Own vs Lease?

[joebruin77]

Here is a helpful article from Consumer Reports on the leasing vs buying decision:

Leasing vs. Buying a New Car

The bottom line is that there is no one right answer for everyone. There are pros and cons to each option.

With one exception (when I leased a Chevy Volt), I have always purchased my cars. When making this decision, I put together an Excel spreadhsheet showing the total cost of buying vs leasing a car for a 10 year period. I included every single cost I could think of, including sales tax and also return on investing assets not put into the car. For me, the economics over this long period of time indicated that buying was better than leasing. That's why I decided to buy my P3D and keep it for 8 to 10 years. But that is what was right for me. I totally respect that someone else might prefer leasing.

 

[DBV1]

Does anyone actually know what the RV and MF are on a Tesla 3 and Tesla S for 15k miles a year. There online lease calculator stinks. Always looks better than what it is, since state tax is not added too.

 

[jjrandorin]

As far as I remember the SA told me that with model 3 it is mandatory to buy after the lease period.

There is currently no "buy after end of lease period" with tesla leases.... wouldnt be the first thing a tesla rep told a person that was incorrect though.

 

[jjrandorin]

Does anyone actually know what the RV and MF are on a Tesla 3 and Tesla S for 15k miles a year. There online lease calculator stinks. Always looks better than what it is, since state tax is not added too.

I dont know what they are, I had calculated it out at one point last year but.

If your the same person from 'the 'fest", I would just mention on the cars in general, I personally like the 5 series better than the model S, but the model 3 blows the 3 (and 4) series away in most respects. As you move up the price chain on BMW you get a lot more "luxury" than is present in pretty much any tesla. I dont think the driving experience of the S is significantly better (except in a straight line) over the 5 series, while the driving experience of a model 3 is significantly better in almost all phases (straight line, canyon carving, daily commuting) than a bmw 3 or 4 series.

Take it for what its worth from a long time BMW leasee. I dont post there much any more, but still read it, and have the same user name here as there if you recognize me.

 

[mrbulk]

I have always leased, mainly for all the reasons given above in the pro-lease comments like lower payment, always having the latest and greatest, always under warranty, the Option to keep or give up the car without the stress and uncertainty of trying to sell it yourself, etc.

And with this EV technology still "new" (to me at least) it gave me the chance to drive something I hoped would be great long-term, yet since still fairly "new" (again to me at least) I would be protected at the end in case the bottom fell out with EVs for some reason.

I now have nine months left on my S75D lease. The bottom for EVs has not fallen out - quite the other way around actually, at least for Tesla. And given what I have experienced with my S75D, I would buy another Tesla in a heartbeat (already have a CT reservation and the wife is now starting to climb on board regarding the Model Y) but I will NOT be keeping the S, mainly because the newer Teslas appear better at suiting my needs than the car I have now.

So I am still all-aboard with leasing for my personal situation; however, I hope someone can help me out on the math here regarding TESLA's own leasing program, or more specifically their numbers, which appear to be quite bad for leasing.

For example, their online payment calculator allows you to reduce the down payment (for both lease and loan) to zero so you can compare apples to apples. When I did that I discovered the monthly payments were VERY similar. For example on the Model 3 SR+:

LEASE = $506 for 36 mos. (MF, etc. unknown)

LOAN = $595 for 72 mos. (at 2.99% APR)

At this $89 difference the payments are nearly the same.

And the payment closeness is even more striking on the Model S LR:

LEASE = $1146

LOAN = $1157

$11 difference?

So unless Tesla significantly fixes up their money factor and associated parameters that lower their lease payment, or there are imdependent leasing companies that buy the car directly from Tesla to lease back to you, it appears it may be a better deal to BUY this time around...what do you think?

 

[DBV1]

Good analysis, but you are talking about a 6 year loan and you can lease two brand new Tesla’s over the same 6 years for a similar or less amount. At least that is the way I look at. So, unless you are going to keep your Tesla’ over 6 years, why do that? I would rather have two brand new Tesla’s or the option to lease something else after 3 years, if for some reason the Tesla did not live up to your standards.

 

[joebruin77]

Good analysis, but you are talking about a 6 year loan and you can lease two brand new Tesla’s over the same 6 years for a similar or less amount. At least that is the way I look at. So, unless you are going to keep your Tesla’ over 6 years, why do that? I would rather have two brand new Tesla’s or the option to lease something else after 3 years, if for some reason the Tesla did not live up to your standards.

There are advantages to buying the Tesla and keping it for 6 years:

1) At the end of 6 years, you will have paid roughly the same amount of money but you will actually own the car. A 6-year-old Tesla will still be worth something. If you do two 3-year leases in a row, you don't own the car.

2) If a car does not live up to your standards or you do not like it for any reason, you can sell it at any time and get another car. Yes, you would have to pay off the car loan, but it is possible. My friend once leased a Lexus ES-350 and was so bored by the its driving dynamics that waiting the 3 years for his lease to finish was like torture.

 

[Msjulie]

We leased our very first EV, a Fiat 500e. We were EV novices and being uneducated, harbored notions like range anxiety for a commuter car where round trip was 20 miles ha ha. Also because we expected the range would go up in new EVs and Tesla only had Model S at the time, it was the stop-gap car before the 3 would arrive (ha)

The value of the car for purchase at lease end was an eye-watering 24k or something while you could go to a dealer and buy a used off-lease car for like 6-8k. Obviously no dice for us buying it though we would have liked to at the time since the Model 3 was years late and it was trouble free and cost like nothing to drive (lease deals were good then).

Personally I buy a car I don't think will cause me grief, if a modern BMW was my option the choice would be lease for sure. Everyone has to do the math for their situation.

 

[HughH]

Unless you are leasing a Model 3 through Tesla ....

From what I've been told Tesla leases ends with the car always going back to Tesla. I've ben leasing Lexus twice in a row and BMW the last three times. Sometimes I have gotten lucky and sell the car to CarMax at the end of a lease for 2-3 thousand less than what I owed. Also, on a lease one never, NEVER should put any money down. If you wreck the car, most companies include gap insurance so the lease and you will always be 100% covered. However, any money down is lost...period.

 

[HughH]

This time when our lease maturates next March I will purchase the Tesla and pay each for it.

 

[john5520]

I'm in the 'rather own' than rent camp. I know it can be a gamble, but I've had luck so far. My last car was 12 years old when I sold it. In that time, it had no major issues out of warranty which helped me save enough to invest and purchase a home. With the Tesla, I expect to have a fairly trouble free out of warranty experience given that it's an EV, and has a good reputation. Plus, the warranty on the most expensive parts is 8Y/100k miles. And even if I purchased an extended warranty for 4 y / 50k miles, it would still be much cheaper than a 7k a year lease over 4 years.

With that said, If I was into driving the latest model or switching cars often, then yeah, I'd lease.

 

[KenC]

Usually, you can back into the lease figures. I start with the finance rate, and try the equivalent for the Money Factor, since Tesla is not subventing leases, and not trying to steer people into leases, so there's no reason for them to offer lease rates lower than financing rates. 2.99% is the published finance rate. If I punch in the approximate MF, it's 0.001246. Then, I punch in Residual Values, and see when the total of the Depreciation and the equivalent Interest add up to $506. $506 is what the Tesla lease calculator is showing for $0 Down, 10k miles, 36 months. Also, adding in the $1200 destination into the calculation.

I get a payment of $505.97, pre-state sales tax, when I get a RV of 62.5% for 10k miles, and a MF of 0.001246.
To test this further, let's change mileage allowed to 12k miles, and adjust RV from 62.5% to 60.5%, and we get, $526.13. When you change the Tesla lease calculator to show 12k miles, you get $526. So far, so good.

Let's check 15k miles. Using RV of 58.5%, my spreadsheet says, $546.29 and Tesla's calculator says $546. Again, it seems to work, so my conclusion is that the MF used by Tesla is the interest rate equivalent of 2.99%, and the RV is 62.5% for 10k, 60.5% for 12k and 58.5% for 15k.

 

[KenC]

Using the same approach for the Model S, I get a RV of 53.5% for 10k, 52.5% for 12k, 51.5% for 15k, all with the MF of .001246

 

[DBV1]

Using the same approach for the Model S, I get a RV of 53.5% for 10k, 52.5% for 12k, 51.5% for 15k, all with the MF of .001246

Thanks - that is very informative post. RV values are much stronger on the Model 3 than the Model S then. That makes sense.

 

[TT97]

We leased our very first EV, a Fiat 500e. We were EV novices and being uneducated, harbored notions like range anxiety for a commuter car where round trip was 20 miles ha ha. Also because we expected the range would go up in new EVs and Tesla only had Model S at the time, it was the stop-gap car before the 3 would arrive (ha)

The value of the car for purchase at lease end was an eye-watering 24k or something while you could go to a dealer and buy a used off-lease car for like 6-8k. Obviously no dice for us buying it though we would have liked to at the time since the Model 3 was years late and it was trouble free and cost like nothing to drive (lease deals were good then).

Personally I buy a car I don't think will cause me grief, if a modern BMW was my option the choice would be lease for sure. Everyone has to do the math for their situation.

It's a good thing you leased as the bank or FCA took the financial hit between the residual price and the actual value. This is pretty common with BMW & Mercs as they over-inflate their residual values to make leasing look more appealing.

Did you try to negotiate a lower price to buy after the lease ends? I have had luck in the past as long as you offer a premium over the wholesale price. Usually can get a price somewhere between the wholesale and retail price.

 

[hmgolds]

I do not understand the implication - in some posts - that leasing is somehow better with a depreciating asset. Every lease has depreciation built into the lease payment. Sometimes their estimate of future value is high, sometimes low, sometimes spot on. A lease also has an interest rate built into the payment. That interest rate may be higher or lower than what you can get. Finally, a lease also has profit built in. So after the depreciation, after the cost of borrowing, after their administrative costs, they expect to come out ahead.

There was a time a while back where manufacturer's credit subsidiaries made very low assumptions about depreciation in order to move cars. Basically robbing Peter to pay Paul. But I don't think that's done anymore.

One place you might come out ahead is if you drive very little. I think a lot of "low mileage" leases are written as loss leaders with the assumption that you'll drive more than you think you will and they will make it up in excess mileage fees.

The one indisputable advantage of a lease is convenience. You can walk away at the end of the lease without the hassle of selling a used car. And, for some, there may be tax advantages.

 

[SammichLover]

I do not understand the implication - in some posts - that leasing is somehow better with a depreciating asset. Every lease has depreciation built into the lease payment. Sometimes their estimate of future value is high, sometimes low, sometimes spot on.

I believe the theory goes that you are putting a stop-limit on depreciation loses. Risk management.

 

[hmgolds]

I believe the theory goes that you are putting a stop-limit on depreciation loses. Risk management.

That is a valid point. Of course, you're also guaranteeing a level of depreciation.

 

[holmgang]

I used to always say I will own this new car for 10 years every time I bought a new car.
I sold after 4 years.
Then I used to say I will own this new car for 5 years.
I sold after 3 years.
Then I used to say I will own this new car for 3 years and sold after barely 2 years.

Then I leased a car for 3 years thinking I will have to own it for 3 years for sure.
And then I traded it in after 2.5 years.

I had no option to lease when I bought my model 3. I will probably lease next time.

I'm in this bucket. Every car I've committed to "keeping forever", I never did. And whether I've financed or paid in cash, the NET monthly expenditure is not dissimilar to having leased it. Probably worse.

Just like there are healthy uses of debt and leverage (think what smart businesses do), and terribly irresponsible of debt and leverage (think of people buying TVs on credit), I dont think its proper to blanket categorize car leases as bad.

In pure math terms -- and it really is just simple math -- how good or bad leases are depends on its actual terms, like pricing basis, and cost of borrowing. Although I would say specifically for Tesla leases in the US, not having the OPTION to buy out the lease takes away one of the advantages

 

[jjrandorin]

I do not understand the implication - in some posts - that leasing is somehow better with a depreciating asset. Every lease has depreciation built into the lease payment. Sometimes their estimate of future value is high, sometimes low, sometimes spot on. A lease also has an interest rate built into the payment. That interest rate may be higher or lower than what you can get. Finally, a lease also has profit built in. So after the depreciation, after the cost of borrowing, after their administrative costs, they expect to come out ahead.

There was a time a while back where manufacturer's credit subsidiaries made very low assumptions about depreciation in order to move cars. Basically robbing Peter to pay Paul. But I don't think that's done anymore.

One place you might come out ahead is if you drive very little. I think a lot of "low mileage" leases are written as loss leaders with the assumption that you'll drive more than you think you will and they will make it up in excess mileage fees.

The one indisputable advantage of a lease is convenience. You can walk away at the end of the lease without the hassle of selling a used car. And, for some, there may be tax advantages.

Tesla doesnt subvent (the process you describe of artificially inflating the residual value thereby making leasing cheaper) their leases. Most other car manufacturers with a captive finance arm ("toyota motor credit", Ford motor credit, BMW financial, etc etc) do in one form or another. In particular, the german mass market luxury brands (BMW , Mercedes, Audi), do subvent their leases, sometimes drastically so.

Its almost impossible to buy out your lease on a BMW or Mercedes at the end because tghe residual was inflated so much, the car is worth several thousand dollars less than the residual that is left on ones contract. In fact, BMW specifically (mentioned this before, but for a good 2 year period I was one of the main people on a large BMW website helping to review posted lease deals), they instituted processes to not let people buy their leases back for "the market price".

So, most manufacturers with a captive leasing arm do subvent the lease, to get people into them.... and they have that built into the MSRP of the car itself (bmw sells like 50% of their cars twice... leased for 3 years, then as a CPO).