The US base price was 75000. The Canadian base was 93,300 CDN or 71,729 USD

US Lease payment 838 a month. Canadian 1017 USD/month.

So the monthly savings in a US Lease is $179 or about $6450 over 36 months. Maybe the Federal Tax break is subsidizing that monthly payment discount?

That's an interesting calculation but without knowing the money factor for the US vs. Canada lease we can't determine the actual difference. Also I wonder if there are any Canada specific taxes or provisions rolled into the Canadian lease payment.

 

[Raikkonen]

with the BMW i3 lease, they give you the 7500 back towards cap cost reduction...

That's what Chevrolet did for my Volt lease as well.

The reduction in my monthly payment (post credit) was astounding...

 

[dspan]

My calculation was similar, but used a comparable car. It seemed that the only way the lease payment for the MS got down to where it is at is if they reduced the cap cost. Maybe not the full $7500, but definitely a good portion of it. IMHO, I will want new technology in 3 years. I am paying for it by leasing and not buying, but I'm pretty sure that in 2019, range will be much better.

 

[e-FTW]

IMHO, I will want new technology in 3 years. I am paying for it by leasing and not buying, but I'm pretty sure that in 2019, range will be much better.

Yep, exactly my thoughts: It is way too early that have that much skin in the game. The rate of innovation will be on the left-hand side of the bell curve for years to come.

 

[ChadFeldheimer]

Adding the $7500 tax credit to the residual is pretty sneaky.

With a normal lease (i.e. no tax credit), if the car ends up being worth more than the residual at the end of the lease, the lessee can buy the car at the residual and pocket the difference. If the car is worth less, the lessee walks away and the bank eats the difference.

But with the $7500 added to the residual, the bank has a $7500 window of extra profit. Suppose the actual (i.e. without tax credit) residual is $50k - so the residual is $57.5k with the tax credit. If the actual value of the car at lease end turns out to be between $50k and $57.5k, the lessee will turn the car back in and the bank pockets any value above $50k as extra profit. This is because the lease payments covered the depreciation to $57.5k plus the bank got the $7500 tax credit. If the car is worth more than $57.5k, the lessee can buy the car back but effectively gives up the tax credit... basically giving the bank an extra $7500.

Finally, the lessee pays interest on an extra $7500 for the duration of the lease. At 3% APR, this is approximately $700 over the 36 month term.

 

[Electroman]

To my knowledge Nissan finance (NMAC) is the only one that directly provides the full $7500 benefit to the leasee by reducing the initial price by $7500.

On a $30k MSRP Leaf, the calculations are done against $22.5k, and if it is 55% residual then the 3 year lease payments come to $10k (plus interest) and residual is set to $12.5k.

So the leasee gets the benefit of 45% of the fed tax credit (7500*.45=3375) during the lease terms and the remaining $4125 at the time buyout.

 

[MsElectric]

To my knowledge Nissan finance (NMAC) is the only one that directly provides the full $7500 benefit to the leasee by reducing the initial price by $7500.

On a $30k MSRP Leaf, the calculations are done against $22.5k, and if it is 55% residual then the 3 year lease payments come to $10k (plus interest) and residual is set to $12.5k.

So the leasee gets the benefit of 45% of the fed tax credit (7500*.45=3375) during the lease terms and the remaining $4125 at the time buyout.

IMHO this is the only honest and fair way to do it. What Tesla does, not so much.

Chad brought up a good point in that the way Tesla claims to add the $7,500 to the residual means you are wasting an extra $700 in interest for no reason.

And even this supposed $7,500 that they claim to add to the residual, no one at Tesla has yet to show me the math for how this is done. All I know is that the monthly lease payment for an S Class is lower with a lower amount down while the Cap. Cost of the S Class lease being higher so the math does not add up somewhere.

I hope one of these days Tesla does the right and fair thing with leases and apply the $7,500 as a Cap. Cost Reduction as they should and Nissan does.

 

[jeffs47]

Something with Tesla's leasing is very fishy. I applied for "Both" options and was given a pretty crazy quote for the lease. I've asked the finance person to provide me with the money factor, and the Adjusted Capitalized Cost they're using. The only way I can get the numbers to work is with a money factor of .00333 (~8% interest). Either that, or as others have stated, they're not subtracting the $7,500 credit from the Adjusted Capitalized Cost. I leased a Ford Fusion Energi two years ago and the $3,500 tax credit was subtracted from the capitalized cost. Adding the $7,500 doesn't seem right. Also, what happens if I want to buy the car at the end of the lease? Do I get the $7,500 back from Tesla, or do they keep it in their pocket?

 

[ChadFeldheimer]

Something with Tesla's leasing is very fishy. I applied for "Both" options and was given a pretty crazy quote for the lease. I've asked the finance person to provide me with the money factor, and the Adjusted Capitalized Cost they're using. The only way I can get the numbers to work is with a money factor of .00333 (~8% interest). Either that, or as others have stated, they're not subtracting the $7,500 credit from the Adjusted Capitalized Cost. I leased a Ford Fusion Energi two years ago and the $3,500 tax credit was subtracted from the capitalized cost. Adding the $7,500 doesn't seem right. Also, what happens if I want to buy the car at the end of the lease? Do I get the $7,500 back from Tesla, or do they keep it in their pocket?

I have a lease. In my lease, the $7500 does not contribute to the adjusted capitalized cost. There is no line item in the lease for the $7500 credit. Therefore, the tax credit either was (implicitly) added to the residual or omitted altogether. The residual is fairly high, so the operating assumption by most is that the tax credit was added to the residual.

If you buy the car at the end of the lease, the bank keeps the $7500. They may or may not share some of that with Tesla.

It's a pretty sneaky way for the bank/Tesla to take advantage of government incentives.

 

[ahurst]

Other than the possible tax benefit for business use, Tesla's lease is no better than financing when you look at monthly payments ---


A 90D @ 15,000 miles/year optioned modestly (MSRP $97,000) is roughly $1,231 per month with minimum down required.


Financing with $13,500 down (federal + state tax credits = $13,500 for Colorado residents) of the same vehicle is roughly $1,264 per month. (2.9% for 72 months financing $83,500).

 

[jeffs47]

I have a lease. In my lease, the $7500 does not contribute to the adjusted capitalized cost. There is no line item in the lease for the $7500 credit. Therefore, the tax credit either was (implicitly) added to the residual or omitted altogether. The residual is fairly high, so the operating assumption by most is that the tax credit was added to the residual.

If you buy the car at the end of the lease, the bank keeps the $7500. They may or may not share some of that with Tesla.

It's a pretty sneaky way for the bank/Tesla to take advantage of government incentives.

I'm not sure there's a bank involved. On my quote for the Lease, it listed Tesla, but for the loans it listed TD Bank.

Based on the quote provided, if I lease my $77,700 car, and then pay the $48,424 residual to buy the car, I've paid Tesla $87,531 over a 36 month period ($11,000 Down + $2,500 Deposit + $695 origination fee + $692x36 + $48,424). This works out to ~8% interest over 36 months.

If I add in the $7,500 that came from the Federal Government, Tesla has received $95,031 in a 36 month period for my $77,700 car and we're getting close to to a 15% effective interest rate!

This feels like "highway" robbery to me.. If I work the numbers using Leasing the "Right" way it should be:

$77,700 - $11,000 - $7,500 - $2,500 = $56,700 Adjusted Capitalized Cost
$40,924 Residual ($48,424 - $7,500 Assuming that the $7,500 is applied here).
Money Factor .000833(2%)

This yields 36 payments of $520, and total amount paid to Tesla over 36 months of $73,839 ($11,000 Down + $2,500 Deposit + $695 origination fee + $520x36 + $40,924). Adding in the $7,500 Tesla gets from Uncle Sam, we're at $81,339, which is around a 3% interest rate. *This* is typical for Leases and is still a nice healthy profit for Tesla.

Bottom line: Tesla is making a killing off of leases. Unless you've got a very significant tax benefit from leasing, or you can't get the $7,500 credit for whatever reason, it's just not worth it. Either way, if you're leasing, you're a huge profit center for Tesla so be sure you know what you're getting into!

 

[ChadFeldheimer]

I'm not sure there's a bank involved. On my quote for the Lease, it listed Tesla, but for the loans it listed TD Bank.

US Bank and Wells Fargo handle the lease financing for Tesla. Tesla really doesn't have the cash to do its own financing right now. My lease is with US Bank.

Based on the quote provided, if I lease my $77,700 car, and then pay the $48,424 residual to buy the car, I've paid Tesla $87,531 over a 36 month period ($11,000 Down + $2,500 Deposit + $695 origination fee + $692x36 + $48,424). This works out to ~8% interest over 36 months.

Does the downpayment ($11,000) include the $2500 deposit, $695 origination fee, and first monthly payment ($692)? Or did you back it out already? On my lease, the downpayment included these items.

$77,700 - $11,000 - $7,500 - $2,500 = $56,700 Adjusted Capitalized Cost
$40,924 Residual (Assuming that the $7,500 is applied here).
Money Factor .000833(2%)

Does your $77000 include sales tax? If not, you need to add it in.

Bottom line: Tesla is making a killing off of leases. Unless you've got a very significant tax benefit from leasing, or you can't get the $7,500 credit for whatever reason, it's just not worth it. Either way, if you're leasing, you're a huge profit center for Tesla so be sure you know what you're getting into!

I disagree that Tesla is making a killing off of leases. They have the *possibility* to make a killing if the resale value on their cars is much better than expected and/or many lessees end up buying their car at the end of the lease term. With technology changing so quickly, I would not be surprised if resale value will be worse than the (real) residual. In which case, (1) the bank will eat the difference and (2) the $7500 tax credit was fully transferred to the lessee in the form of reduced lease payments (minus the extra interest charged as a result of the increased residual - a relatively minor effect).

 

[patrick40363]

US Bank is the leasing agent not Tesla.

I'm not sure there's a bank involved. On my quote for the Lease, it listed Tesla, but for the loans it listed TD Bank.

Based on the quote provided, if I lease my $77,700 car, and then pay the $48,424 residual to buy the car, I've paid Tesla $87,531 over a 36 month period ($11,000 Down + $2,500 Deposit + $695 origination fee + $692x36 + $48,424). This works out to ~8% interest over 36 months.

If I add in the $7,500 that came from the Federal Government, Tesla has received $95,031 in a 36 month period for my $77,700 car and we're getting close to to a 15% effective interest rate!

This feels like "highway" robbery to me.. If I work the numbers using Leasing the "Right" way it should be:

$77,700 - $11,000 - $7,500 - $2,500 = $56,700 Adjusted Capitalized Cost
$40,924 Residual ($48,424 - $7,500 Assuming that the $7,500 is applied here).
Money Factor .000833(2%)

This yields 36 payments of $520, and total amount paid to Tesla over 36 months of $73,839 ($11,000 Down + $2,500 Deposit + $695 origination fee + $520x36 + $40,924). Adding in the $7,500 Tesla gets from Uncle Sam, we're at $81,339, which is around a 3% interest rate. *This* is typical for Leases and is still a nice healthy profit for Tesla.

Bottom line: Tesla is making a killing off of leases. Unless you've got a very significant tax benefit from leasing, or you can't get the $7,500 credit for whatever reason, it's just not worth it. Either way, if you're leasing, you're a huge profit center for Tesla so be sure you know what you're getting into!

 

[jeffs47]

US Bank and Wells Fargo handle the lease financing for Tesla. Tesla really doesn't have the cash to do its own financing right now. My lease is with US Bank.



Does the downpayment ($11,000) include the $2500 deposit, $695 origination fee, and first monthly payment ($692)? Or did you back it out already? On my lease, the downpayment included these items.

Not sure about the deposit, but per the quote below, it would appear not.

Does your $77000 include sales tax? If not, you need to add it in.

That's not accurate. Sales tax is charged on the monthly lease payments. As you can see below, the quote excludes those.

I disagree that Tesla is making a killing off of leases. They have the *possibility* to make a killing if the resale value on their cars is much better than expected and/or many lessees end up buying their car at the end of the lease term. With technology changing so quickly, I would not be surprised if resale value will be worse than the (real) residual. In which case, (1) the bank will eat the difference and (2) the $7500 tax credit was fully transferred to the lessee in the form of reduced lease payments (minus the extra interest charged as a result of the increased residual - a relatively minor effect).

So, would you agree that Leasing is a terrible idea in this case if there's any chance of someone wanting to buy the car at the end of the lease? And it's true that Tesla might not make a killing, but folks are still paying a lot of interest on the lease even if they don't buy out the car at the end.

Here's an image of the lease quote:

 

[1208]

Here's a visual representation.

 

[ChadFeldheimer]

The $2500 deposit should be backed out of the $11,000+$692+$695+tax+licensing downpayment - so I believe you've accounted for that $2500 twice. There's a separate section on my lease agreement showing how the "amounts due at least signing" will be paid. $2500 came from the deposit, and the remainder was paid in cash.

The sales tax on my lease was paid up front in the downpayment. Thanks for providing the detail - I stand corrected. Perhaps this is a state-to-state difference.

> So, would you agree that Leasing is a terrible idea in this case if there's any chance of someone wanting to buy the car at the end of the lease?

Absolutely. By purchasing at the end of the lease term, you are giving up the $7500 tax credit.

> And it's true that Tesla might not make a killing, but folks are still paying a lot of interest on the lease even if they don't buy out the car at the end.

My total interest cost is $8000 over a 36 month term. This seems reasonable to me, especially considering that the interest expense is partially offset by lower sales tax (sales tax is only applied on the payments in my state).

In my case, I explored leasing after I placed an order with Tesla, but I quickly ruled it out after I did the math. As luck would have it, I then happened across someone who was trying to get out of a lease on a car similar to the one I had ordered. All I had to do was take over the remaining ~30 payments. They gave up the large first payment. I happily cancelled my order and took over their lease.

I recommend anyone looking to do a lease to follow my example =)

 

[jeffs47]

I had an e-mail conversation with my financing person. Here's the key info:
Money Factor: Always 0.0016 (3.84%) - Not great and significantly more than most manufacturer financing.
$2,500 deposit would be subtracted from the $11k so math is slightly off.

When I asked about the $7,500 credit, I received this response:
"The adjusted cap cost of the vehicle would be $66,700. For our leases, the lessor allows us to pass the benefit of the Federal Tax credit through the residual value. For example, the 15k lease is computed by taking 52% of $78,700 = $40,924 + $7,500 Tax Credit = $48,424. Having a high residual value allows you to pay less in depreciation over the life of the lease thus reducing your monthly lease payment."

So, I asked what happens if I want to buy the car. Do I get a $7,500 discount, or do I pay the full residual with Tesla/US Bank making a profit? His Response was:
"For our leasing program, you would have to purchase the vehicle for the inflated residual if you wish to own the car at the end of the lease term. I would not suggest to do that as you would nullify all the financial benefit you would have received over the course of the lease. If you want to own the vehicle for more than 3 years, I would suggest financing the vehicle as opposed to leasing so you can take full benefit of the Federal Tax credit."

I responded with the following and did a BCC to [email protected] (for what it's worth).
"One thing I'm not very happy about is this statement: "Having a high residual value allows you to pay less in depreciation over the life of the lease thus reducing your monthly lease payment." This is somewhat disingenuous and misleading. The reality of the situation is that I would save more money if Tesla did the "usual" thing and subtracted the $7,500 credit from the Capitalized cost (Like Ford, Nissan, and others do). If this was the case, It would work out better. Example: If the Cost was reduced by $7,500 and the Residual also reduced by $7,500, I would have a payment of $667, which is $25 less per month. I would also be able to buy the car at the $40,924 cost at the end of the lease. So, you're trying to spin this as a benefit for the buyer, when the reality is that the way you're doing things is a benefit to Tesla. I understand that business is business, but please don't lie to people and try to spin things like this into a positive."

Summary:
Even Tesla will tell you not to lease one of their vehicles if there's even a TINY chance you might want to buy at lease end since you'll pay $7,500 extra for the car.
The way they're handling the Tax Credit does result in a higher lease payment than usual. ($25 more/month in my case).
Tesla "Spins" the way they do leases as a benefit to the consumer despite the opposite being true.
Their Money Factor (0.00160/3.84%) is higher than is typical for automotive finance companies. (Example - Nissan Leaf: .00027/.648%)
Don't forget to add the $695 origination fee and $395 disposition fee to the Lease when comparing the numbers.

I hope this might end up helping someone make the right choice for them!

 

[ahurst]

So the answer is...finance and use the Resale Value Guarantee.
Same peace of mind of a lease but you get to keep the $7,500.

You have to use Wells or US Bank, so maybe they jack the rate.
And you have to payoff the lien before you turn it back into Tesla.
And you have to pay $0.25 per mile over 45,000 miles after 3 years.