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New U.S.Bank lease and Federal Credit

Discussion in 'Model S: Ordering, Production, Delivery' started by redp85d, Nov 4, 2014.

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  1. redp85d

    redp85d Member

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    I would like to know what happens to the $7500 Federal Credit with the new lease. I did my math @ 3% and looks like this money is fully taken by the bank with no subsidy on the monthly payment or the residual value.

    The residual value to own the car after 3 years period was quoted at 53/52 % for 12K & 15K mileage options respectively. Based on the monthly payments for 3 years it sums to 57% of the actual car price. 9-10% extra (interest) for leasing seems a bit high for an EV lease given that the bank gets to keep $7500. Your thoughts please ?
     
  2. David_Cary

    David_Cary Member

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    Thanks for reporting the residual values. What car was that on with what options?

    The $7500 goes to the bank. I would guess it helps offset their taxes.

    Nissan, BMW, GM all have their own financing arms even if held separately. They have the relationship to apply the tax credit in a manner that helps "sell" more cars. Tesla still doesn't have this. When Elon announced better leasing, the hope was that the tax credit would somehow be factored in.

    In the end, it just seems like a normal lease. But what is different is the relationship between bank and Tesla. Since the bank is guaranteeing the residual, that is a risk that must be paid for. Sounds like that risk is valued at $7500 by the bank....
     
  3. MsElectric

    MsElectric Active Member

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    We had considered leasing but the fact that you get no benefit of the $7,500 was a big turnoff. They should apply that towards the payment due at lease signing so you essentially have a $0 down lease for just the monthly payment...
     
  4. djn04

    djn04 Member

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    I posted this in another post but I don't think the lease offer is that bad. Especially if you get a tax benefit from leasing. You would have to get less than 3% APR on the purchase for it to better the lease offer. I'm not sure you can get better financing and keep the resale guarantee, which I would want to keep. He's what I previously posted I would be interested in opinions on this.

    I ran the numbers using the 1.57% interest rate and the $5000 down as a CCR on an 85D that I optioned on the webpage. To get to the price listed on Tesla's webpage I had to use a 53% residual value. Was the 55% residual value based on a 10k miles per year lease? Are these numbers you got directly from Tesla?

    Crunching the numbers further, if the $7500 tax credit was applied to the CCR it would lower the monthly payments by $218. By excluding the tax credit you're paying the equivalent of 5.28% interest on the car.

    All that said it's still not a bad deal. I'm concerned about resale value in 3 years so I would want the resale guarantee. I think you are stuck with the 3.0% APR if you purchase with the guarantee.

    Assuming this is correct the cost to finance the 85D I optioned out over 72 months is $115,454 at my local tax rate. Subtract the tax credit and I'm at $107,954. The guaranteed resale value of the 85D I optioned is $47,037 but I would still owe $49,126 on the loan. So I would need to pay $2,089 to walk away after 36 months.

    If I were to lease I would spend $52,973 over 36 months. If I were to then purchase the car for the residual I calculated of $52,125 and apply the difference of $4,782 from the down payment on the purchase and the lease I would pay $54,339 over 36 months at 3.0% APR. That would total $107,312 over 72 months and I could walk away after 36 months if the bottom falls out of the value of Model Ss in three years for some reason.
     
  5. mkjayakumar

    mkjayakumar Active Member

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    The issue is not if the lease deal is good or bad, but the fact the leasing arm or bank chooses to keep the $7.5k tax credit to themselves, whereas the intent of that credit was clearly the customer should be the one benefiting from it. $7500 was meant to ease the cost of the new technology for the end consumer, not a for the financial institutions to siphon away that money to themselves.

    The same reason why Volts sale numbers are much lower than the Leaf, and the Rav4 is struggling to even sell 200 a month.

    Greediness kills the goose.
     
  6. breser

    breser AutoPilot Nostradamus

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    If Congress had wanted the lessors to receive this benefit they could have given the tax credit directly to the lessor rather than hope that the lessee would pass it through to the lessor. They also could have disallowed the credit from applying to leased vehicles at all. But they didn't do any of those things.

    Keep in mind that the lessee is taking a risk on the deal, assuming that there is a certain residual value of the vehicle. Given that Tesla does not have a long history to calculate that residual from (and no the Roadster doesn't count) you're probably lucky that leases are available at all. Given the design of the tax credit, Congress is clearly giving it to the lessee to use to offset some of that risk. Some lessees on other vehicles have chosen to pass that through to the lessor but I think it's a stretch to say they're violating the intent of the law if they don't.
     
  7. djn04

    djn04 Member

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    I do wish there was more transparency with the lease. I suspect what happens in the lessee replaces the purchaser in transaction with Tesla. In my case Tesla would guarantee to repurchase the car for $47,037 where as my residual is $52,125. Worst case scenario for the lessee would be a loss of $5088. The $7500 credit would insure against that loss and then some, $2412 to be exact.

    If these leases are open to negotiations I would first offer to take a residual value equal to the resale guarantee price and have the $7500 credit passed through as a cap cost reductions. If they balked at that I would as for the $2412 to be applied to the CCR and leave the residual at 53%. In both cases it sounds like I wouldn't get anywhere.
     
  8. MarcG

    MarcG Active Member

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    FYI, just emailed my financial guy at Tesla about this and he gave me some details.
    Since they've started using US Bank for the lease, the $7,500 credit DOES get calculated as a higher residual value to lower the monthly payment.

    Here is my example on a $125,420 P85D:

    Downpayment of $10,00 (including the $2,500 reservation fee, so $7,500 balance at delivery)
    36 monthly payments of $1,684 + sales tax
    Acquisition fee of $700 + sales tax
    Title/registration fees of $685
    Disposition fee of $300
    Residual value of $65,193.20

    The residual is calculated as 46% of the original price + $7,500:
    0.46 * 125420 + 7500 = 65193.2

    US Bank claims the $7,500 tax credit up front and, according to the Tesla finance guy, they "pass it onto the residual value of the vehicle thus reducing the monthly payment".

    So, it's all fine and dandy if you know for sure you plan on returning the car at the end of the lease. However, if you have any plans on buying it from US Bank, the residual gets tagged the $7,500 which you won't be able to claim since the car is considered used at that point.
     
  9. MsElectric

    MsElectric Active Member

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    That's horrible that it essentially makes it senseless to ever contemplate buying the car back at the end of the lease. The $7500 reduces the upfront cost of the car. They should apply the $7,500 to the value of the car and not play games with the residual.
     
  10. bonaire

    bonaire Active Member

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    MsElectric - that is why many EV buyers from 2011-2013 who leased cars like the Volt and Leaf never buy them out at the end of lease because the residuals were so high. They just lease again or buy new ones. That 7500 in the case of US Bank leasing Volts in 2011 had residuals like $23-25K. You can buy a new one for $35K now, or less, and apply tax credits again. What will be worse is the years following the end of the tax credit. Banks seem to be taking a bath on some of these deals. I wonder how they hedge against such losses when they have a $25K residual car go to auction and get $17K. Maybe they invest the tax credit received three years earlier as a hedge for that expected drop.
     
  11. MsElectric

    MsElectric Active Member

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    They would have to do none of this nonsense if they would just do the right thing and reduce the initial value of the car by $7,500 as they should. Then the residual is what it should be and is not artificially inflated in some nonsensical way.

    Are there any other banks that would handle a Model S lease in an honest and transparent way buy applying the $7,500 credit towards the value of the car so that it reduces your lease payment AND you have a plausible option for buying the car at the end of the lease. For tax purposes it makes sense for us to lease but at the end of the lease we don't want the car's residual value artificially increased by the bank by $7,500 as they've already received that $7,500.
     
  12. David_Cary

    David_Cary Member

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    How you hedge against losses of $8k when you get $7500? Where is the hedge needed? Sounds like a rounding error.

    A 3 year old Volt with 30k miles should certainly be worth more than $17k.
     
  13. smilepak

    smilepak Member

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    With leasing in California and Florida I think you can still get the $2,500 rebate. Wouldn't that be an incentive to leave over buy?
     

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