Tesla lease buyout - crazy penalty or error?

[xsi123]

Hello. Need some help understanding some lease buyout numbers from the experts.

My 3 year lease of my 2016 Model S 75D with 21500 miles, ends at the end of this year (in 7 months). Lease is through Tesla Finance. My monthly payment (including taxes etc) is at $1200. With Model 3 leasing available now, I thought it was a good time to switch to a new Model 3 lease.

I contacted the Tesla dealership we have around and asked what it would take to make the switch. The numbers they gave me look crazy to me but maybe they are just right. They said the Tesla Dealer buyout is $65,000 and the current value of the car is $44,000 (rounded numbers). That leaves me with a negative equity of about $21,000.

So if I understand this correctly, they say, in order to get out of the lease 7 months earlier, I have to pay $21,000 penalty ?

(My understanding is that the Model 3 lease will be a totally separate transaction)

Does those numbers sound right? or maybe it is a mistake?

Obviously, with those numbers I am better off waiting the end of the lease a decide what to do then. It is just strange that the penalty is so high, so close to lease end.

 

[mrbulk]

Do you know how much your residual is at lease end? Presuming the $65K figure they quoted you is for payoff at this moment in time (7 mos. early)?

 

[AronAZ]

I can’t speak to what’s in your contract, but based on several other car leases in my lifetime - you talked to a ding dong. (Not unexpected from the high turnover, low industry experience chaos of Tesla)

Yes, you almost always have to option to buy out your lease. You can do this from Day 2 of lease term to the last day. Your lease document should spell out the formula, but it’s usually Residual + remaining payments + tax. I’m guessing that’s the $65k quoted. I’m also guessing the $44k is Tesla’s offer for your car on trade. So if you go that route, the spread is the $21k you noted. (Their trade offer seems pretty fair to me, I don’t think you’d do much better selling private party.)

Your other option is to simply turn in the car early. Take the car to Tesla, hand them the keys and a check for your last 7 payments plus any disposition fee in your lease terms. So ~$8400.

Tesla seems to do everything different from rest of car world, but all other manufacturers I’ve dealt with waive the last 3 lease payments if you’re trading in on another new car from them. If Tesla does that too, then your cost to swap early could be as little as $4800.

 

[xsi123]

Do you know how much your residual is at lease end?

Yes. $57,004

 

[ucmndd]

Yes. $57,004

Yep, so @AronAZ is spot on. Residual + remaining payments = ~$65k.

So basically they’re suggesting you buy out the car, make the remaining payments, and then trade in the car you just bought for $21k less. As you’ve no doubt determined, that would be rather stupid.

Better option would be to simply pay out the 7 remaining payments and turn in the car. Of course that still leaves you on the hook for ~$9k.

Best option, since you’re on the hook for the payments either way, is to drive your current car for another 7 months.

 

[xsi123]

Your other option is to simply turn in the car early. Take the car to Tesla, hand them the keys and a check for your last 7 payments plus any disposition fee in your lease terms. So ~$8400.

Tesla seems to do everything different from rest of car world, but all other manufacturers I’ve dealt with waive the last 3 lease payments if you’re trading in on another new car from them. If Tesla does that too, then your cost to swap early could be as little as $4800.

Thanks. Yes, it looks like I should wait a few more months and see what happens. With BMW they did exactly as you said. Waived the last few payments. Tesla is probably different. We will see.

 

[xsi123]

Yep, so @AronAZ is spot on. Residual + remaining payments = ~$65k.

So basically they’re suggesting you buy out the car, make the remaining payments, and then trade in the car you just bought for $21k less. As you’ve no doubt determined, that would be rather stupid.

Better option would be to simply pay out the 7 remaining payments and turn in the car. Of course that still leaves you on the hook for ~$9k.

Best option, since you’re on the hook for the payments either way, is to drive your current car for another 7 months.

Yup. I totally agree. Drive the car, be happy with it, and if they come up with some option to waive the last few payments, I will do it.

Thanks !

 

[mrbulk]

OP, I believe you are liable for the residual value only if you decide to buy the car at lease end. Otherwise you turn it back in and walk away - excluding damages, excessive mileage or wear items, of course. That is supposed to be the beauty of a lease, that you can simply move on to another vehicle and not necessarily from the same maker. That is also why leases are more expensive overall, tax advantages aside. But in exchange for that expense you (are supposed to) have more choices at the end.

 

[Silo1231]

Given that Tesla is acknowledging the car is only worth $44k, would Tesla be negotiable on the buyout at the end of the lease? In other words, would Tesla take something close to $44k from the OP (if OP decided to keep the car) ?

 

[AMPd]

Given that Tesla is acknowledging the car is only worth $44k, would Tesla be negotiable on the buyout at the end of the lease? In other words, would Tesla take something close to $44k from the OP (if OP decided to keep the car) ?

I believe a few people mentioned tesla refusing to budge on the residual.

Which is one of many things that makes no sense when it comes to teslas business practices. They’d rather take a larger loss than renegotiate an end of lease buyout.

 

[SoCal Buzz]

Lease buyout on a Tesla basically never makes sense because it includes $7500 fed tax credit in residual. Plus Tesla is inflexible with regard to trade up incentives.

 

[AronAZ]

I believe a few people mentioned tesla refusing to budge on the residual.

Which is one of many things that makes no sense when it comes to teslas business practices. They’d rather take a larger loss than renegotiate an end of lease buyout.

I’ve never heard of any finance company negotiating buyouts with the lessee. There are good and important legal and accounting reasons they don’t do this. Starting with the fact that while the bank/finance company holding your lease often has a similar name, they are a completely separate legal entity from the manufacturer or dealer.

The rest I’ll let you google to understand those technical reasons why they don’t negotiate lease contract buyouts that are not in default.

 

[ucmndd]

I’ve never heard of any finance company negotiating buyouts with the lessee. There are good and important legal and accounting reasons they don’t do this. Starting with the fact that while the bank/finance company holding your lease often has a similar name, they are a completely separate legal entity from the manufacturer or dealer.

Yes, the “waive the last few months of payments” incentive is almost always the dealer, not the leasing company. They make enough on the new deal for it to be worth it to pay off the last few months of the old car as part of the transaction. Tesla has very little incentive to do this because they have no dealers, though they’ve done it here and there at the end of a quarter to generate a few extra sales.

 

[AMPd]

I’ve never heard of any finance company negotiating buyouts with the lessee. There are good and important legal and accounting reasons they don’t do this. Starting with the fact that while the bank/finance company holding your lease often has a similar name, they are a completely separate legal entity from the manufacturer or dealer.

The rest I’ll let you google to understand those technical reasons why they don’t negotiate lease contract buyouts that are not in default.

US Bank Negotiated Buy-Out

 

[AMPd]

Yes, the “waive the last few months of payments” incentive is almost always the dealer, not the leasing company. They make enough on the new deal for it to be worth it to pay off the last few months of the old car as part of the transaction. Tesla has very little incentive to do this because they have no dealers, though they’ve done it here and there at the end of a quarter to generate a few extra sales.

Although tesla has no incentive to waive the last few months of your lease, there is incentive in negotiating a lower residual
Tesla constantly upgrading and making the car better negatively impacts the resale value of used model s’s, so instead of tesla taking a leased vehicle back and selling it for let’s say 10k less than residual, they can offer to reduce the residual by 5k and still make a 5k profit without ever dealing with that car again (I’m just spit balling numbers)

Instead they take the car back, store it for who knows how long, and still end up selling the car for less than the residual.

 

[whitex]

Yes. $57,004

Your residual value is significantly above what the car is worth as a trade-in. The $21K is the price of you buying the car now and selling it to Tesla. Warning, there will likely be sales tax involved on the $65K, and depending on how your state does it, how this transaction is handled by Tesla, and whether there is enough sales tax to be paid on the Model 3, you might get a sales tax credit on $44K towards the lease payments sales tax.

My guess, based on the limited information you provided, is that your best bet is to drive the car till the end of the lease and give it back.

PS> As some others have mentioned, remember that your lease is not with Tesla, it's with US Bank of some other leasing company.

 

[AMPd]

PS> As some others have mentioned, remember that your lease is not with Tesla, it's with US Bank of some other leasing company.

No it’s not, OP clearly said his lease is with Tesla Finance

 

[turtlesz]

Another option could be to put it on swap a lease to have someone take over the lease. If you didn't get a good inventory deal and paying the standard rate you might need to give an incentive to potential buyers. Will beat losing the full 9k.

 

[whitex]

No it’s not, OP clearly said his lease is with Tesla Finance

Tesla Finance was created by Tesla for corporate customers (Tesla Launches Financing Unit | Auto Finance News | Auto Finance News). Maybe they did, or now do, leases to private customers (Elon changes policies on daily basis), but even so, Tesla Finance is a different corporation than Tesla the manufacturer, even though Tesla Finance is owned by Tesla.

 

[AMPd]

Tesla Finance was created by Tesla for corporate customers (Tesla Launches Financing Unit | Auto Finance News | Auto Finance News). Maybe they did, or now do, leases to private customers (Elon changes policies on daily basis), but even so, Tesla Finance is a different corporation than Tesla the manufacturer, even though Tesla Finance is owned by Tesla.

You said his lease was not through tesla, which is incorrect. Tesla finance is a branch of Tesla which means profits and expenses affect TSLA. The difference in the residual and what tesla is able to sell the vehicle as a used car affects teslas bottom line
The car is also returned to tesla and then they’ll try to sell it as a used car

If his lease was with an outside company then Tesla would have received the entire payment for the car and not be affected by the depreciation nor would they ever see the car again.

Also here’s the Lessor on my Lease agreement