Model 3 leasing

[DNAinaGoodWay]

What would a M3 lease for, do you think? Given the $1k deposit, probably another what, $2-3k at ordering, assuming no upgrades, and $7500 fed credit off the top (they do that, yes?), and 12k miles per year on a 3 year lease. The residual will probably be better than what other EVs bring. Think it could be $300/month or less?

 

[Max*]

Considering a base 70 ($70k) lease starts at $772 for 12k miles, I would guesstimate that a base Model 3 ($35k) would be half, or roughly $386/month.

 

[JimmyAZ]

If the Model 3 lease is based on my Model S lease, Tesla will happily be keeping your $7500 Federal Tax Credit. You only get that if you purchase the vehicle.

 

[tga]

If the Model 3 lease is based on my Model S lease, Tesla will happily be keeping your $7500 Federal Tax Credit. You only get that if you purchase the vehicle.

Well, the leasing company keeps it, not Tesla per se.

 

[engle]

Well, the leasing company keeps it, not Tesla per se.

Actually, what happens -- based on my Model X lease -- is the leasing company, US Bank in my case, gets the $7,500 tax credit as the owner of the vehicle. Then, they add the $7,500 credit to the residual value of the X, which otherwise is 52%, 51% or 50% of the price for 10K, 12K or 15K miles per year. So, effectively it reduces the lease payments by $208.33 per month.

Just don't lease if you plan to buyout at the end, or you'll end-up paying an extra $7,500. Finally, the current lease "money factor" is 0.0017 x 2,400 = approx 4.08% interest. Unless you lease for a monthly business write-off, it probably makes more sense to finance the purchase at 1.99% today from Alliant or another credit union. Of course, who knows what the money factor and interest rates will be at the end of 2017 in Tesla Time!

 

[DNAinaGoodWay]

I was planning on lease to own, but that would rule that out. But now I'm hearing that current Tesla customers and employees will get first dibs, effectively putting me out past the end of fed credits, unless something changes, so I guess I'll be waiting for some future CPO. Maybe into the 2020's things will evolve such that a M3 is in the $20k range.

 

[tga]

Actually, what happens -- based on my Model X lease -- is the leasing company, US Bank in my case, gets the $7,500 tax credit as the owner of the vehicle.

Agreed. The point I was trying to make was Tesla doesn't keep the tax credit, since they aren't the owner, the leasing company is (as you pointed out).

 

[JimmyAZ]

Agreed. The point I was trying to make was Tesla doesn't keep the tax credit, since they aren't the owner, the leasing company is (as you pointed out).

Good to know! Yes the point I was making was similar. Just that the customer doesn't get that money as a benefit. I would never buy out my lease for a Tesla as a rule either. I see these cars as cell phones. They're a snapshot of technology in a point in time. My S isn't and can never be fully autonomous. So I'll lease a new one every three years until something better comes along. Plus it's so nice being able to afford a lot more car and only paying for the amount of car you're leasing. This was my first lease and it's been a great experience so far.

 

[Borgholio]

Would it be possible to get the lease and have them not bother with the tax credit? I would plan on leasing to own so I would rather not have to deal with a substantially higher residual when I'm done with the lease.

 

[tga]

Would it be possible to get the lease and have them not bother with the tax credit? I would plan on leasing to own so I would rather not have to deal with a substantially higher residual when I'm done with the lease.

Well, then you'd just be paying more/month. Either pay more each month or at the end...

 

[Lobstahz]

The Model 3 will be my first lease, potentially my last (?). I'm generally a buy CPO and drive into the ground kind of person, and CPO is generally a very good bang for your buck. The difference in this case is that the market for cars is shifting and changing extremely quickly at this point and likely will continue to for the next 5 years if not longer. The general mantra of buy and drive into the ground is fine when the technology and product aren't improving much. Look at a 2002-2005 car, pretty much nothing new and "gotta have it" between then and now. EVs are changing that.

I don't think we'll start to plateau in EV car tech until we have 4x motors, 1 for each wheel. Once that's achieved all of the fancy diffs, open diff, limited slip, torsen AWD, haldex AWD, torque vectoring, etc, won't really matter as you will be able to do it in software. And at that point when I have 4x motors I will go back to buy and drive into the ground, but not before.

This situation reminds me of smartphone adoption. It used to be (late 2000's early 2010's) that every year smartphones got "so much better" than the last year. But now they've essentially plateaued and you can get most anything and it will be pretty darn good. I think we're in that aggressive evolution curve and if I buy and hold there will be a significant improvement that I'd be kicking myself for missing out on.

 

[ggnykk]

I was planning on lease to own, but that would rule that out. But now I'm hearing that current Tesla customers and employees will get first dibs, effectively putting me out past the end of fed credits, unless something changes, so I guess I'll be waiting for some future CPO. Maybe into the 2020's things will evolve such that a M3 is in the $20k range.

The $7500 credits doesn't cut off to $0 dollars after 200,000 cars. It is a gradual decreases over time.

 

[ggnykk]

Actually, what happens -- based on my Model X lease -- is the leasing company, US Bank in my case, gets the $7,500 tax credit as the owner of the vehicle. Then, they add the $7,500 credit to the residual value of the X, which otherwise is 52%, 51% or 50% of the price for 10K, 12K or 15K miles per year. So, effectively it reduces the lease payments by $208.33 per month.

Just don't lease if you plan to buyout at the end, or you'll end-up paying an extra $7,500. Finally, the current lease "money factor" is 0.0017 x 2,400 = approx 4.08% interest. Unless you lease for a monthly business write-off, it probably makes more sense to finance the purchase at 1.99% today from Alliant or another credit union. Of course, who knows what the money factor and interest rates will be at the end of 2017 in Tesla Time!

Great insights! Can you explain more in regards to this statement "current lease "money factor" is 0.0017 x 2,400 = approx 4.08% interest"? Leasing a car needs to pay interest rate in addition to the monthly payment?

 

[dgpcolorado]

Great insights! Can you explain more in regards to this statement "current lease "money factor" is 0.0017 x 2,400 = approx 4.08% interest"? Leasing a car needs to pay interest rate in addition to the monthly payment?

Sort of: the lease payment includes the interest charge. The money to buy the car comes from the leasing company so you need to pay interest on the money being lent to you, just as with a regular car loan. The difference is that you are only paying for part of the car: the total cost minus the down payment and the residual value. With a regular purchase loan your payments cover the whole cost less the down payment. But you still have a car when you are done with the payments, unlike with a lease. With a lease you are just renting the car for a time, usually three years.

Leasing interest rates, the "money factor," also tend to be higher than interest rate on a purchase loan.

 

[ggnykk]

Sort of: the lease payment includes the interest charge. The money to buy the car comes from the leasing company so you need to pay interest on the money being lent to you, just as with a regular car loan. The difference is that you are only paying for part of the car: the total cost minus the down payment and the residual value. With a regular purchase loan your payments cover the whole cost less the down payment. But you still have a car when you are done with the payments, unlike with a lease. With a lease you are just renting the car for a time, usually three years.

Leasing interest rates, the "money factor," also tend to be higher than interest rate on a purchase loan.

Thanks for the explanation. Just a follow-up question, is the leasing interest applicable to only part of car (the total cost minus the down payment and the residual value)? or applicable to the whole cost just like financing a car through loan? I would assume it is the first case, but just want to double check.

If it is the first case, I think 4% "leasing interest" that you pointed out earlier, isn't worse than the 1.9% interest of a financing loan. You are paying 4% of a smaller dollar amount versus a 1.9% of a whole dollar amount for a car. Maybe leasing is still a better option since you don't own a car that is "out-dated" after 3 years.

 

[pmich80]

Thanks for the explanation. Just a follow-up question, is the leasing interest applicable to only part of car (the total cost minus the down payment and the residual value)? or applicable to the whole cost just like financing a car through loan? I would assume it is the first case, but just want to double check.

If it is the first case, I think 4% "leasing interest" that you pointed out earlier, isn't worse than the 1.9% interest of a financing loan. You are paying 4% of a smaller dollar amount versus a 1.9% of a whole dollar amount for a car. Maybe leasing is still a better option since you don't own a car that is "out-dated" after 3 years.

It would probably come out to the same amount of interest. If you're leasing your monthly payments could be $400 of which $20 could be interest payments whereas if you were purchasing the car your monthly payments would be $700 of which $20-$25 would be interest. Obviously in this case the 2nd option would be a lower interest rate but the interest amounts are the same. The difference is you own the car at the end of the term.

 

[pmich80]

Considering a base 70 ($70k) lease starts at $772 for 12k miles, I would guesstimate that a base Model 3 ($35k) would be half, or roughly $386/month.

To get a rough idea, I live in Canada and i assume the Model 3 will start at $47,000 here and i'll probably option it up to $60,000. In Ontario we get a tax credit of $13,000 or ($14,000 if the M3 is considered a 5 seater). How much would this tax credit theoretically decrease my monthly payment on a lease?

Secondly at $60,000 what would you assume the residual value of the car to be after 3 or 4 years and i guess the tax credit added on to the residual correct? I'm trying to determine what my monthly costs would be on a lease would be. Aiming for anything around $500..max $600.

 

[dgpcolorado]

To get a rough idea, I live in Canada and i assume the Model 3 will start at $47,000 here and i'll probably option it up to $60,000. In Ontario we get a tax credit of $13,000 or ($14,000 if the M3 is considered a 5 seater). How much would this tax credit theoretically decrease my monthly payment on a lease?

Secondly at $60,000 what would you assume the residual value of the car to be after 3 or 4 years and i guess the tax credit added on to the residual correct? I'm trying to determine what my monthly costs would be on a lease would be. Aiming for anything around $500..max $600.

I'm way out of my depth with regard to how things will work in Canada, but if it follows the pattern used with USA leases the tax credit is added to the residual, thus reducing the "capitalized cost" and the monthly payments. [They don't have to do it this way, a better approach from the customer point of view would be to add the tax credit to the down payment, which would lower the capitalized cost and also lower the buyout price.]

What the residual value will be is an interesting question. For the Model S it tends to be around 51%, or a bit higher with lower mileage (kilometerage? is there such a word?) three year leases. Will the Model 3 get the same residual value as the higher priced S? I'm guessing that it will be a bit lower. But, assume 50% for three years @15,000 miles (24,000 km) per year. The numbers might look like this:

Cost = C$60,000
Residual = $30,000
Down payment = $6000
Tax credit = $14,000 (yes, the 3 will have five seats)
So, $60,000 - $6000 - ($30,000 + $14,000) = $56,000 - $44,000 = $12,000

That $12,000 capitalized cost, thanks to the generous tax credit, would make for a mighty attractive lease. I haven't the faintest idea of what lease interest rates are like in Canada but if it was at the current USA rate of 4.08%, the payments would be around $355/month, not including some small lease-only fees.

FWIW. These are just guesses on my part, based on incomplete information.

 

[pmich80]

I'm way out of my depth with regard to how things will work in Canada, but if it follows the pattern used with USA leases the tax credit is added to the residual, thus reducing the "capitalized cost" and the monthly payments. [They don't have to do it this way, a better approach from the customer point of view would be to add the tax credit to the down payment, which would lower the capitalized cost and also lower the buyout price.]

What the residual value will be is an interesting question. For the Model S it tends to be around 51%, or a bit higher with lower mileage (kilometerage? is there such a word?) three year leases. Will the Model 3 get the same residual value as the higher priced S? I'm guessing that it will be a bit lower. But, assume 50% for three years @15,000 miles (24,000 km) per year. The numbers might look like this:

Cost = C$60,000
Residual = $30,000
Down payment = $6000
Tax credit = $14,000 (yes, the 3 will have five seats)
So, $60,000 - $6000 - ($30,000 + $14,000) = $56,000 - $44,000 = $12,000

That $12,000 capitalized cost, thanks to the generous tax credit, would make for a mighty attractive lease. I haven't the faintest idea of what lease interest rates are like in Canada but if it was at the current USA rate of 4.08%, the payments would be around $355/month, not including some small lease-only fees.

FWIW. These are just guesses on my part, based on incomplete information.

Wow.. that'd be incredible of that were the case. I hope you're right. I may end up getting the fully loaded performance version if that's the case. I know this is a rough guide but that makes perfect sense. Interest rates are incredibly low in Canada right now too. (4% even seems high). The combination of 50% residual value coupled with a $14,000 tax credit (either added as a down payment or attached to the residual) really makes leasing an attractive offer. More likely though, I'll end up settling for a much lower down payment than $6,000. Possibly $3,000 instead.

 

[dgpcolorado]

... More likely though, I'll end up settling for a much lower down payment than $6,000. Possibly $3,000 instead.

That actually makes a lot of sense. In general it is best to go with the lowest down payment — zero, if possible — on a leased car because if you crash it you will lose the money you have in it. The insurance company will pay off the lease but you will get nothing.