Will Tesla ever offer Lease buyout?

[240vPlug]

I did a quick search and I couldn't find a discussion about this anywhere so I thought I would start one. I did a lot of research on this subject and it would appear to me the profit margins on a lease, according to what I read, are somewhere around double what Tesla makes on a sale. The only difference is that the leased vehicle stays on the balance sheet and revenue comes in over time. So, why does Tesla not allow the customers to buy out the lease? I don't see the robotaxi thing as being a legit reason to now allow it. Tesla is selling a lot of vehicles now and can't possibly use all of them for a robotaxi or am I missing something? To me it seems more like trying to capture every cent of profit they can from the product.

So let me ask everyone here what do you think? Tesla started allowing M3 leasing in Q2 2019 and so a lot of those vehicles are going to be coming back now this year. The returns will continue to accelerate through next year. Here are the numbers I came up with for how many vehicles Tesla has out on lease based on a 5% take rate (very conservative). I read several articles that said the lease take rate was between 7 and 10% so the numbers could be as much as double what I list below.

In case you haven't realized I like to speculate. I say at some point they have to allow the customer to buyout the lease. Especially once the used market softens and the returns accelerate. Right now I think the only folks that have returned leases are those who opted for a 24 month lease. I didn't account for 24 month leases in my numbers.

Your thoughts?


Production:
2019 253,873 (Q 2-4 model 3)
2020 442,562 (3 & Y)
2021 911,208 (3 & Y)

Estimated Lease Returns (assuming a conservative 5% take rate for leasing and a 36 month lease term):
2022 12,694
2023 22,128
2024 63,785

 

[Ogre]

Someone said they allow buy outs on the Model X. I’m not sure about that, but in general, why would Tesla start letting people buy out their leases?

Right now, Tesla leases out a car, the driver pays the lease and puts a few thousand miles on the car. Tesla cleans the car up, resells it for damned near what a new Tesla sells for. Often they add FSD to it and collect more than what it would have sold 3 years prior.

If you want a Tesla, buy it. If you don’t like it, sell it. You‘ll be better off than leasing every time.

 

[N1L CO2]

Someone said they allow buy outs on the Model X. I’m not sure about that, but in general, why would Tesla start letting people buy out their leases?

Right now, Tesla leases out a car, the driver pays the lease and puts a few thousand miles on the car. Tesla cleans the car up, resells it for damned near what a new Tesla sells for. Often they add FSD to it and collect more than what it would have sold 3 years prior.

If you want a Tesla, buy it. If you don’t like it, sell it. You‘ll be better off than leasing every time.

Exactly this. With folks wanting to get into the EV market with a Y at around $40-45k, they're just chomping at the bit for Ys to come off leases. It's a good feeling to own an automobile that actually holds a decent resale value after 3 years.

 

[Daekwan]

Not as long as used cars are worth more than new cars.

Its all about demand. Right now Tesla has way more demand than it has supply. This means a used Tesla is just as valuable as a new Tesla coming off the line. With leasing that means Tesla gets to sell the same vehicle twice. Maybe even 3x if they keep locating people who want to lease.

I imagine in 5 years from when things are different. Supply has caught up with demand. And the market is flooded with $30K EV choices from virtually every manufacturer. Then options like outright purchasing your leased Tesla 3/Y will become available.

 

[240vPlug]

Not as long as used cars are worth more than new cars.

Its all about demand. Right now Tesla has way more demand than it has supply. This means a used Tesla is just as valuable as a new Tesla coming off the line. With leasing that means Tesla gets to sell the same vehicle twice. Maybe even 3x if they keep locating people who want to lease.

I imagine in 5 years from when things are different. Supply has caught up with demand. And the market is flooded with $30K EV choices from virtually every manufacturer. Then options like outright purchasing your leased Tesla 3/Y will become available.

Yeah, you know it’s possible even if the bubble in the used market pops that Tesla will still sell at a premium used so long as the demand is there. Add in a couple of spikes in gas prices and all EV will do better.

I do think the demand will soften….if not a lot a little over the next year. Higher interest rates are going to affect affordability and cause consumers to delay purchases of discretionary items. Giga Texas coming online should also create a lot more supply.

Will be interesting to see how this plays out.

 

[ATPMSD]

If you think you will want to buy the car at the end of the lease, just get a loan instead. In fact if you look at the payments for a Tesla lease versus a Tesla loan, the amount for the loan is not a lot more than the lease since Tesla does not subsidize the lease rate. And there a lots of companies that offer much better new car loan rates.

 

[Kairide]

As someone who bought out their Model S lease a few months ago, Tesla leases are terrible. The Money Factor to APR conversion is somewhere in the mid-5-6% range. I leased my Model S back in 2019 before Tesla took off. I wasn't sure how the brand would do long term or how the reliability of an $84k car would be since the car had been out less than 10 years.
Fast forward to 2021, no one could have forecasted a chip shortage causing pandemic, so my residual was about $20k less than market value. I bought out the lease ASAP. In a nutshell, Tesla never offered lease buyouts in general on their 3/Y leases due to Elon's robotaxi idea. It turns out the pandemic offered them an even better reason to continue not letting people buy out their leases. Used cars, especially Teslas are worth so much now that they would be stupid to let people buy them. In my case, 2019 Model S 75Ds are going for $74k+ on Tesla's website. My buyout early was $54k, if I had waited until my lease matured in March 2022, my residual/buyout would be $45k. If I turned that car in to Tesla at the end of my lease, they could turn it around for an easy $20k+ profit.

 

[240vPlug]

As someone who bought out their Model S lease a few months ago, Tesla leases are terrible. The Money Factor to APR conversion is somewhere in the mid-5-6% range. I leased my Model S back in 2019 before Tesla took off. I wasn't sure how the brand would do long term or how the reliability of an $84k car would be since the car had been out less than 10 years.
Fast forward to 2021, no one could have forecasted a chip shortage causing pandemic, so my residual was about $20k less than market value. I bought out the lease ASAP. In a nutshell, Tesla never offered lease buyouts in general on their 3/Y leases due to Elon's robotaxi idea. It turns out the pandemic offered them an even better reason to continue not letting people buy out their leases. Used cars, especially Teslas are worth so much now that they would be stupid to let people buy them. In my case, 2019 Model S 75Ds are going for $74k+ on Tesla's website. My buyout early was $54k, if I had waited until my lease matured in March 2022, my residual/buyout would be $45k. If I turned that car in to Tesla at the end of my lease, they could turn it around for an easy $20k+ profit.

Yeah the MF is high. The MF i was given was equivalent to about 5%. A lot of folks would want to lease both for the reasons you stated and for tax purposes if they use the vehicle for business.

I see leasing as a big part if getting folks to adopt new technology while at the same time having the option to return it if it doesn’t work out. I feel like Tesla really should give customers the option to buy the vehcile at the end of the lease…especially when they are making such a large profit in them.

I read a Forbes article that said the profit margin on the leases was something like 48% vs 24% on a traditional purchase. If that is true Tesla is already making a larger profit.

Leasing has become a significant part of the automotive landscape. 1 in 4 new vehicle acquisition is a lease in the US. I think Tesla really should give customers the option to buy the vehicle out. If Tesla keeps on with this policy eventually the folks who like to lease may go to another brand who can meet their needs.

Situations change and not giving customers options that are offered by other brands is not a good way to do business if you ask me.

 

[Kairide]

Yeah the MF is high. The MF i was given was equivalent to about 5%. A lot of folks would want to lease both for the reasons you stated and for tax purposes if they use the vehicle for business.

I see leasing as a big part if getting folks to adopt new technology while at the same time having the option to return it if it doesn’t work out. I feel like Tesla really should give customers the option to buy the vehcile at the end of the lease…especially when they are making such a large profit in them.

I read a Forbes article that said the profit margin on the leases was something like 48% vs 24% on a traditional purchase. If that is true Tesla is already making a larger profit.

Leasing has become a significant part of the automotive landscape. 1 in 4 new vehicle acquisition is a lease in the US. I think Tesla really should give customers the option to buy the vehicle out. If Tesla keeps on with this policy eventually the folks who like to lease may go to another brand who can meet their needs.

Situations change and not giving customers options that are offered by other brands is not a good way to do business if you ask me.

I was a serial Audi lesser prior to the Model S. I loved leasing because I liked having a new car every 2-3 years and not having to worry about out of warranty repairs. But, going in to a lease knowing you want to buy at the end is a bad financial decision. You'll be paying to use the car for 3 years, then take out a 60 month used car loan to buy the car. If you know you want to buy the car, buy it, don't lease it. If you're unsure, leasing is fine. If you like it, just buy a new one, instead of buying the lease.
As it stands now, the leased vehicle landscape is a bit of a battle. Most major manufacturers now won't let you turn them in to another brand. In the past, you could take your Honda lease to Toyota. As long as Toyota paid off the pay off amount, Honda didn't care since they would have just sent it off to auction anyways. Now every brand wants their own cars back since they're worth so much.
I agree that leasing is a large part of the US automotive landscape. But Tesla also does their best to be different, sometimes in head scratching ways. The original robo taxi idea had about as much chance of coming to fruition by now as FSD. Elon got lucky the pandemic made him look brilliant by allowing him to not let M3 and Y lessees buy their cars.

 

[240vPlug]

I was a serial Audi lesser prior to the Model S. I loved leasing because I liked having a new car every 2-3 years and not having to worry about out of warranty repairs. But, going in to a lease knowing you want to buy at the end is a bad financial decision. You'll be paying to use the car for 3 years, then take out a 60 month used car loan to buy the car. If you know you want to buy the car, buy it, don't lease it. If you're unsure, leasing is fine. If you like it, just buy a new one, instead of buying the lease.
As it stands now, the leased vehicle landscape is a bit of a battle. Most major manufacturers now won't let you turn them in to another brand. In the past, you could take your Honda lease to Toyota. As long as Toyota paid off the pay off amount, Honda didn't care since they would have just sent it off to auction anyways. Now every brand wants their own cars back since they're worth so much.
I agree that leasing is a large part of the US automotive landscape. But Tesla also does their best to be different, sometimes in head scratching ways. The original robo taxi idea had about as much chance of coming to fruition by now as FSD. Elon got lucky the pandemic made him look brilliant by allowing him to not let M3 and Y lessees buy their cars.

That is very interesting. I had read an article on Ford giving folks a hard time about buying out leases but I had no idea all mfr are doing that now. That's terrible.

I agree on buying. One thing the buyout does though is it allows the lessor more flexibility at lease end. One of the other benefits of leasing is the ability to adjust if your situation changes as most allow you to transfer the lease to another party.

We are living in strange times right now.

 

[Ogre]

I have to wonder if people are wanting to lease cars they can’t afford to buy and hoping they will be able to afford the purchase at the end of the lease.

That’s potentially a reasonable assumption under some circumstances, but for a lot of people that will put them in a position where they are less likely to be able to buy the car after 3 years than the reverse.

 

[240vPlug]

I have to wonder if people are wanting to lease cars they can’t afford to buy and hoping they will be able to afford the purchase at the end of the lease.

That’s potentially a reasonable assumption under some circumstances, but for a lot of people that will put them in a position where they are less likely to be able to buy the car after 3 years than the reverse.

I am sure there are some that do that. Some folks might just want to try it out and then get something new but then change their mind and decide they want to keep that car. I think the financial thing happens with leases and buys. I think there are folks who think they can afford it until they make the payment for a few months or they don't think about how they are going to make the payment at all. That is a totally different situation though. I am simply talking about being able to drive new vehicles every few years and having flexibility if your situation changes. While it isn't my situation I have known folks who get attached to a certain car and refuse to get rid of it. Prime example is my sister who has driven jeeps her entire life. About every five years or so she would trade up. That was until about 10 years ago. She got a 2012 Grand Cherokee and she has decided to keep that car and not get rid of it. If someone wants to buy the car at the end of the lease they should be able to do that...regardless if it is a good financial decision or not. Cars are not good financial decisions to being with really....they are a liability. The cheapest way to own one is to buy a 6+ year old car and keep it 10 years or until it starts nickel and diming you to death. I am a car guy and so I spend a little more money because it makes me happy

 

[Ogre]

I am sure there are some that do that. Some folks might just want to try it out and then get something new but then change their mind and decide they want to keep that car. I think the financial thing happens with leases and buys. I think there are folks who think they can afford it until they make the payment for a few months or they don't think about how they are going to make the payment at all. That is a totally different situation though. I am simply talking about being able to drive new vehicles every few years and having flexibility if your situation changes. While it isn't my situation I have known folks who get attached to a certain car and refuse to get rid of it. Prime example is my sister who has driven jeeps her entire life. About every five years or so she would trade up. That was until about 10 years ago. She got a 2012 Grand Cherokee and she has decided to keep that car and not get rid of it. If someone wants to buy the car at the end of the lease they should be able to do that...regardless if it is a good financial decision or not. Cars are not good financial decisions to being with really....they are a liability. The cheapest way to own one is to buy a 6+ year old car and keep it 10 years or until it starts nickel and diming you to death. I am a car guy and so I spend a little more money because it makes me happy

The whole idea of a lease is if you buy the car and sell it after 3 years, you should break even with a lease. I know that’s a broad generalization, but that was roughly the way leases were done for a long time. If for some reason the vehicle‘s residual collapses (what I think will make ICE vehicles more expensive to lease in a few years) it’s a better deal for the leasor. If the vehicle’s residual is worth more than expected, it ends up benefitting the manufacturer a lot more.

I just said a bunch of stuff you likely know but I’m not untyping it.

 

[240vPlug]

The whole idea of a lease is if you buy the car and sell it after 3 years, you should break even with a lease. I know that’s a broad generalization, but that was roughly the way leases were done for a long time. If for some reason the vehicle‘s residual collapses (what I think will make ICE vehicles more expensive to lease in a few years) it’s a better deal for the leasor. If the vehicle’s residual is worth more than expected, it ends up benefitting the manufacturer a lot more.

I just said a bunch of stuff you likely know but I’m not untyping it.

No your points are good. Here is the thing that irks me about Tesla leases though. They appear to be making the profit by charging a higher money factor (interest rate) and quoting a lower residual. I would deduce that that formula only works if they refuse to let the customer buy the vehicle at lease end. I mean that is where the cost if the lease is right the money factor and the difference between sales price and residual.

IIRC residual they are quoting is 62% meaning their actuaries say the car is going to lose 38% of its value during the course of the lease. Even before the used car bubble model 3 was at worst seeing 10% depreciation after 3 years.

I leased for the tax benefits and because i wanted the fixed costs (even if market conditions changed). What im concerned about though is getting past the early adopters. Like i said leasing is appealing to a lot of folks i talked to because…even though they may be paying more….they are mitigating potential risk of being upside down after a few years.

I feel like Tesla has to make leasing more appealing to potential customers as many folk who don’t understand BEV technology may not want to take the risk of buying in. Now right now they don’t need it and they couldn’t meet the additional demand but I don’t see how they can continue this practice for the long term.

 

[Ogre]

No your points are good. Here is the thing that irks me about Tesla leases though. They appear to be making the profit by charging a higher money factor (interest rate) and quoting a lower residual. I would deduce that that formula only works if they refuse to let the customer buy the vehicle at lease end. I mean that is where the cost if the lease is right the money factor and the difference between sales price and residual.

IIRC residual they are quoting is 62% meaning their actuaries say the car is going to lose 38% of its value during the course of the lease. Even before the used car bubble model 3 was at worst seeing 10% depreciation after 3 years.

I leased for the tax benefits and because i wanted the fixed costs (even if market conditions changed). What im concerned about though is getting past the early adopters. Like i said leasing is appealing to a lot of folks i talked to because…even though they may be paying more….they are mitigating potential risk of being upside down after a few years.

I feel like Tesla has to make leasing more appealing to potential customers as many folk who don’t understand BEV technology may not want to take the risk of buying in. Now right now they don’t need it and they couldn’t meet the additional demand but I don’t see how they can continue this practice for the long term.

That, combined with not allowing for buy outs at the end is a bit brutal.

I do find I it curious that they seem to allow buy outs on the Model X and perhaps the Model S. I wonder if they see less demand for those or if they are keeping control of the Model Y and Model 3 for the posibility of building out their eventual Robotaxi fleet. If Robotaxi ever Becomes a thing, lease returns gives them an easy way to build a fleet with a large number of inexpensive cars.

 

[MrG_NY]

That, combined with not allowing for buy outs at the end is a bit brutal.

I do find I it curious that they seem to allow buy outs on the Model X and perhaps the Model S. I wonder if they see less demand for those or if they are keeping control of the Model Y and Model 3 for the posibility of building out their eventual Robotaxi fleet. If Robotaxi ever Becomes a thing, lease returns gives them an easy way to build a fleet with a large number of inexpensive cars.

The whole reason they made it that you couldn't buy your lease out was to add the vehicles to the Robot-Taxi fleet. Tesla thought they would have had the fleet by now but they need to perfect self driving.

I leased due to the fact I wanted to see if a Tesla was what I thought it would be. It has been an excellent vehicle and will be buying my next one.

 

[Ogre]

The whole reason they made it that you couldn't buy your lease out was to add the vehicles to the Robot-Taxi fleet. Tesla thought they would have had the fleet by now but they need to perfect self driving.

I leased due to the fact I wanted to see if a Tesla was what I thought it would be. It has been an excellent vehicle and will be buying my next one.

It’s a bit fraught trying to attribute motivations to other people.

Robo-taxi fleet is a great reason, but Tesla was also very confident resale values would remain high. In fact for a while they guaranteed a resale price on used Teslas from what I recall.

Lots of great reasons to hang onto them after the lease and little incentive to let them go for a song.

 

[Srad600Volt]

I leased my car, in fact I've leased all of my cars for the past 10+ years or so. Its faulty to attempt to attach a certain buyer type, or fiscal responsibility level to folks who lease as we all have our own reasons for doing so. In my case, I own a company, and the company leases the vehicle and writes it off on our company taxes. After the lease term is up, I typically buy the car out cash and either give it to my wife to drive for another 3-4 years or sell it for a slight profit. I initially got the Y because I wanted to take my company (and myself) in a more environmentally responsible direction , and this was one small way (in amongst many other ways) I felt we could achieve that goal. I knew going in, that the lease could not be bought out, so I'm not disappointed. Although at some point I recall seeing a letter from Tesla stating that they were re-evaluating that and would possibly be adding the buy-out option in the future. I'm not holding my breath, but you never know.

 

[jjrandorin]

The whole idea of a lease is if you buy the car and sell it after 3 years, you should break even with a lease. I know that’s a broad generalization, but that was roughly the way leases were done for a long time.

Not german "mass market luxury" car leases. Those were subsidized by the captive financial arm of said company (BMW, Audi, Merc, etc) and before this "pandemic blip" situation, were almost never ever worth their contracted residual.

Pretty much all BMW leases were done to sell the car twice. Subsidized residual to the captive finance arm, then turned in (because it never made sense to keep them), for a 3 year old primo, well maintained used car that someone would buy on a 5 year loan for 50 cents on the dollar.

Back to the thread subject, sure tesla will let model 3 and model Y owners buy out their leases, whenever its not better financially for tesla to keep them. So far in their lifespans (2018 for model 3 2020 for Model Y) that has not been the case, and it isnt looking like it is going to be the case because of the used car market for at least another 1-2 years.

Even after that, it may be better for Tesla to keep them financially than allow people to buy them. A car manufacturer would always rather you buy a new car if possible. I dont think the "robotaxi" idea is going to see the light of day any time soon (meaning next even 5-6 years), yet, its still better for tesla financially to keep them, so there is no reason for them to change policy.

 

[Ogre]

Even after that, it may be better for Tesla to keep them financially than allow people to buy them. A car manufacturer would always rather you buy a new car if possible. I dont think the "robotaxi" idea is going to see the light of day any time soon (meaning next even 5-6 years), yet, its still better for tesla financially to keep them, so there is no reason for them to change policy.

In terms of Tesla’s lease buyback policy what you think about Robotaxi doesn’t matter. Musk and therefore Tesla thinks Robotaxi is a thing.