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Model S Lease Speculation Thread

Discussion in 'Model S' started by Rifleman, Aug 27, 2012.

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  1. Rifleman

    Rifleman Now owns 2 Model S's!!!

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    I was not able to find a thread for speculating about the leasing options for the Model S, so I figured that I would start a new one.

    Personally, If a lease on a 60 kWh Model S could be had for $10,000 down (5k already down, and an additional 5k at signing), $600-$650 a month, with a residual of 30-35k, I would be very interested in going that route as opposed to buying a 40 kWh Model S.

    What sort of lease terms do we think will be available for the Model S, and when do we think Tesla will start to talk about them?
     
  2. Robert.Boston

    Robert.Boston Model S VIN P01536

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    Does anyone know what happens with the $7500 US Federal tax credit on a lease? Can the leasing company claim that credit? What about various state incentives?
     
  3. hvb

    hvb Member

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    I believe the leasing company would get the credit, since it would be the original owner of the vehicle.
     
  4. efusco

    efusco Moderator - Model S & X forums

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    With the Volt lease, the leasing company claims the credit and applies the amount toward the lease rate. In other words, it's $7500 cheaper and it's applied up front rather than having to wait for the tax season to claim your credit on an outright purchase. I don't know if that's how it's done universally, but it seems a reasonable approach.
     
  5. MikeK

    MikeK R#129, TSLA shareholder

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    I think it was on the conference call that they said that there was no reason to do a lease yet, because they are currently supply constrained with direct purchases. Once they catch up and are interested in creating higher demand, then the lease option will begin to make sense to offer.

    I would guess second half of next year at the soonest, but that's totally out of thin air.
     
  6. Lloyd

    Lloyd Active Member

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    It goes to the leasing company who generally passes it through to the customer as a cap reduction. Same for the state, but they have to be based and have a tax liability in the state that they are doing business. It kind of forces Tesla to partner with a large bank like B of A or ??? who has branches in every state.
     
  7. Rifleman

    Rifleman Now owns 2 Model S's!!!

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    I agree that Tesla will most likely go with a larger bank such as B of A. I know that Tesla is supply constrained for now, but I would be willing to bet that many of their current reservation holders (myself included) would be interested in leasing. For me, being able to spread out the capital expenditure between now and 3 years from now when I buy the car at the end of the lease would likely make the difference between a 40 kWh Model S and a 60 kWh. I am sure I am not the only one in this situation, and I am also sure that Tesla would rather sell bigger battery backs to the current reservation holders, if given the option. Making leasing available at the time the 40 kWh pack becomes available might help a little bit with this.
     
  8. Robert.Boston

    Robert.Boston Model S VIN P01536

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    I'm sure you know this, but the real value of a lease, compared to a loan, comes from the treatment of the residual value.


    • First, you don't pay usage tax (=sales tax) on the residual value; with a loan, you're charged sales tax on the whole value of the car.
    • Second, the lease payment covers repayment only of the difference between the sales price and the residual value, plus interest costs on the residual value; on the loan, you're paying back the entire capital plus interest.
    Leases can be advantageous in certain tax situations, too. But you should also recognize that, with a lease, you are buying a "put option" on the car, allowing (but not requiring) you to resell the car at the end of the lease for the contracted residual value. Put options are never free, especially when the true future value of the underlying asset is uncertain. I'm not interested in leasing because I'm not interested in paying the option premium.
     
  9. Larry Chanin

    Larry Chanin Model S Perf Sig 1055

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    Hi Mike,

    Yes, here's an excerpt of the relevant portion of the transcript.

    I've also included discussions regarding residual value and leasing in general.

    Larry
     
  10. ChrisC

    ChrisC see signature

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    Just to confirm, the $7500 tax credit still applies for leases of EVs. All of us Volt lessees took happy advantage of that. It was quite hairy for the first couple days of deliveries (in December 2010) as most of the lease details had not been released yet and we couldn't do what-if calculations on the leases. Leases are quite a bit more complicated than straight sales.

    Note also that different states have different laws regarding what exactly is subject to sales tax. If I remember correctly, there are five states (Virginia among them) that tax ... differently. I don't recall the details but it really made my lease confusing back then, as I am a Georgia resident (and thus subject to Georgia sales tax) but was buying my Volt from a Virginia dealer.
     
  11. jive_devil

    jive_devil Member

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    This is a good analysis, but as someone who is financially "stretching" to get into a Model S, the opportunity to spread out major expenditures between the initial payment and the coverage of the residual puts a few more features (like battery size) in reach.

    While during the investor call, the Tesla team was quick to point out that Tesla purchasers are savvy enough to understand the total cost of owning the car gets lower as it gets deeper into the life-cycle, it doesn't mean that all of those interested in making the purchase have the cash flow to support a fairly steep initial investment. At least for me.
     
  12. Rifleman

    Rifleman Now owns 2 Model S's!!!

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    I think we are in the exact same situation. I will be able to afford the 40 kWh (a stretch but I can it) but to afford the 60, I would need to find a way to spread the lump sum payment around so that I can keep my monthly payments at a manageable level.
     
  13. Rifleman

    Rifleman Now owns 2 Model S's!!!

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    I just got off the phone with PenFed. I talked with them about their "payment saver loan" Essentially this loan is like a lease, but you own the car, and at the end of the term (up to 60 months) you simply pay the residual (either buy paying outright, refinancing, or selling the car). For those of us who would like to buy, but are looking at leasing to spread the capital expenditure out, this might be a good option (especially since the rate for this loan is 1.74%). Even more surprisingly, the rep that I talked to on the phone had actually heard of the Model S, and said "that thing is faster than gas powered cars!" in an excited voice.

    The bad news is that right now, they will not do this loan on a Model S, as there is not a NADA listed residual value for it. They told me that if NADA list a residual for the Model S, they would be happy to do this type of loan on it. Hopefully NADA will list the Model S soon so that this loan is an option to us. In the absence on a Lease option from Tesla, this loan might be the best choice for some of us.
     
  14. Larry Chanin

    Larry Chanin Model S Perf Sig 1055

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    Hi Mike,

    I found some more in depth remarks from Elon on the earning call supporting your recollections.

    Larry
     
  15. jive_devil

    jive_devil Member

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    Thanks, Larry. This is what I recalled as well.

    Just thinking out loud, it starts to define some options for me:
    1) I can go ahead and get the 40 now (with the options that I want) with certainty, but am potentially locked out of a battery upgrade later;
    2) Strip out all my options until I bring the 65 in line with what is affordable without a lease option;
    3) Defer to save money reducing the amount financed or until the leasing program comes online and get the car that I want;
    4) Find a shorter term fix - Toyota ERAV or the BMW ActiveE that have leasing options ready to go now.

    My biggest outstanding question will be whether I can upgrade from the 40 to a 65 or higher somewhere down the line. That might make the 40 a nice interim step. Alas, that's the subject of another thread.
     
  16. jerry33

    jerry33 S85 - VIN:P05130 - 3/2/13

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    It's been said that you could, but you won't be able to add the supercharger hardware. (post #35). This may change over time.
     
  17. Lloyd

    Lloyd Active Member

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    I was told that if you elect to lease with Toyota, that you loose the Federal Tax Credit, and state Tax Credit for California. Toyota does not give you credit for it and you can't claim it as you are not the owner.
     
  18. jerry33

    jerry33 S85 - VIN:P05130 - 3/2/13

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    Toyota is still doing everything it can to stop electric cars.
     
  19. chrisn

    chrisn Member

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    I think Tesla would love to be able to offer competitive lease terms, but cannot currently do so.

    Here's why:

    1. Their cost of capital is way too high to carry the lease internally.
    2. A third party financing source would never get comfortable with a residual value assumption that consumers would be happy with, because: (i) there is no history of resale value for this car, so there is too much uncertainty-- bank's don't like uncertainty and (ii) there is a significant viability risk with Tesla that could cause a step-function decline in residual value.
    3. Car makers try to offset #1 and #2 by offering residual support to the bank, sharing the risk. Tesla does not have the balance sheet to be a good counterparty for such arrangements in any volume.

    The Volt is available at unbelievable (and likely unprofitable) lease terms, because (i) Ally Financial who writes the leases is majority owned by Uncle Sam and (ii) GM provides residual support.

    The above won't change until Tesla is clearly "through the woods" and can prove out its ability to deliver defect-free cars at sustained high volumes and the capital markets conclude that the risk of "going poof" has declined a bunch....
     
  20. KenEE

    KenEE P1937 Reward Excellence!

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    Strange. One of the major factors in my leasing the Volt was that the leasing company got the Tax Credit for themselves upfront so I didn't have to worry about filing for it later. (My experience with most credits/deduction is that it is decimated by the fine print so was happy to get it locked in!)
    Maybe the ability to assign the credit has been shut down?
     

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