Model Y lease vs buy evaluation

[rjpjnk]

I plan to purchase a Model Y and am trying to understand the lease vs buy option.

I'd like to estimate the total cost of leasing vs owning+selling after 36 months.

I believe I need the following info in order to make this comparison:
(1) Monthly lease payment + any down payment
(2) Cost of additional miles over the 15K max offered as lease options
(3) Estimated resale value in 3 years

I can get the answer to (1) from the Tesla site, but I cannot find info on the others.

I plan to drive about 25K miles per year.
I am in NJ, so there is no sales tax.

Thanks for any help.

 

[DrWags]

I don't know about the Tesla mileage overage charges but I know from personal experience they add up to a lot of money very quickly. You are far better to choose a higher mileage option at signing then planning to go over the mileage. Or you might be better buying if there is no such option.

 

[rjpjnk]

Highest option I saw was 15K miles/yr. Is there a 25K option?

 

[jcanoe]

Currently the Tesla Model Y lease program does not allow you to purchase the vehicle at the end of the lease. You could look at Model 3 depreciation numbers for 2018 to 2021 to get an idea of the potential depreciation of the Model Y.

 

[JHCCAZ]

(2) Cost of additional miles over the 15K max offered as lease options

25 cents per mile. A very fair number IMO, but very roughly twice the cost per mile of the incremental lease options (10k miles/year up to 15k miles/year). This wasn't too hard to find by searching when I looked for it a few weeks ago, but sorry I did not bookmark the page from the Tesla website.

So if you're unsure within that range, you're generally better off to include a higher miles/year when you lease. But in your case, you will pay ~$2500/year (deferred until lease end, in case you want to factor in that minor time-value benefit) i.e a ~$7500 lump sum to pay for the extra 30,000 miles you plan to put on the car. To me that seems like an acceptable increment, but of course if you buy into the theory that Teslas are in a special category and will almost not depreciate at all, then you shouldn't lease it anyway.

I almost certainly will lease.

One more note - I'm not absolutely sure that 15k miles is the absolute limit of the lease options. I haven't gone into the real brass-tacks step of the process, but seems like I've heard that there may be more flexibility than is indicated on the lease payment-estimation page.

 

[proximanova]

25 cents per mile. A very fair number IMO, but very roughly twice the cost per mile of the incremental lease options (10k miles/year up to 15k miles/year). This wasn't too hard to find by searching when I looked for it a few weeks ago, but sorry I did not bookmark the page from the Tesla website.

So if you're unsure within that range, you're generally better off to include a higher miles/year when you lease. But in your case, you will pay ~$2500/year (deferred until lease end, in case you want to factor in that minor time-value benefit) i.e a ~$7500 lump sum to pay for the extra 30,000 miles you plan to put on the car. To me that seems like an acceptable increment, but of course if you buy into the theory that Teslas are in a special category and will almost not depreciate at all, then you shouldn't lease it anyway.

I almost certainly will lease.

One more note - I'm not absolutely sure that 15k miles is the absolute limit of the lease options. I haven't gone into the real brass-tacks step of the process, but seems like I've heard that there may be more flexibility than is indicated on the lease payment-estimation page.

I thought for a while on buying or leasing and settled on leasing for a few reasons - first and foremost the amount of EVs that will be flooding the market in the next 3 years. I'm sure I'm going to love my new Y (in 1 to 10 weeks), though.

 

[rjpjnk]

... but of course if you buy into the theory that Teslas are in a special category and will almost not depreciate at all, then you shouldn't lease it anyway.

I haven't heard this theory before but it sure would be great news if true. I'm kind of new to the game and have much to learn. However, so far my thinking has been just the opposite; that is, that Tesla's would depreciate *more* rapidly than other cars. I am happy to hear this may not be the case.

My thinking is that EV technology is changing so rapidly that in three years' time the Tesla of today may appear so outdated nobody will want it. Battery technology is getting better, and it may be hard to sell a 2022 MY if the 2025 MY gets 500 miles per charge on a smaller and lighter battery and has other new features people want at the same or lower price due to competition.

But then again, they have certainly held their value over recent years, so maybe not.

This expectation that the technology will advance so significantly in 3 years is actually the primary reason I am looking into leasing. I have never leased before, and typically own for the long haul, but I think that in three years I will probably want the new updated Tesla Model Y2

 

[z335is]

As someone who has leased cars forever, I'm choosing to finance. The Tesla lease program is by far the worst I've ever seen from a mainstream manufacturer - high MF / interest rate, closed-end, low residual value, etc.

If battery tech advances that much over the next 2-3 years (which it likely won't), then I'll gladly eat whatever negative equity that I have at that point..

 

[GeekyDoc]

Was researching this so very helpful; curious to know for those who lease, do you put any $ down?

The requisite seems to be $4500. Which to me for a lease is $2500 more than I would like. I usually drive around 18K miles/yr so the $0.25/mile charge works out ok in my calculation. Plus this would be my first EV so a bit hesitant to buy without really knowing the pitfalls/limitations (if any).

 

[BMWY]

As a long time leaser, I tried everything in my power to justify leasing the Y. However, I just couldn't do it, as the lease program is almost comically bad.

 

[pcmike]

I’ve always leased BMWs, however when I did the math a few months ago at the 3yr mark you are only ahead about $2400 on a lease with no option to buy at the end and still have a mileage limit. If you can stick to the mileage limit and absolutely want a new car in 3 years, I guess it might be worth it. Literally the only advantage of a lease (in my opinion) is not being exposed in the case of an accident. But with no option to buy at the end, it’s futile.

 

[Plin18]

For me the lease option (15k miles) is only $30 less than finance. Does anyone know do we have option to trade in to a different dealer when approaching end of the lease ?

 

[GeekyDoc]

Really? Mine is a $100 difference between leasing vs financing one. I have always leased and also always bumped up against the mileage limits (usually do ~18K miles per yr). This time I couldn't justify the difference and went ahead with financing. Also the financing vs leasing APR was decent - 2.13% vs 4.85%

 

[_ayn]

3-yr lease is $134/mo cheaper than financing with Tesla for 6 years, we barely drive in the city so 10k is actually way more than needed. so I figure in 6 years, assuming we lease another Model Y after the first lease expires, financing would've cost about 10k more, so if the car is worth 10k or more in 6 years it's cheaper to finance. I might be missing something though, I don't see how comically bad the MY lease is, I haven't looked in to the MF and residual, but from the numbers it doesn't look super bad to me. It'll be nice to have a new MY in 3 years with new features and what not.

 

[JHCCAZ]

...I haven't looked in to the MF and residual, but from the numbers it doesn't look super bad to me. It'll be nice to have a new MY in 3 years with new features and what not.

I agree with this. So this begs the question, what's the discrepancy between those who say the lease payment is hardly less than finance, and those who say it is or can be much less, or think a lease is attractive for them?

I think it has to do with different scenarios going in. If you are looking at the (3 year) lease with minimal down-payment, and comparing to purchase-finance over a much longer term (say 6 years), then yes, the lease doesn't provide a big monthly-payment advantage. In very rough terms, you are paying the first half of the roughly 50% depreciation over the first 3 years with either program. The lease payment comes out a little less because the residual is actually somewhat more than 50% i.e. the depreciation is somewhat less than 50%, but this advantage is also somewhat dulled if the lease has a higher interest rate (equivalent Money Factor). Seeing this, plus being annoyed by the higher interest rate, and further annoyed by Tesla's no-buyout policy, creates the anti-lease sentiment.

In my case, however, I plan to put down as much as I can and I can accept the no-buyout condition*. What does this do for me?

• High down-payment obviously reduces monthly payment from my cash-flow budget,
  • but also, it minimizes the penalty of a less-competitive lease interest rate (Money Factor) because I'm not financing very much of the lease's depreciation cost.
  • The monthly payment can be brought very low if you go this route. Every additional dollar up front reduces the monthly payment twice as effectively as it does for a twice-as-long-term auto loan, and also is free of the supposedly usurious Money Factor.
• I want FSD (despite the controversy) and leasing also creates a powerful lever to combat the whole issue of FSD cost vs. used-Tesla valuation.
  • By ordering $10k FSD up front, it's being leased and so I end up paying only for its depreciation cost (well under $5k), so I'm saving that money plus I'm not very stressed about the subscription-vs-purchased FSD cost prediction. The delta-payment from adding FSD comes to $134/month and I don't see the future subscription price being anywhere near that low (if it is, there'll be some really PO'd FSD owners around here).
• *Sure it would be preferable to have the option to buy it out if I want to. However, no one is forcing me to lease, I know the costs up front, I don't have to deal with resale myself, and I'm somewhat skeptical that I'll feel like a fool for not really owning my suddenly-$100k RoboTaxi, come 2024.

 

[BMWY]

3-yr lease is $134/mo cheaper than financing with Tesla for 6 years, we barely drive in the city so 10k is actually way more than needed. so I figure in 6 years, assuming we lease another Model Y after the first lease expires, financing would've cost about 10k more, so if the car is worth 10k or more in 6 years it's cheaper to finance. I might be missing something though, I don't see how comically bad the MY lease is, I haven't looked in to the MF and residual, but from the numbers it doesn't look super bad to me. It'll be nice to have a new MY in 3 years with new features and what not.

In the simplest terms, you're paying ~5% interest on a lease versus, 1.5-2.5 (in general) on a finance. That's not even factoring in closed-end, potential loss of down payment, etc. If I'm renting a car from someone, I want them to incentivize ME for it, not the other way around. To each their own though.

 

[_ayn]

I'm comparing $0 down on lease vs finance, with the interest rate so low, I don't think it makes a ton of sense to put a huge downpayment on a loan. Paying cash is attractive coz I won't have to worry about payments, so I think I'll either pay cash or finance/lease with 0 down. With leases, I'm sure you get that if the car is totaled you don't get the downpayment back, so I always do $0 down on my leases. (other marques allow MSDs and other things like AudiCare to lower the MF but Tesla does not).

 

[carguyeddie]

In my case, however, I plan to put down as much as I can and I can accept the no-buyout condition*.

I'm new here and don't want to be the new guy stirring the pot, but I am a CFO and cannot quite bring myself to leave this without comment (anybody remember Who Framed Roger Rabbit and what happened whenever somebody did the "two bits and a haircut" thing? lol).

Putting money down -- known as a Capital Cost Reduction -- on any lease is generally NEVER a good financial decision. NEVER. The main reason is the way a lease is calculated, there are two components: a depreciation charge and a finance charge. Most of the cost of a lease is in the depreciation part of this equation which is simply your capitalized cost (selling price of car with delivery fee less any down payment). So you are basically prepaying your monthly payment.

As an example, take a base Model Y with no upgrades at all. On a 36-month, 10K per year lease, the Tesla site provides a monthly lease payment of $505 (before tax). Now, simply change the $4,500 to $0 on their calculator. Your payment will increase by $133/month to $638. Nice, right? Wait, let's think about this. What is $4,500 / 36? It's $125. So, your big "down payment" saved you a whopping $8/month in finance charges or $288 over the life of the lease. If I told you I'd sell you the car for $288 less if you gave me $4,500 up front, you'd look at my like I'm an idiot, right?

Another reason why it's not a good idea to put money down on a lease is it is equity you cannot get back. Prime example is you are leaving the store and car gets totaled. Thankfully, nobody is hurt. You're out $4,500. Yes, some leasing companies will offer you gap insurance to protect against this (not sure if Tesla does or not), but now they are just making money off you for making a bad financial decision, because you should not have put money down to begin with.

 

[carguyeddie]

I have not been able to find the Money Factor Tesla is offering or the Residual Value for a 3-year 10K/yr lease, but if I know one I can calculate the other. I'm test driving both the Model Y and the Mach-e tomorrow, so will ask. But from what I can discern, the lease looks far from attractive solely from a financial perspective. Technology risk, knowing you will want a new car in three years and don't like hassle of selling, etc. can all be reasons to justify a lease. But if you do lease, put nothing down. And since the interest rate on a purchase is 2.49%, I would not likely put anything down on a purchase, either (I generally never do, except drive-off's).

 

[trlengle]

This is all really useful information, especially to avoid any upfront payments on a lease. I’m torn because I want to make some upgrades (coils) to the LR I’m in line for but doing so on a lease makes little sense but I also think there will be a leap forward over the next 3 years in EV’s which makes me nervous about buying (and upgrading). Regardless, I’m paying the $2k for the boost, which is probably not a great investment on a lease, I wish they would allow you to add to the purchase price.