Returning lease but lease balance is greater than Vehicle Value and Tesla is charging the difference, does it make sense?

[Daikuro]

hi guys,

I am returning my model 3 lease next month and getting a new model Y.
but after getting my early lease termination quote, it’s charging the difference between Adjusted lease balance and Vehicle Value.
I believe the $26,400 vehicle value on 2019 model 3 makes no sense, should I call and argue about it? Does anyone have experience with this?

 

[dmurphy]

The residual value should be written into your lease agreement. What is it?

And what kind of vehicle are we talking about here? Year, make, model, mileage?

 

[Daikuro]

The residual value should be written into your lease agreement. What is it?

And what kind of vehicle are we talking about here? Year, make, model, mileage?

Hi, thanks for the reply.
I’m not sure if the value is referring to residual value.

It’s a 2019 M3 at 30000 miles.
But I don’t think I can get it for $26,400 on the market, I would love to buy it out if that’s the value. Lol

 

[dmurphy]

Hi, thanks for the reply.
I’m not sure if the value is referring to residual value.

It’s a 2019 M3 at 30000 miles.
But I don’t think I can get it for $26,400 on the market, I would love to buy it out if that’s the value. Lol

Yes, that should be the residual value that's built into your lease. No, Tesla won't sell it to you -- they don't sell vehicles at lease end.

When you lease, your payments are nothing more than the vehicle depreciation + an interest rate (i.e. "money factor".)

Now, at the beginning of the lease, the lessor determines what they expect that depreciation to be. So your payments are based on that.

Looks like your "cap cost" was: $40,793.12. That's the cost of the vehicle plus whatever else you rolled into the lease - i.e. taxes, motor vehicle fees etc. They expect the vehicle to be worth $26,400 at the end of the lease (so that's about 35% depreciation or so), so that leave you on the hook for $14,393.12 as the deprecation value over the term of the lease.

Then it looks like you put down $3,500 to reduce your monthly lease payments, leaving you owing Tesla $10,893.12.

You've paid $10,198.65 so far towards that, so you still owe them $694.47 in depreciation. That total depreciation was established at the beginning of the lease.

Now add the $395 disposition fee plus $35.06 tax on that (both of these are *usually* waived when entering a new lease with the same manufacturer, but I don't know if Tesla does that.) -- and that's the $1,124.53 balance.

Leases are always a bit of a gamble -- both for you and the leasing company. In this case, it looks like the leasing company offered a conservative residual value when you signed the lease ... as one would expect. Remember, this was before Covid, before the used car market went crazy, before rampant inflation, before the world tilted off its axis.

So let me guess - this is a Standard Range Plus model? If so -- $26,400 is reasonable. That was a $39,000 vehicle new, in 2019. What it's worth on the retail market today really doesn't mean anything --- it's all about what was in the lease agreement when you took delivery.

 

[jjrandorin]

Yes, that should be the residual value that's built into your lease. No, Tesla won't sell it to you -- they don't sell vehicles at lease end.

When you lease, your payments are nothing more than the vehicle depreciation + an interest rate (i.e. "money factor".)

Now, at the beginning of the lease, the lessor determines what they expect that depreciation to be. So your payments are based on that.

Looks like your "cap cost" was: $40,793.12. That's the cost of the vehicle plus whatever else you rolled into the lease - i.e. taxes, motor vehicle fees etc. They expect the vehicle to be worth $26,400 at the end of the lease (so that's about 35% depreciation or so), so that leave you on the hook for $14,393.12 as the deprecation value over the term of the lease.

Then it looks like you put down $3,500 to reduce your monthly lease payments, leaving you owing Tesla $10,893.12.

You've paid $10,198.65 so far towards that, so you still owe them $694.47 in depreciation. That total depreciation was established at the beginning of the lease.

Now add the $395 disposition fee plus $35.06 tax on that (both of these are *usually* waived when entering a new lease with the same manufacturer, but I don't know if Tesla does that.) -- and that's the $1,124.53 balance.

Leases are always a bit of a gamble -- both for you and the leasing company. In this case, it looks like the leasing company offered a conservative residual value when you signed the lease ... as one would expect. Remember, this was before Covid, before the used car market went crazy, before rampant inflation, before the world tilted off its axis.

So let me guess - this is a Standard Range Plus model? If so -- $26,400 is reasonable. That was a $39,000 vehicle new, in 2019. What it's worth on the retail market today really doesn't mean anything --- it's all about what was in the lease agreement when you took delivery.

+100

 

[Occhis]

Looks as though you are terminating the lease early, before it’s original end date. How early? What’s the original end date?

 

[Soul Surfer]

Sadly this is often the case. One can be over or under, depending on the following factors:

1. Your choice of a lower monthly payment, usually means a higher residual
2. Low or no downpayment

At the end-of-day, YOU become responsible for the over/under and this is all contigent on what you had initially chosen. Sorry mate, but that is the hard reality.

 

[Daikuro]

Yes, that should be the residual value that's built into your lease. No, Tesla won't sell it to you -- they don't sell vehicles at lease end.

When you lease, your payments are nothing more than the vehicle depreciation + an interest rate (i.e. "money factor".)

Now, at the beginning of the lease, the lessor determines what they expect that depreciation to be. So your payments are based on that.

Looks like your "cap cost" was: $40,793.12. That's the cost of the vehicle plus whatever else you rolled into the lease - i.e. taxes, motor vehicle fees etc. They expect the vehicle to be worth $26,400 at the end of the lease (so that's about 35% depreciation or so), so that leave you on the hook for $14,393.12 as the deprecation value over the term of the lease.

Then it looks like you put down $3,500 to reduce your monthly lease payments, leaving you owing Tesla $10,893.12.

You've paid $10,198.65 so far towards that, so you still owe them $694.47 in depreciation. That total depreciation was established at the beginning of the lease.

Now add the $395 disposition fee plus $35.06 tax on that (both of these are *usually* waived when entering a new lease with the same manufacturer, but I don't know if Tesla does that.) -- and that's the $1,124.53 balance.

Leases are always a bit of a gamble -- both for you and the leasing company. In this case, it looks like the leasing company offered a conservative residual value when you signed the lease ... as one would expect. Remember, this was before Covid, before the used car market went crazy, before rampant inflation, before the world tilted off its axis.

So let me guess - this is a Standard Range Plus model? If so -- $26,400 is reasonable. That was a $39,000 vehicle new, in 2019. What it's worth on the retail market today really doesn't mean anything --- it's all about what was in the lease agreement when you took delivery.

this is our quote from 3 months ago

Yes, that should be the residual value that's built into your lease. No, Tesla won't sell it to you -- they don't sell vehicles at lease end.

When you lease, your payments are nothing more than the vehicle depreciation + an interest rate (i.e. "money factor".)

Now, at the beginning of the lease, the lessor determines what they expect that depreciation to be. So your payments are based on that.

Looks like your "cap cost" was: $40,793.12. That's the cost of the vehicle plus whatever else you rolled into the lease - i.e. taxes, motor vehicle fees etc. They expect the vehicle to be worth $26,400 at the end of the lease (so that's about 35% depreciation or so), so that leave you on the hook for $14,393.12 as the deprecation value over the term of the lease.

Then it looks like you put down $3,500 to reduce your monthly lease payments, leaving you owing Tesla $10,893.12.

You've paid $10,198.65 so far towards that, so you still owe them $694.47 in depreciation. That total depreciation was established at the beginning of the lease.

Now add the $395 disposition fee plus $35.06 tax on that (both of these are *usually* waived when entering a new lease with the same manufacturer, but I don't know if Tesla does that.) -- and that's the $1,124.53 balance.

Leases are always a bit of a gamble -- both for you and the leasing company. In this case, it looks like the leasing company offered a conservative residual value when you signed the lease ... as one would expect. Remember, this was before Covid, before the used car market went crazy, before rampant inflation, before the world tilted off its axis.

So let me guess - this is a Standard Range Plus model? If so -- $26,400 is reasonable. That was a $39,000 vehicle new, in 2019. What it's worth on the retail market today really doesn't mean anything --- it's all about what was in the lease agreement when you took delivery.

wow, thanks for the Iinput!
Appreciated your explanation I guess I will just pay the difference.

 

[Occhis]

Not having ever leased a car, if OP would keep the car till the end of the lease period would he incur this type of charge? Assuming the condition of the car is within normal parameters.

 

[arghx7]

I can speak only as having leased vehicles through traditional dealers. As has been mentioned above, when you lease a vehicle, the lease agreement mentions a specific depreciation that they are calculating in the form of an agreed upon residual value. It's just a gamble, like predicting how much your house would be worth in 3 years. If you pay off the whole lease you could be ahead or you could be overpaying depending on what the market value of the vehicle ends up being. There is some trickery too where in pre 2020 the manufacturers would effectively subsidize the residual values to keep lease payments low (common on high depreciating vehicles).

In this case you are basically "overpaying" even if you finish up the lease. The lease assumed a residual value that is a lot lower than what it ended up being (due to all the stuff going on in the car market). Since you can't you buy out the lease due to Tesla's policy, it's free money for them. In my case my wife leased a Mustang in 2019. In 2022 the lease was up, and she bought out the car with an agreed upon residual value (set by contract) of $19k. Real world value was easily $25k plus, so she came out ahead (bought out the car and kept it anyway).

When you try to break (early termination) a lease... that's when the magic happens. Some kind of inscrutable calculation comes up and you almost always end up owing. They usually have you by the balls no matter what. $1124 on a broken lease is actually very low. It could be thousands.

 

[jjrandorin]

Not having ever leased a car, if OP would keep the car till the end of the lease period would he incur this type of charge? Assuming the condition of the car is within normal parameters.

No (although they would likely have the lease disposition fee unless Tesla waives that.

There is some additional math involved in leasing, and money factors (instead of interest rates) but for conceptual purposes, it is likely easier to think of leasing a car like renting an apartment, with or without the option to buy it at the end (tesla = without)

1. You are renting the apartment (car). This means YOU are not the owner of the apartment, you are just using it for a period of time, then returning it.

2. If you are renting an apartment (car) for $1000 a month, for a term of 3 years, that means the total cost of the apartment (car) for you to rent is $36,000.

3. If you choose to pre pay some of that money to get a lower payment on the apartment (car) it doesnt change what your cost to rent is, just what your monthly outley of cash is.

If your apartment rental (car lease) agreement is for 36k, but you decide to pre pay 12k of it up front, now your balance (whats left) is 24k over the next 3 years. The payment will still be 36 = rent payments so you get to tell all your friends that the swanky new apartment you rented that is going for 1k for everyone else, YOU are only paying $667 (rounded up) a month for due to your negotiation skills. Its really because you pre paid part of the rent, but you may either not know that, or know and omit that fact when you are talking about it, because, hey, the rent payment you are making every month IS $667 a month, and that 12k you put as a cap cost reduction is gone.

4. If you want to move early (turn in the car early) you still owe that money, whatever is left on the 24k balance above. The further you are into the rental (the more payments you have made) the less you have remaining as a balance, but you still have that balance at the end.

5. The apartment owner may have limits on how many people you can have over for a party, where they might be able to park, how the apartment clubhouse gets used, etc ( Car = Number of miles on a lease)

6. The apartment owner (company that owns the car) "might" let you out of the lease early with no cost, if for some reason rental property prices have skyrocketed and they know they can rent it out to the next person for a lot more than what you are paying (car worth more than residual at the end). They certainly dont have to do this however, as THEY own the property and the only agreement you have other than a rental agreement is a price to buy the property at the end of the rental period (if they offer that, Tesla does not).

7. They are going to charge you a cleaning fee to clean the apartment no matter how well you clean it, when you move (car = lease end disposition fee). They "might" waive the apartment cleaning fee if you choose to simply move into another apartment on the premises, or they might not. Its completely up to them if they waive that fee because its in your contract.

8. Since you are renting the apartment, if you damage things, you are liable to pay for that damage before you move, to return the apartment to the state it was when you rented it. Even if YOU think you improved the apartment with the Highlighter Green paint you painted every room with, or the Ceiling fan you put up (car = tinted windows, rear diffusers, spoilers, carbon fiber bits, etc etc), they do not have to accept that on return.

If you leave the Ceiling fan, and the Highlighter Green paint, they can not only keep the Ceiling fan (and perhaps move it to their own house) they can charge you for removing it and re painting, and thats not part of the cleaning.

Minor damages like nail holes from hanging simple paintings etc, are excluded as they spell that out in the rental agreement (lease end agreement for small damages being waived, and what those are)

9. Since you are renting the apartment, if the bottom falls out of the market because crime shoots up in your area, making your apartment worth a lot less, your only obligation is to fulfill your rental agreement, then you can move (car = car not worth residual value at lease end). You dont have to sell apartment, etc, but you do have to deal with the timing of the lease end and what you might do at the end to move to another apartment (car = lease end and acquiring another vehicle).


Does that help?

 

[KenC]

That's about 65% RV after 3yrs which is on the high-end of the range. You'd be hard-pressed to get a lease with a higher RV percentage that wasn't a subvented lease.

 

[hendo42]

Per the Tesla Leasing website page:

There are two options for early lease termination depending on how many months are left on your lease:

• Less than three months remaining until your lease end date: Pay your remaining lease balance along with any end of term charges in the Tesla Leasing Portal.
• Three or more months left until your lease end date: Pay the difference between your adjusted lease balance and the current market value of your vehicle.

They mention 'current market value of your vehicle'. Not 'percentage of residual on your lease agreement'. My termination quote is $9K less (even less than the lease residual) than the lowest KBB trade in. Doesn't make sense.

 

[Trips]

Even if you were trading this in, the $26,400 could be reasonable. Right now dealers are asking ~36k for similar vehicles and the price is falling fast. If they wholesale it for $28,500 (Tesla makes $2k less expenses), that dealer puts $1k-$2k for repairs and sell for $34k with a profit of ($3,500). If prices keep dropping they could easily lose money on the deal.

 

[hendo42]

My initial M3 LR lease in 2020 (seemed good at the time after price reductions) was an easy process and I was thoroughly pleased. The end of lease has been a roller coaster and it isn't even up yet until 6/2023. After getting many $0 quotes in my lease termination for the few months I thought to gamble with ordering a M3 SR to hopefully deliver in Jan23+. I placed my order Nov 1st expecting for delays. Long story short I've already forgone a VIN available for delivery. The problem is the lease quote went to $4800 magically which I'm not in the lease interested in paying. After my recent payment it's now $700. Crazy fluctuations. My question is... what do I do here? They will cancel my order soon and I will lose $250 plus the new charger they shipped me. If I return the lease and take delivery now I won't be eligible for the possible $7,500 federal rebate. But if I wait what is stopping Elon from increasing the price like Ford and others did? Aside from not even knowing if they'll be eligible at all? Also, what if I wait then the quote goes back up to $4K. The Tesla team lends no help or guidance so I'm left to guess.

 

[hendo42]

My initial M3 LR lease in 2020 (seemed good at the time after price reductions) was an easy process and I was thoroughly pleased. The end of lease has been a roller coaster and it isn't even up yet until 6/2023. After getting many $0 quotes in my lease termination for the few months I thought to gamble with ordering a M3 SR to hopefully deliver in Jan23+. I placed my order Nov 1st expecting for delays. Long story short I've already forgone a VIN available for delivery. The problem is the lease quote went to $4800 magically which I'm not in the lease interested in paying. After my recent payment it's now $700. Crazy fluctuations. My question is... what do I do here? They will cancel my order soon and I will lose $250 plus the new charger they shipped me. If I return the lease and take delivery now I won't be eligible for the possible $7,500 federal rebate. But if I wait what is stopping Elon from increasing the price like Ford and others did? Aside from not even knowing if they'll be eligible at all? Also, what if I wait then the quote goes back up to $4K. The Tesla team lends no help or guidance so I'm left to guess.

Tesla came back and offered to create a new order and credit the $250 from the original order. Now they are also giving a $3,750 discount for Dec delivery. No brainer for me. They boost sales and I don't have to gamble with the future.

 

[MaskedRacerX]

That's about 65% RV after 3yrs which is on the high-end of the range. You'd be hard-pressed to get a lease with a higher RV percentage that wasn't a subvented lease.

The only time I've seen better is for Jeep, specifically Wranglers since they hold their value so well, the RV on our 4xe is 68 I believe (and doe lower/mid-tier Wranglers I've seen 70).

My initial M3 LR lease in 2020 (seemed good at the time after price reductions) was an easy process and I was thoroughly pleased. The end of lease has been a roller coaster and it isn't even up yet until 6/2023. After getting many $0 quotes in my lease termination for the few months I thought to gamble with ordering a M3 SR to hopefully deliver in Jan23+. I placed my order Nov 1st expecting for delays. Long story short I've already forgone a VIN available for delivery. The problem is the lease quote went to $4800 magically which I'm not in the lease interested in paying. After my recent payment it's now $700. Crazy fluctuations.

Yeah, I saw the same thing, we have a '21 M3P, for most of this year, the quote for the amount due on an early return was $0. Then about 2, maybe 3 months ago, it jumped up to almost $7000 though now (like this month) it's down to $2K.

I think I'm close to bailing on it, if it drops under $1K, I'm may take the offer and start the return process.

 

[MaskedRacerX]

Thought I'd bump this to mention:

Tesla does allow a lease transfer on a 3/Y, I'd assume since that's not a termination and nothing is mentioned in the fees section other than two fixed admin type fees, a transfer would circumvent the balance due (The fees appears to be $150 and $500, so $650 total for someone to pay).

Though in reading a couple of posts about lease transfer, it was like a 6-8 week process which might wind up being too long for many potential "buyers".