No lease for M3?

[Snow Drift]

Leasing for this car makes little sense since not only do you pass on the tax credit, but Tesla is offering no lease support for the Model 3.

If Tesla simply partners with a bank that offers a lease rate based on what they think the car will be worth in 3 years then the only advantage of leasing is letting the bank carry the depreciation risk..... as the person doing the lease, you pay a premium in the form of higher interest rate (money factor) and other lease costs such as acquisition and disposition fees, security deposits, etc.

Most people lease because they "want a lower payment". Smart people lease when they understand the financials and recognize when a manufacturer is heavily subsidizing their leases (BMW).

I recommend people do their own lease of the Model 3. If you can't pay cash for the car or would rather invest the cash then finance the portion of the car you are comfortable with and make a cash payment for the rest. You can do this to get your "lease payments" in line with what they would be if you were actually leasing.

Then take advantage of the tax credit, and just sell the car in 3-4 years, hopefully before it depreciates like crazy.

1) If in April you don't owe $7,500 in taxes, then the credit doesn't help someone that buys/finances.

2) If you lease, the finance company gets the $7,500 credit and it is applied to your residual value, which helps to lower the lease payment. So you do "get" to use the credit if you lease, regardless of your tax liability in April.

3) Leasing allows lower monthly cash-flow, which is a major factor in the car buying process for most people, especially in the $35-50k range. This is a middle-class car, not the Model S or X.

4) Leasing allows peace-of-mind.

• a) In 3-years if Tesla is bankrupt, or the Model 3 technology is out-of-date, you have the contractual option to put the car back to the manufacturer. If you buy the car, you have to HOPE that the residual value holds up, and someone will buy your used car.
• b) If you get into a major accident, and have to repair the car, you now have to lower the price of the car at resale vs just returning it (repaired) to Tesla. That's better than paying to repair, and discounting the value due to the carfax saying it was in an accident.

 

[run-the-joules]

Thomas, whyfore dust thou doubt me?

Collision/Comp = $500 deductible
Liability = $100K/300K/100K If I increase to $300K/500K/100K my premium goes up by $20 for 6 months. (I also carry a $1M personal liability policy with another company)
Incl/ roadside assistance
uninsured motorist
rental reimbursement
mechanical breakdown
(in other words, the whole enchilada!}

I would add that this car will not be used for commuting, pleasure only

Oh I totally don't doubt you, there are too many factors that could be related. Interesting, though. Thanks!

 

[zer0cool]

I definitely wish that was the case with the 3, but all personal calculations and online calculators I use for a base 3 show that a 72-month loan at anywhere from 2.75-3% yields around $500/month payments (nothing down beyond the $3,500 initial payment, so not even sure if a 72 month loan would be an option). As I found out on Sunday, my wife has been comparing this figure to year-end lease offers for ICE SUVs that range anywhere from $279-450/month ($2,500-$4,000 down). Of course, she doesn't buy gas so she wasn't factoring in the premium fuel expense, but our gas costs for our compact ILX which we use premium gas in never really exceeds $90/month (we get just under 24 mpg combined).

Another odd but important variable is that our cheapest insurance quote for the 3 has been from Geico, our current company, at around $940/6 months, so our car insurance would be around $250-300 more ever six months for the 3 compared to an Acura RDX, Audi Q5, BMW X3, Volvo XC60... not sure why that is - 1 car, no accidents, no tickets in the last 10 years, etc.

Huh? On the SUV lease you need to add gas costs to that payment so that already exceed 500/m. Also on the model 3 you ll get 7500 back... so it's much much cheaper compared to a 4xx/m SUV lease.

 

[voip-ninja]

1) If in April you don't owe $7,500 in taxes, then the credit doesn't help someone that buys/finances.

2) If you lease, the finance company gets the $7,500 credit and it is applied to your residual value, which helps to lower the lease payment. So you do "get" to use the credit if you lease, regardless of your tax liability in April.

I'm pretty sure that leasee does not get the full $7,500 but some portion of it in the form of the residual adjustment. Where-as if you buy the car, hold it for as little as a year and sell it you get the full tax rebate assuming you pay $7500 in federal taxes.

3) Leasing allows lower monthly cash-flow, which is a major factor in the car buying process for most people, especially in the $35-50k range. This is a middle-class car, not the Model S or X.

I would argue that a $35,000-$50,000 is not a "middle class car" and those who think it is are not in very solid financial shape. From a "cash flow" perspective a lease makes sense if you approach the problem of car use from the angle of believing you will always have a car payment.

You know what's great for your cash flow? Not having a car payment at all. A lot of people roll their eyes and insist this is "not possible" in today's economic climate, but that is nonsense. What it really is, is people not being honest about what they can really afford. Most people don't want to spend $10K on a 3 year old Honda Civic so that they can then save for the next 8 years to buy their Model 3, but that is honestly much more financially prudent than always having a car payment.

For the fairly wealthy (upper middle class up to 1% and .1%) leasing an always new vehicle is just an annoying monthly "charge" like a cell phone. If you make $200,000, $300,000, $400,000 a year or more then a $1000 a month car lease payment or even a couple of those is a drop in the bucket... but those people don't make up the bulk of people leasing.

4) Leasing allows peace-of-mind.

• a) In 3-years if Tesla is bankrupt, or the Model 3 technology is out-of-date, you have the contractual option to put the car back to the manufacturer. If you buy the car, you have to HOPE that the residual value holds up, and someone will buy your used car.
• b) If you get into a major accident, and have to repair the car, you now have to lower the price of the car at resale vs just returning it (repaired) to Tesla. That's better than paying to repair, and discounting the value due to the carfax saying it was in an accident.

As I've pointed out in other threads about the pros/cons of leasing, this is the #1 reason to lease and honestly the only reason to lease if nothing else is in the equation.

What you have to ask yourself is, is the "peace of mind" worth the premium you are going to pay to lease a Model 3 vs buy it? As I've pointed out, you won't get the full benefit of tax credits, you won't get as good of an interest rate on the money you are borrowing for the lease, you don't have the flexibility of getting "out" whenever you want from the car obligation you are under... and on top of all of this you pay lease acquisition and other non-refundable fees that are easily $1000 or more. Is all of that added cost "worth it" for the risk that your Tesla won't be worth squat in 3 years? Maybe.

Signed, someone who has leased many cars.

 

[Snow Drift]

I'm pretty sure that leasee does not get the full $7,500 but some portion of it in the form of the residual adjustment. Where-as if you buy the car, hold it for as little as a year and sell it you get the full tax rebate assuming you pay $7500 in federal taxes.

This may just be nitpicking, but it is not a rebate. It is a credit. Which means in April, if you get a refund, or do not owe the gov't money, you don't benefit from the credit. It just disappears, no refund for unused portion.

Most Americans do not owe taxes in April. Leasing gives an EV Credit benefit, by lowering your monthly payment, no matter what your tax situation is in April.

Despite how companies like to position the tax credit (not counting a lease), it has no impact on the monthly car payment or the lump sum cost to buy the car outright. The car still costs the same amount. The only benefit is that you don't have to take cash out of the bank to pay your tax liability. You still have to find cash to pay for your car.

If you don't owe anything, get a refund, or owe less than $7,500 tax liability, your monthly cash flow may benefit from leasing. Paying cash just means you made all the payments upfront, so you're still out the money and opportunity cost. Yes, you save on interest.

And...sales tax. Leases are only charged (in most states), sales tax on the portion of the car financed, which is less than the full price of the car. You might save 50% on sales tax by leasing.

I would argue that a $35,000-$50,000 is not a "middle class car" and those who think it is are not in very solid financial shape. From a "cash flow" perspective a lease makes sense if you approach the problem of car use from the angle of believing you will always have a car payment.

You know what's great for your cash flow? Not having a car payment at all.

Are you saying it is too expensive for Middle Class? Entry-level cars, ($30-50k) are for the Middle Class. I consider Lower Class to be buying cars under $30k (i.e Elantra, Civic, Focus).

No payment would be great, but isn't realistic unless you want a cheaper or used car. I get the financial benefit, but I don't know if the consumer can handle that. Also, a lease payment is less than 5-year financing.

 

[internalaudit]

Do you guys think it's cheaper to lease two Tesla vehicles over an eight year period or finance/cash purchase one and keep it for life? I'm still surprised Tesla hasn't provided any updates on opening up the Right to Repair.

So for now, any battery or DU replacement post warranty will have to be performed by Tesla or its authorized repair centers? It seems we cannot pick major components/ parts in the scrap yard because the vehicle will reject them.

 

[jddssc121]

NOPE, Tesla needs cash right now for business. Leases are future profits and dont get them anywhere. RIGHT NOW

Huh? When you lease a car, Tesla is still paid in full, unless Tesla themselves are the entity providing the financing. US Bank is/was doing the leases for the Model S/X. So they cut a check for the full amount to Tesla, and then US Bank has the car on their books. It makes zero difference to Tesla's finances if you pay cash, get a loan, or get a lease.

 

[DR61]

This may just be nitpicking, but it is not a rebate. It is a credit. Which means in April, if you get a refund, or do not owe the gov't money, you don't benefit from the credit. It just disappears, no refund for unused portion.

The tax credit is a credit on your TOTAL tax liability, and is not dependent on what you would ordinarily owe or not in April.

 

[voip-ninja]

This may just be nitpicking, but it is not a rebate. It is a credit. Which means in April, if you get a refund, or do not owe the gov't money, you don't benefit from the credit. It just disappears, no refund for unused portion.

Most Americans do not owe taxes in April. Leasing gives an EV Credit benefit, by lowering your monthly payment, no matter what your tax situation is in April.

Despite how companies like to position the tax credit (not counting a lease), it has no impact on the monthly car payment or the lump sum cost to buy the car outright. The car still costs the same amount. The only benefit is that you don't have to take cash out of the bank to pay your tax liability. You still have to find cash to pay for your car.

If you don't owe anything, get a refund, or owe less than $7,500 tax liability, your monthly cash flow may benefit from leasing. Paying cash just means you made all the payments upfront, so you're still out the money and opportunity cost. Yes, you save on interest.

And...sales tax. Leases are only charged (in most states), sales tax on the portion of the car financed, which is less than the full price of the car. You might save 50% on sales tax by leasing.


Are you saying it is too expensive for Middle Class? Entry-level cars, ($30-50k) are for the Middle Class. I consider Lower Class to be buying cars under $30k (i.e Elantra, Civic, Focus).

No payment would be great, but isn't realistic unless you want a cheaper or used car. I get the financial benefit, but I don't know if the consumer can handle that. Also, a lease payment is less than 5-year financing.

I think that people buying/leasing a car with a price tag that is 50% or more of their annual income is way more car than they can afford.

As expected you argued that consumers can't be expected to "settle" for driving a used car and that they mentally believe they will always have a car payment (lease payment is cheaper).

I'm sorry but this is just faulty logic. Maybe if someone is maxxing out their 401K and other retirement vehicles and can budget a monthly car payment while also having all of the other necessities like a 6 month living expense cushion than I can see that as being something they would maybe do in order to always be driving the newest/safest/techiest car.

But for most people who live paycheck to paycheck it is far better to buy a cheap used car, pay it off as fast as they can and then have no car payment. Take the money saved and invest it.

The only reason any of this even happens today, vs. x decades ago is a combination of cheap lending and the attitude that if things get bad (lost your job and can't pay your bills) someone will be around to bail you out of a jam.

 

[voip-ninja]

The tax credit is a credit on your TOTAL tax liability, and is not dependent on what you would ordinarily owe or not in April.

Exactly.

It doesn't matter whether I get a "refund check" in April or not, it's just my total tax liability that is offset by $7500 assuming I get the full federal tax credit.

Smart people will just adjust their withholding so that they don't let the .gov get an interest free loan on their money for most of the year.

100% of $7500 in the form of a tax credit is still better than <100% of that in the form of some adjusted residual value when leasing a car. In fact I can't believe anyone is arguing otherwise.

If Tesla offers other leasing incentives then perhaps they help make up the difference, but AFAIK they are doing zero manufacturer lease support of Model 3.

I suppose one "angle" is that someone who makes so little that they don't have $7500 in tax liability leases the car and gets some of that federal tax credit in the form of the leasing company passing some of that back to them in the form of a cap reduction, residual adjustment, etc.

 

[voip-ninja]

Do you guys think it's cheaper to lease two Tesla vehicles over an eight year period or finance/cash purchase one and keep it for life? I'm still surprised Tesla hasn't provided any updates on opening up the Right to Repair.

So for now, any battery or DU replacement post warranty will have to be performed by Tesla or its authorized repair centers? It seems we cannot pick major components/ parts in the scrap yard because the vehicle will reject them.

Well, 4 year term leases are pretty uncommon so I think that would be more like 2.5 leases or you could look at it as leasing 3 times for 9 years total.

We can do some napkin math to see how it works out.

Let's say for sake of argument you are able to lease all 3 M3s or similar at $50K with a 55% residual (realistically new car prices go up 1-2% per year but we'll just ignore that for now as it only makes things look worse).

$150,000 X .45 (depreciation) = $67,500.
+ interest, let's be generous and assume you can lease at 5% interest rate = $10,125 in interest paid for the 3 leases.
+ lease acquisition fees, 3 of them, $1000 per = $3,000
+ minimal maintenance.... you can't lease and ignore vehicle service, so you do 3 $500 maintenances on each vehicle = $4500

I won't even get into the possible registration/tax situation for this, let's just say your total cost to lease for 9 years equals

$85,125.

Now let's look at buying the Model 3 and holding it for 9 years.

$50,000 on a 5 year loan @ 3% (auto loans always have lower interest than leases) with nothing down (you're doing something similar to leasing and trying to minimize your up-front out of pocket expense) = $7,500.

9 years you hold the car so you do the maintenance on it, let's say it's $500 per year for 3 years and every 4 years it's $800.... so, 7 $500 maintenances and one $800 maintenance = $4300.

So, you've purchased the car and held it till one year after drive train warranty expires and it costs

$61,800.

What's your lease worth after 9 years?

0

What's your Tesla Model 3 worth after 9 years?

Based on similar luxury cars it would be worth minimum about 25% of what you bought it for, or around $12,500 cash value.

So the difference is $35,835 more to lease and have a new car every 3 years vs. buying and holding for the long haul of 9 years. Will you have $35,835 in maintenance costs outside of warranty for the Model 3 you keep long term? Very little track record so hard to say.

Is $35,835 a lot of money to you? If it's not then I would say lease... or even just purchase the car, see how it goes and flip it every so often before the warranty is up for the newer model.

If $35,835 is a lot of money to you then you would be foolish to lease since there is no manufacturer support, which is needed in order to make leasing a more attractive option.

Leasing pros;

1. Always driving latest newest Tesla technology.
2. Car always under warranty.
3. Little to no concern about battery degradation.
4. Protected against resale value tanking.

Leasing cons;

1. Much more expensive.

Purchase and hold pros;

1. Far more economical.
2. Money saved can be invested so you can pay cash for your next Tesla.

Purchase and hold cons;

1. Maintenance costs/inconvenience.
2. Aging car, squeaks rattles.
3. Missing out on latest technology and safety advances.
4. You're not cool, driving the latest thing all the time.
5. Not protected against your purchase taking a huge resale hit due to recalls, new models, Tesla financial solvency, etc.

 

[Dynastar]

Although it was hard to find exact numbers, some Googling suggests that roughly the top 40% of households would have enough federal income tax liability to fully use the $7,500 tax credit. The below numbers include payroll taxes.

 

[Snerruc]

Although it was hard to find exact numbers, some Googling suggests that roughly the top 40% of households would have enough federal income tax liability to fully use the $7,500 tax credit. The below numbers include payroll taxes.
View attachment 267958

Hmmmmm..... I’m having trouble with those numbers. Are these numbers for all fed taxes? Something seems to be wack. $7500 only applies to income tax. My income is fairly high yet I could only use $400 against taxes.

 

[voip-ninja]

Hmmmmm..... I’m having trouble with those numbers. Are these numbers for all fed taxes? Something seems to be wack. $7500 only applies to income tax. My income is fairly high yet I could only use $400 against taxes.

??

What do you mean "could only use $400 against taxes"?

The $7500 applies to your total Federal income tax liability for the year, you can look at it for previous years on your tax forms. The chart above shows the average tax liability "Federal taxes" for each income group. From that you can see that the 3rd 5th of earners which is arguably middle middle class would squeak in with $8900 of federal liability. Some in this group have less liability due to a lot of deductions.

Those below this watermark would not get the full credit because they don't pay enough in taxes... which should also be sobering to those in this forum who screamed about the unfairness of not giving bigger "tax breaks" to groups that already pay little to no federal income taxes in the first place.

 

[206er]

The only reason any of this even happens today, vs. x decades ago is a combination of cheap lending and the attitude that if things get bad (lost your job and can't pay your bills) someone will be around to bail you out of a jam.

Well, losing your job is a concern, but if you can figure out a way to stick it out for a bit then after 3 years the end of the lease bails you out. Given what's coming down the line in terms of innovation for cars in the early 2020s, it may be the perfect time to lease, especially an ICE car.

I'm super interested in seeing how car subscription services like Volvo's 2018 service do, and if they will end up replacing conventional leasing as a solution for car use. Actually owning a car seems to make less sense to me with each passing day, though I live in a major city, bike to work every day, have never been a driving enthusiast, and have no clue how to perform my own vehicle maintenance (always driven Japanese cars, was never even taught how to change a spare tire by a parent).

Other than wanting a Model 3 because it looks like a super cool and safe EV, my wife thinking we need a car to transport kids around town is the only "sorta" legit reason we will continue to own or lease cars for the foreseeable future.

 

[Snerruc]

??

What do you mean "could only use $400 against taxes"?

The $7500 applies to your total Federal income tax liability for the year, you can look at it for previous years on your tax forms. The chart above shows the average tax liability "Federal taxes" for each income group. From that you can see that the 3rd 5th of earners which is arguably middle middle class would squeak in with $8900 of federal liability. Some in this group have less liability due to a lot of deductions.

Those below this watermark would not get the full credit because they don't pay enough in taxes... which should also be sobering to those in this forum who screamed about the unfairness of not giving bigger "tax breaks" to groups that already pay little to no federal income taxes in the first place.

Yup that was my tax bill last year. When you are retired and into serious taxmanship, the current ( now former) tax code is quite unfair. I imagine I may pay quite a bit more next year. , but if that is true , I will adjust my income upward to compensate. A friend of mine, who worked for IRS, often said “tax avoidance is a public right, tax evasion is a crime. “ pm if you want to know how it works.

 

[voip-ninja]

Yup that was my tax bill last year. When you are retired and into serious taxmanship, the current ( now former) tax code is quite unfair. I imagine I may pay quite a bit more next year. , but if that is true , I will adjust my income upward to compensate. A friend of mine, who worked for IRS, often said “tax avoidance is a public right, tax evasion is a crime. “ pm if you want to know how it works.

Someone on another board is in a similar situation where he's independently wealthy, retired, and can completely control his annual income to minimize his tax liability.

The solution is simple, adjust your taxable income just enough that you can make full use of the $7500 tax credit.

The government is entitled to whatever money they can squeeze out of my tight little fist.

 

[Esme Es Mejor]

for most people who live paycheck to paycheck it is far better to buy a cheap used car, pay it off as fast as they can and then have no car payment.

If it fits their commute, most people living paycheck to paycheck would be better off leasing one of the EVs with a ~100 mile range. They can typically be leased for an amount equal to your savings on gas.

 

[voip-ninja]

If it fits their commute, most people living paycheck to paycheck would be better off leasing one of the EVs with a ~100 mile range. They can typically be leased for an amount equal to your savings on gas.

Most? Really?

Totally unrealistic. Your typical paycheck to paycheck person needs a do-it-all vehicle, not just one that can manage their commute.

Additionally many don't own their own homes and will not have access to charging infrastructure.

 

[206er]

Most? Really?

Totally unrealistic. Your typical paycheck to paycheck person needs a do-it-all vehicle, not just one that can manage their commute.

Additionally many don't own their own homes and will not have access to charging infrastructure.

Ah, so they should instead sit out EVs for the time being and ride the bus, subway, or push less safe, less efficient 10 year-old ICE vehicles?