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When Tesla enters into an Operating Lease with a customer, they estimate
If the residual value of the car changes (in this case it goes up as used car prices are rising), then they take the benefit of this increase over the remaining term of the lease, they don't wait until the car returns to take the benefit.…
I have never heard of residual value changing during the term of a retail auto lease. The residual value theoretically represents expected lease term end vehicle market value but there are often artificial reasons to raise or lower that value. Resale value is entirely different. The resale value causes gain or loss to the lessor at lease term end. In the event of early termination the lessee is liable for discrepancies either up or down. Resale value guarantees, where they exist, is another topic.
I’m puzzled by the idea that residual value can be estimated. Residual value is a contractual stated value that may be higher or lower than resale value, which is a market value.
The residual value should be viewed as a ‘balloon payment’ an never as estimated resale value. Often it is estimated resale value.
This subject is arcane. Captive finance companies manipulate all lease parameters to facilitate increased profits for leases. FWIW, for many years auto dealer F&I has made double or more the profitability on sales through leases than loans, or worst, cash sales. That is because virtually no consumers understand the link between money factor, residual value, capitalized cost and eventual lease termination. Various insurance products, including the infamous 'forced place' products have very fine print disclosing them.
Generally, Tesla-written leases are among the least problematic of all OEM-sponsored products. That is one reason why their ABS issuances have such stellar credit performance.
FWIW, leases for large capital equipment such as aircraft, conventional manufacturing and mining equipment and specialized equipment for electronics, buildings and so on have different rules and entirely different asset valuation and impairment rules. The comments above relate only to conventional retail US auto leases. Auto fleet leases also have entirely different rules. Further, the Hertz deals for Uber drivers are also completely different.
Lastly, most dealership F&I people and most Tesla customer-facing staff are not familiar with the details of these products.
Some years ago my team made an examination of all our client's lease support staff. The client was a major US OEM captive finance company. Our examination was entirely multiple choices and used no trick questions. Out of ~120 people who took the exam only two passed, and they were part of the lease design project. That is typical, these products are not intended to be understandable by consumer customers.
These comments are USA-specific!! Every market is quite different. In most European markets and the UK the leasing structures, process and benefits are not at all analogous to those of the USA. Further, 'company car programs', where they exist are almost always really good deals for all concerned.
Hence, beware fo generalizations on these subjects. There are many, many regulatory and business practice variables.
(no par value).
