Own for two years - the lease vs buy math

[wesley888]

Wow, that sucks you have to pay all the tax even you are leasing.

I ordered a MS 90D the same night after Elon's announcement last week. I went through the similar calculation to determine if I should buy or lease as well. After getting bunch of numbers from my owner advisor, my total cost of ownership for leasing come down to quite a bit cheaper than doing the Tesla lending. Mainly due to the residual is quite high (59% after 3 years). Also, I only have to pay tax on the depreciating part of the car (41%).

Lease:
$1318 x 36 Months
$7084 due at signing (includes 41% sales tax and registration)
Total: $54,532 for 3 years

Buy/Loan:
$1460 x 72 Months
$14210 due at signing (includes 100% sales tax and registration)
Total: $66,770 for 3 years

 

[democappy]

Lease:
$1318 x 36 Months
$7084 due at signing (includes 41% sales tax and registration)
Total: $54,532 for 3 years

Buy/Loan:
$1460 x 72 Months
$14210 due at signing (includes 100% sales tax and registration)
Total: $66,770 for 3 years

It looks like you are ignoring the value of the actual car in your buy/loan example. Loan balance does not equal car resale value. I am not sure if it makes the case better, worse, or the same but it is a key part of the math.

 

[dckiwi]

It looks like you are ignoring the value of the actual car in your buy/loan example. Loan balance does not equal car resale value. I am not sure if it makes the case better, worse, or the same but it is a key part of the math.

Right, in your loan example you have paid $66,770, but if you sold the car (just like you're handing in the car for your lease) you would get money for it, so back that out of the total (minus the loan balance). Now how much will you get for the car? That's the hard part. But it's almost definitely more than the $12k difference between buy and lease.

 

[SageBrush]

OP, a couple of points, some already mentioned

1. The lease has an APR built-in. Your pay the rate on the residual for the entire term and the rate on your (declining) principal loaned
2. A lease has acquisition and return fees
3. Leases have damage and mileage limit provisions. The uncertainty of whether you will be liable has a cost
4. A lease constrains your flexibility when to turn in the car. That has an uncertain cost but read the threads of people wondering how to bridge to their next car to see the effect in action.

Bottom line for the lazy ?
Since Tesla is offering you a residual of 59%, the break-even for a purchase should be about that much in resale to within $1000 to account for lease specific junk fees, not including all the hidden gothcha's that lack of flexibility may bring.

 

[wesley888]

Good points. I forgot the resale value after you loan it for 3 years. Assuming we actually get 59% residual like Tesla estimate, the car could be sold for $62,204 after 3 years. For simplicity sake, not going to use amortization schedule. Let's just assume the payoff amount of the load is just $52,560 after 3 years. So I net a $9,666 gain. (It should be more since the payoff amount should be lower?)

So, the actual out of pocket is $66,770 - $9,666 = $57,126. It comes very close to the leasing out of pocket amount.

 

[Model S M.D.]

Wow, that sucks you have to pay all the tax even you are leasing.

I ordered a MS 90D the same night after Elon's announcement last week. I went through the similar calculation to determine if I should buy or lease as well. After getting bunch of numbers from my owner advisor, my total cost of ownership for leasing come down to quite a bit cheaper than doing the Tesla lending. Mainly due to the residual is quite high (59% after 3 years). Also, I only have to pay tax on the depreciating part of the car (41%).

Lease:
$1318 x 36 Months
$7084 due at signing (includes 41% sales tax and registration)
Total: $54,532 for 3 years

Buy/Loan:
$1460 x 72 Months
$14210 due at signing (includes 100% sales tax and registration)
Total: $66,770 for 3 years

What about the $7500 tax credit? Shouldn't you subtract that out in the Buy/Loan column? (it is already factored into the Lease)

 

[wesley888]

Another good point! Learn something new everyday!

 

[NAVALARCHITECT]

So the lease looks to work out better?

 

[wesley888]

Yes, I'm calling my advisor now. lol. See if I can change it to a loan.

 

[virtualsmack]

What about the $7500 tax credit? Shouldn't you subtract that out in the Buy/Loan column? (it is already factored into the Lease)

it should be.

i did the math a few times myself and it was always cheaper to buy the car mainly because of: 1) the $7500 rebate and 2) tesla's high downpayment. agree with the comments here about some people not doing the math because i read a lot of arguments for leasing before the end of quarter deals.

i did the math a number of times and could not get leasing with tesla to be cheaper than purchase. other companies with 0 downpayment deals, yes, but not tesla.

 

[Model S M.D.]

Also, in Texas, leasing is even worse since you have to pay taxes on the entire value of the car...ouch!

 

[ChadS]

I agree that leasing is rarely the better deal; although it is easier to turn the car in and get a new one that to try to sell it yourself (or deal with the pain of the low value you get when you trade it in, which may result in buying not really being cheaper .

However, as has been noted, there are many factors. What is your sales tax rate, and how much of it applies to a leased car? Would you be able to take the $7500 federal credit if you purchased? Can you float the money until you get it? Are you trading in a car at either end and how are taxes handled on that? And the whole combination of capital cost/money factor/term/lease fees that determines how much you pay.

With Tesla's normal factory price/money factor/residual, unless you have a business and can deduct expenses it is usually cheaper to buy and resell later (although there is more uncertainty and work that way). But sometimes - like when you have a short lease term (mine is 2 years), uncertainty about the federal tax rebate (I am retired, not much income), can't deduct payments, your state only applies sales tax to the portion of the car you "use" over the lease (I am in WA with a 10% sales tax rate; but the only tax what you pay on the lease, not the whole vehicle value), the term matching how long you want the car (I hope to get a 3 in about 2 years), plus a whole bunch of large discounts (model year, miles, pre-facelift, P90DL when the P100D was announced) that reduce the capital cost but are NOT reflected in how they calculate the residual - well, my lease numbers ended up being a lot less than I assume it would cost me to buy the car and resell it in 2 years.

But that is an usual combination of events and this is the first time I have ever leased. I agree leasing usually ends up being more expensive. Still, some people are really bothered by the uncertainty of future resale value and the work of selling on their own, so the incremental cost is worth it to them.

 

[dckiwi]

What about the $7500 tax credit? Shouldn't you subtract that out in the Buy/Loan column? (it is already factored into the Lease)

I already included the tax credit in my 'out the door price'.

 

[wesley888]

I think the last few posts were referring to my calculation in page 2 here. Sorry, kind of hijacked your thread.

 

[SageBrush]

In Tesla's case where MSRP applies to either lease or purchase, and presuming that any tax credits are equally received, the breakdown looks like this:

Purchase
Purchase Price - tax_credits
Loan interest (or opportunity cost)
(Resale)
Delivery Charge
Paperwork
Taxes

Lease
(Car Price - tax_credits) * (1 - residual)
Interest*
Delivery Charge
Acquisition Fee
Return Fee
Other Paperwork Fees ?
Taxes

*Interest paid on a lease can be confusing, but the following approximation is pretty easy to follow:
The leasing company buys the car from Tesla and charges you an interest rate for using their money. That rate is expressed as a "money factor" (MF), which when multiplied by 2400 equals an APR. If the residual value of the car is 'X' and the part you use is 'Y', then over 'Z' years of the lease the interest adds up to
Z* (X + 0.5Y) * APR

Why 0.5Y ? Your monthly payments reduce your principal. Your average principal is ~~ half the starting amount.