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Tax Credit and leasing
- Thread starter carguyatl
- Start date
leasing a model 3 is now cheaper than it was in 2020 (and likely ever) and you get a more expensive and vehicle with more battery and options. all thanks to the credit which goes to them, not you. but they are now able to drop the price to make it cheaper and cheaper. my current lease expires later this year and I hope to see the price keep dropping or stay the same.
everyone wants to debate leasing vs. buying. but recent history has shown that leasing is the smarter move unless you think used car prices will rise a lot in the next 3 years. keep in mind over the past year used car prices on tesla's have cratered. anyone who bought 6 months ago is losing 18 months of lease cash just on their equity
everyone wants to debate leasing vs. buying. but recent history has shown that leasing is the smarter move unless you think used car prices will rise a lot in the next 3 years. keep in mind over the past year used car prices on tesla's have cratered. anyone who bought 6 months ago is losing 18 months of lease cash just on their equity
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I asked this question as well, and was told "At this time we are still waiting on guidance on weather it will qualify or not, however when placing your order you are not deciding final payment."
It would be nice it someone who's actually been able to receive the tax credit via cap cost reduction would chime in and explain how.
It would be nice it someone who's actually been able to receive the tax credit via cap cost reduction would chime in and explain how.
ATPMSD
Active Member
Found this:
The federal tax credit does not apply to those leasing electric vehicles. Instead, that money will go to the lessor. But this still can lower a monthly payment — if the lessor chooses to factor that incentive into your lease agreement. Mention this during negotiation to try and save money.
The federal tax credit does not apply to those leasing electric vehicles. Instead, that money will go to the lessor. But this still can lower a monthly payment — if the lessor chooses to factor that incentive into your lease agreement. Mention this during negotiation to try and save money.
exxxviii
Member
I think it is likely to settle out that the incentive will have little impact on lease rates. Consider this simple mathematical illustration. You are leasing a $55K car for 3 years with a 60% residual, and for the sake of simplicity, I am ignoring internal interest. Most people forget that the existence of an incentive at the end of the lease will depreciate the car by that additional amount. So, either the lessor will increase the residual percentage or simply subtract the expected incentive from the standard residual calculation.
Without Incentive:
- Residual = $33K ($55K * 60%)
- Capitalization Cost = $55K
- Leased depreciation = $22K ($55K - $33K)
- Lease payments = $611 ($22K / 36 months)
- Residual = $25.5K ($55K * 60% - $7,500 additional depreciation from incentive)
- Capitalization Cost = $47.5K ($55K - $7,500 incentive retained by lessor)
- Leased depreciation = $22K ($47.5K - $25.5K)
- Lease payments = $611 ($22K / 36 months)
ATPMSD
Active Member
Tax credit does not impact residual. Residual is based on MSRP. Discounts and the tax credit, if offered, will reduce the Capitalization cost. This is the corrected version:
- Residual =$33K ($55K * 60%)
- Capitalization Cost (what you pay when buying the car) = $47.5K ($55K - $7,500 incentive retained by lessor)
- Leased depreciation = $14K (47.5K - $33K)
- Lease payments = $402.78 ($14.5K / 36 months)
Tesla might have to set up a leasing subsidiary (or not), the IRA allows the leasing company to get the credit (and hopefully pass on the value) without any of the multiple restrictions. It might be a perfect way for customers to get the credit value on the Model 3 SR with Chinese LFP battery after the battery restrictions cut in in March. Leases are already being advertised at $349 a month, could be below $300 with the $7,500 tossed in.
exxxviii
Member
Yeah, and if Tesla did that, they would lose their shirts on the lease turn ins. The existence of the incentive absolutely depreciates the value of those future used cars.
Nissan Financial made the exact mistake you illustrate. Nobody is making that mistake after Nissan. Lessors will reduce the residual value to account for the accelerated depreciation caused by an incentive.
Maybe this will help illustrate it... Let's say depreciation over 3 years is 20% in year 1, another 10% in year 2, and then another 10% in year 3 (to align with the example 60% residual calculation above).
At the end of the first year, the car depreciated 20% from $55K would be "worth" $44K. But only a fool would pay $44K for a used car if they can get a new one for just $3,500 more. So, that car really is not worth $44K, it is depreciated more because of the existence of the incentive on a new car. So, it would likely sell in the high $30K range in stead. Then same for year 2. The 30% depreciated value is $38.5K, but if you can get a one year old car in the mid- to high-30s, nobody would buy a two year old car for that. So it is worth less, and so on.
An incentive depreciates used cars. They do not retain their imaginary no-incentive value.
| Timeline | Depreciation | Value | With Incentive |
| New | 0% | $55,000 | $47,500 |
| Year 1 | 20% | $44,000 | $36,500 |
| Year 2 | 10% | $38,500 | $31,000 |
| Year 3 | 10% | $33,000 | $25,500 |
In the past, before they hit the original 200k delivery barrier, Tesla added the tax credit to the residual. They didn't adjust the Capitalization Cost. (I don't know what they are doing this time around.) So, if you bought out the lease at the end, which they no longer offer, you didn't get any benefit from the credit.
Again, not correct. The federal tax incentive is passed along to the lessor of the vehicle, which is then passed along to the lessee as an incentive that reduces the cap cost.
Electric Vehicle Tax Credits 2024: What You Need to Know | Edmunds
Wondering how federal EV tax credits work in 2023? Check out our full analysis of EV tax credits to see which vehicles qualify and how you can get the electric car tax credit as a buyer. We cover EV tax credits for leasing, too.
www.edmunds.com
3. What are the rules for leased EVs and PHEVs?
If you're leasing the vehicle, the IRS defines the original user as the company that leased it to you, which is often the manufacturer. In this scenario, the tax credit goes to the leasing company. They're not obligated to pass those savings on to you, but sometimes they will, so it's worth asking. Starting in 2024, the credit can be immediately applied as a discount towards the lease.
exxxviii
Member
Where the money goes is irrelevant. I am just sharing illustrative math that shows what actual lessors learned with actual leases in this actual industry. Incentiives on new cars depreciate used car values. That is fact.
ATPMSD
Active Member
Already been through this argument. Nissan screwed up. Tax credit is not deducted from residual, residual is MSRP times depreciation factor. Lease companies may need to adjust depreciation percentage. But, given the high price of Tesla cars the credit will not have nearly the impact as it did on Nissan’s much cheaper car since the used price of a Tesla will be very much lower than a new one, after the credit. Consider:
Assume an MSRP of $80,000 and a Residual @ 60% = $48,000 “market” value
Enter a buyer: for a new car it will be $80,000 - $7,500 credit = $72,500. This is way over the price of a used Tesla ($48,000) and will not impact new car sales. There seems no reason for the lease company to decrease the residual.
Exactly. And as of now, I do not think they are, or there have been no reports of them doing so.
It seems obvious that they are with the new $349/month lease on the Model 3 RWD...
I've not been watching Model 3 stuffs, as my interest is in the Model Y, same as the section of the forum you're in. Let's keep this specifically about the Model Y.
exxxviii
Member
My little table above was meant to illustrate how it does directly cascade down to the 3-year value. But the ultimate key is that the incentive will impact the residual value. The question is how leasing companies are dealing with that. They might assume it is a direct 1:1 impact, or they may treat the residual calculation calculation as a net after incentive instead of MSRP. Or they may increase the residual percentage calculation factor. Or they may just subtract an incentive plug number from the traditional residual calculation. But when it all nets out, the incentive may have no impact at all on lease payments or only a small portion of the incentive may benefit lease payments.
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