Questions about Model S lease

[ozweepay]

85D, Red paint, pano roof, Next gen seats, black interior, white headliner. If you configure this right now, it will be $91,700 (with destination fees). If you get an existing owner to refer you, you save $1000 and it becomes $90,700, which is the cap cost of my car.

The rest of the details:

 

[yo mama]

A word of warning to those who plan to lease a Tesla, with regard to insurance.
1. Tesla will not let you pick up your car unless you can show you have coverage for that car on the day of pick up. So plan ahead.
2. Your lease will require you to have specific max/mins with respect to that insurance. Example: my lease says the maximum deductible for $1,000 for collision and a max deductible of $1,000 for bodily injury. You may want to inquire about these parameters before you arrange for the insurance you will need to pick up your vehicle (see #1 above).
3. Despite the fact that you will provide your proof of insurance to Tesla, do not assume that Tesla will provide the insurance information to the bank financing your lease (likely US Bank). You will likely receive a letter from the bank a few weeks after pick up asking you provide the insurance information to them directly even though you gave all that information to Tesla: (a) online, when you ordered; and (b) again at pick up.
4. The letter I received from US Bank had insurance requirements that were DIFFERENT than what was stated in my lease (e.g., max deductibles were lowered to $500).
5. Do not expect Tesla to coordinate with the bank on your behalf. My DS and pick up person were pretty impotent when it came to helping me with bank-related issues.

Bottom line: be proactive about this to minimize headaches/stupid paperwork and get back to the joy of driving.

 

[gizmoboy]

10K/year mileage cap -- does that work for you?

My mileage is really high, and I live in TX, so it's hard to make a Lease work...

 

[MarkS22]

10K/year mileage cap -- does that work for you?

My mileage is really high, and I live in TX, so it's hard to make a Lease work...

On a well equipped P85D, the difference between 10,000/year and 15,000/year on a lease was only $66/month.

 

[gizmoboy]

On a well equipped P85D, the difference between 10,000/year and 15,000/year on a lease was only $66/month.

I'm closer to 25K/year... And in TX, you pay sales tax on the whole car price and can't roll it into the lease payment.

 

[Ucfjoe]

85D, Red paint, pano roof, Next gen seats, black interior, white headliner. If you configure this right now, it will be $91,700 (with destination fees). If you get an existing owner to refer you, you save $1000 and it becomes $90,700, which is the cap cost of my car.

The rest of the details:
View attachment 93121

thanks for posting this.

 

[ozweepay]

10K/year mileage cap -- does that work for you?

My mileage is really high, and I live in TX, so it's hard to make a Lease work...

Thanks for noticing this... It should be 15,000 mi/year cap. In fact, I have confirmation from Tesla that it is 15,000 miles. But the lease seems to say something different.

 

[MarkS22]

I'm closer to 25K/year... And in TX, you pay sales tax on the whole car price and can't roll it into the lease payment.

Yeah, 25K is definitely out of leasing range. In NJ, there's also no sales tax on EVs.

 

[brkaus]

Thank you ozweepay!

Comparing the residual to the buy back guarantee price including the $7500 it is clear that a lease makes more sense if you know your going to walk away from it after 3 years no risk.

Does the lease require the 3 annual services?

 

[jjasonc]

Having crunched the numbers, I agree with Stirthepot. The numbers are very comparable over a 36 month period. The big difference is in the residual. If the market value after 36 months exceeds your loan amount, the positive equitiy will make the purchase option more attractive. However, the residual value is "inflated" by $7,500 (Fed Tax Credit) and represents around 62% of the capitalized cost of the car. Most other luxury brands without the tax credit would have a residual closer to 52% of the capitalized cost reduction. This means the lease payment is lower but the chances of having positive "equity" in the lease are slim as the purchase price at the end of the lease will likely exceed the market value of the car. Either way, I hope the residual is strong but there's a good chance that at the end of the lease, the economic decision will be to turn in the car and not acquire it for the residual value.

I do agree too that Tesla lease money factor is high compared to the typical interest rate available on a purchase loan. I have to decide this week myself and I am leaning toward the purchase.

 

[cab]

Are YOU paying the $5k cap cost reduction or is Tesla/lessor? On my Volt lease, that was not paid by me and was, effectively, a portion of the tax rebate they credit back to you.

 

[ozweepay]

The lessee (ie, me) has to pay the cap cost reduction. Essentially, when you lease a Tesla, you must pay the difference between the cap cost (ie, value of the new car) and the residual (ie, value of the depreciated car). You pay this over 3 years, plus interest.

However, they have you pay $5k of it up front as sort of a "down payment" on the amount you owe them.

It essentially erases the tax credit here in CO ($6000) for buying an electric car.

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Does the lease require the 3 annual services?

The lease stipulates that all maintenance recommended by the manufacturer must be paid for by the lessee. So yes, that's how I would read it.

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Having crunched the numbers, I agree with Stirthepot. The numbers are very comparable over a 36 month period. The big difference is in the residual. If the market value after 36 months exceeds your loan amount, the positive equitiy will make the purchase option more attractive. However, the residual value is "inflated" by $7,500 (Fed Tax Credit) and represents around 62% of the capitalized cost of the car. Most other luxury brands without the tax credit would have a residual closer to 52% of the capitalized cost reduction. This means the lease payment is lower but the chances of having positive "equity" in the lease are slim as the purchase price at the end of the lease will likely exceed the market value of the car. Either way, I hope the residual is strong but there's a good chance that at the end of the lease, the economic decision will be to turn in the car and not acquire it for the residual value.

I agree. You pretty much have to commit to walking away after three years.

The kicker is that US Bank could sell the car for $7,500 less than their listed residual and still make money on the lease. So you could perhaps return the car and then buy it on the wholesale market for much less than what your residual payment would have been had you bought it directly.

There is a very low chance, in my estimation, that my car will be worth more than $56,500$ in 3 years. And even lower chance that it will be worth a lot more (to make it worth my time keeping and reselling it myself).

 

[jkfuel]

Thanks for this informative post!

This too would be my first lease. I've never made the numbers work out in favor for a lease in the past.

I was just curious though, are these lease terms negotiable at all or is it all "standard" and you essentially take it or leave it regarding what they offer? I'm guessing all the rates are comparable.

 

[ozweepay]

Thanks for this informative post!

This too would be my first lease. I've never made the numbers work out in favor for a lease in the past.

I was just curious though, are these lease terms negotiable at all or is it all "standard" and you essentially take it or leave it regarding what they offer? I'm guessing all the rates are comparable.

If you lease through Tesla, you get what they offer, and the terms are set. They may vary in the future, but that's up to Tesla and US Bank.

You could try and get a lease through another company... many other lease companies will lease you a car, and Tesla shouldn't really care because they get their full payment up front either way. However, I doubt most lease companies are set up for Teslas and therefore may not be able to handle the intricacies surrounding leasing one (in particular, predicting future value and dealing with the federal tax credit).

That's a good question for this forum: has anyone ever used outside leasing?

 

[PUBLIUS]

I'm quite used to doing company leases for cars > $100k. Their lease terms are pretty standard and close to what I've experienced in the past. The only difference would be the handling of the $7500 credit which is inflating the residual value. Bit of a bummer as it makes a purchase unattractive in the end, but honestly, with the rapid pace of innovation from Tesla, I'm not even sure I want to buy a 3 year old electric car. In any case, the tax deductible nature of the business lease makes it a no-brainer for me.

When or in what amount is the federal tax credit of $7500 taken by the lessee? Is it up from or pro-rata based on calendar month payments within each year?

 

[ForeverFree]

I'm new to all of this, so please forgive me if I'm doing it wrong, but...

My understanding of a lease is that you're paying the amount of depreciation the car undergoes while in your care: the lease principal. Plus you pay interest on that amount. The lessor (US Bank in this case) takes a risk on what the residual value of the car will be at the end of three years, but they make money on the principal by charging interest over that period. If the car ends up worth what they predict ($56,000 in my case) they can resell it and bank the interest they made on the loan.

My car is valued at $90,700 (after the $1000 referral discount) and its predicted residual value is $56,100. The bank is paying $90,700 to Tesla, and getting back only $56,100 three years from now, so they are losing $34,500 on the deal. Of course they are going to charge me for this loss, plus interest. They do it like this:

$5,000 up front (cap cost reduction), leaving a $29,500 loss. Then they let me pay that $29,500 over three years. But of course they want interest. My payment (excluding tax) is $1049. Using a calculator like Determine a loan rate and entering $29,500 principal, $1049 monthly payment, 36 months, the interest is 16.8%

Is that right?

I had originally thought this way, too. But remember that you are borrowing the entire $90,700. You will repay some of it through downpayment, else payments (which include) interest ... and then, at the end, repayment of a $56,100 asset (or $56,100 cash). Interest must be paid on the entire $90K of their capital which you have tied up.

Make sense?

 

[dgpcolorado]

When or in what amount is the federal tax credit of $7500 taken by the lessee? Is it up from or pro-rata based on calendar month payments within each year?

Unless it has changed from when I looked at it last year, the federal tax credit is taken by the bank in the year of the lease and applied to the car's residual value. That, in turn, reduces capital cost of the lease and lowers the payments. But the rise in residual value due to the tax credit makes buying the car off-lease a poor deal, so plan on turning the car in at the end of the lease.

In general:

Cost of car less down payment, if any, less the residual value, is the "capitalized cost" of the lease (the amount you have to pay in lease payments, not counting interest). Then you also pay interest on the entire value of the car, less down payment, if any.

The tax credit is used as a lump sum increase in the residual value of the car, thus reducing lease payments. This is not a "fair" way to do it, but it is what it is.

So, $85,000 car with $5000 down payment and a $45,000 residual, plus tax credit, would have a capitalized cost of $85,000 - $5000 - ($45,000 + $7500) = $27,500. That $27,500 is the amount you pay back over 36 months, plus interest on $80,000 (the amount borrowed). The interest will gradually decline as the borrowed amount decreases due to the small monthly capitalized cost payments.

This is a Tesla leasing highlights document from January 2016:

 

[jddssc121]

easiest way to figure out your interest rate is to just ask what the money factor is...

 

[wwu123]

Having crunched the numbers, I agree with Stirthepot. The numbers are very comparable over a 36 month period. The big difference is in the residual. If the market value after 36 months exceeds your loan amount, the positive equitiy will make the purchase option more attractive. However, the residual value is "inflated" by $7,500 (Fed Tax Credit) and represents around 62% of the capitalized cost of the car. Most other luxury brands without the tax credit would have a residual closer to 52% of the capitalized cost reduction. This means the lease payment is lower but the chances of having positive "equity" in the lease are slim as the purchase price at the end of the lease will likely exceed the market value of the car. Either way, I hope the residual is strong but there's a good chance that at the end of the lease, the economic decision will be to turn in the car and not acquire it for the residual value.

The residual value on the 2015 85D in the lease contract discussed in this thread was about $56K (62% of $90.7K sticker price). Fast-forwarding two years to the present, I see that Tesla is asking about $68K to $71K for a 2015 85D CPO with around 30K miles (the typical limit for a 3-year lease).

Does that mean that purchasing the vehicle after the lease ends is turning out to be a pretty good deal, since Tesla is asking pretty high CPO prices suggeseting that used value has held up pretty well? Even factoring in a CPO premium for the extended warranty - no idea but let's say $4K, seems like Tesla is making about $10K profit re-selling the off-lease vehicles (plus they pocketed the $7500 tax credit). Seems then that the original lessee can always buy out the car and then re-sell for at least a decent profit even at private party values?

I'm not a leasing type of person, and can't deduct lease for business purposes, but I've always been curious about how leases work...

 

[Mike K]

At the last minute I decided to lease my 2013 X6 50. I loved the car and waited until the 5 seat option in the rear before getting the vehicle. I was set to buy it off the lease and sent BMW finance a check.. until 5 Engine visits during the last two months of the lease. They ended up having to rebuild the Engine(!) I asked for my money back and walked away. I am lucky I did not finance/buy that car.

That V8 is a mammoth turd. There are so many TSBs for those cars regarding oil consumption, excessive battery wear, oiling issues, burning oil and the list goes on. I love the last gen (F10) 5 series and have been casually looking for one to replace my wife's i3 but won't touch the V8.

Regarding the tax credit, I was confused about this at first as well because I didn't see it on my lease paperwork. Tesla adds it on to the residual value which is great for lowering the lease payment but it means you're effectively paying $7500 you wouldn't have otherwise paid if you decide to purchase the vehicle at lease end. So don't plan on doing that. Definitely DO go over the paperwork though. They got mine wrong twice and I eventually ended up signing paperwork that was STILL wrong and cost me $600 but at that point dealing with Tesla's sales staff had been such a nightmare that I was willing to eat the money versus fight it out with them again and have them screw something else up.