To lease, or not to lease. That is the question.
In fact, it’s an increasingly common question for people looking for cars today. Traditionally considered a financially preferred option to purchasing a vehicle, leasing is now becoming less and less ideal for those who want electric vehicles (EVs). But why?
There are many factors to consider when deciding to lease an EV in today’s economy. In this guide, we’ll explain all the major factors to think about when leasing an electric car. Also, we’ll reveal new, more flexible, and hassle-free options out there to consider.
So let’s jump right in!
The Big Financial Picture
Perhaps the biggest factor you should take into consideration is the financial burden.
The initial down payment is typically lower when leasing an electric car, or depending on how you negotiate, the down payment may not even be necessary. Also, month-to-month payments are typically lower when leasing but this depends on a number of different components including interest rate, length of the lease, mileage, and residual value.
It’s also important to consider tax credits when leasing an EV. Both federal and state tax credits are offered for electric vehicles, but this is not always available when leasing. Because the leasing company can choose to maintain entitlement to the credit, it’s essential to read the fine print of the contract to determine if this credit will be passed along to you. If not, the discount should be reflected in the cost of the lease. All this being said, incentives are changing and phasing out for many popular EVs in the year ahead.
Federal tax credits will be eliminated for Teslas as soon as January 2020; Chevy will not qualify after March 2020, and next up is Nissan. What’s happening? There is a significant stand-off between lawmakers and the Trump administration on tax credits for electric vehicles. Federal tax breaks for qualified electric vehicles first started back in 2008 and will phase out when at least 200,000 qualifying vehicles per manufacturer have been sold in the U.S. Many EV manufacturers have reached or are close to reaching this threshold. The Trump Administration has proposed eliminating the $7,500 EV tax credit completely, while other U.S. lawmakers are looking to extend tax credits for the electric car manufacturers with a new “Driving America Forward Act” bill. Be sure you’ve done your homework here as dealerships can be less-than-helpful in explaining the full picture of available incentives.
Understanding Maintenance Costs
When leasing electric vehicles, just like with a gas car, maintenance costs are another factor to consider. However, there are some differences related to the maintenance of an EV.
Unlike buying, when leasing an electric car, you’ll almost certainly have mileage restrictions. Standard leasing contracts offer annual mileage limits of 10,000 to 15,000 miles. For some drivers, this is sufficient, but for those road warriors or long-distance commuters, this can be a major burden. Exceeding mileage limits is costly and can set you back financially in a significant way. Dealers, on average, can charge anywhere between $0.10-$0.25 per additional mile.
It’s also important to consider the battery when leasing an EV. How far do you typically drive? Does the vehicle you’re leasing have enough range to get you everywhere you need to go? As with any battery, the lithium-ion battery pack that powers an electric vehicle will eventually become less powerful over time. However, this degradation is gradual, and EV batteries typically come with a 10-year manufacturer’s warranty. If you plan to lease a vehicle for a standard 3 or 5-year term, you don’t have to worry about the state of the battery life of your vehicle, but you do need to consider the overall battery range that you need.
When it comes to regular maintenance costs, there are some quick wins with electric cars. No more oil changes. No engine repairs or transmission fluids. But with continued use of any car, it inevitably goes through the standard wear-and-tear and will need to be maintained: tires, brakes, and increasingly in these tech-heavy cars, software upgrades. These types of repairs can add unforeseen costs and still take up valuable time. When leasing an electric car, most dealerships require you to pay out of pocket for maintenance costs, and it can undoubtedly add-up during the duration of your lease. Also, it’s possible when returning a leased car, for dealers to charge on anything they deem excessive, including tire traction, windshield wipers, front and back headlights, etc.
Valuing the Intangibles: Flexibility
Last but not least: we need to talk about flexibility. Ultimately when you lease a vehicle, one of the major benefits is the opportunity to exchange cars every 3 to 5 years. Lifestyles change all the time, your car should too. The two-seat convertible that you were driving for the last three years may no longer be viable in your current situation, and having this flexibility allows you to change cars based on the circumstances of your life. Or maybe you just love variety!
When it comes to leasing an EV, the motivation to have more flexibility and vehicle options is not drastically different. What is different, however, is the pace at which technology is advancing electric vehicles. Not surprisingly, this is happening much more rapidly for electric cars than conventional vehicles. What may be considered the breakthrough technology of the century for one automaker can quickly become yesterday’s news. Consider the Audi e-tron, Jaguar I-PACE, or Hyundai Kona, here are three great, all-electric SUV options that offer over 200 miles of range. Just a few years ago, the Nissan LEAF was one of the few on the market, with only an 85-mile range and a starting MSRP that was higher than the current, refreshed LEAF with a 150-mile range. New and exciting models are being announced by auto manufacturers every day, like the mid-sized Tesla Model Y, an SUV with a 300-mile range that will be available in 2020, according to Tesla. For tech-savvy consumers or those still suffering from range anxiety (the fear that you won’t have enough battery range to make all your driving trips) leasing an EV can be ideal because they can turn in their ‘outdated’ vehicle at the end of a lease-term and opt-in for the newest EV on the market. The longest-range electric vehicles available on the market today far exceed anything we’ve seen in the last few years.
Leasing is Not Your Only Option
Ultimately, it’s important to consider all your options before committing to a multi-year lease. In recent years, alternative options to leasing and purchasing vehicles have gained popularity. Car subscriptions are one of these options, which offers you a wide variety of cars, services, and flexibility for a month-to-month fee. We’ve already covered how subscriptions work, so now let’s look at how a car subscription is different from leasing by comparing it to what we’ve mentioned about leasing above.
Financial: The biggest cost difference with a subscription is that the monthly fee covers the total cost of owning a car. The membership fee is fixed and transparent, with no down payment, registration, or titling fees. This can be beneficial if you want to reduce the financial burden that comes along with leasing a car. With everything included in one easy payment, there are never any expensive surprises. Car subscriptions typically come with insurance, maintenance, and repair costs, included and give you access to a variety of different vehicles to drive, not just one.
Maintenance: Like many other subscriptions – clothing, movies, groceries – which are all about that VIP service experience, car subscriptions are no different. Compared to a lease, a car subscription covers not only the cost of maintenance, but also handles any service issues, accidents, or insurance claims. This eliminates the usual headaches of car ownership and gives you back valuable time in your day. Subscriptions also come with 24/7 roadside support and, perhaps, the most significant difference compared to a lease, there are no mileage restrictions.
Flexibility: Let’s be honest. People want the latest technology, and they want options. Perhaps this is what makes leasing a car so appealing. However, car subscriptions take this to the next level. When you lease a car, you’re still committed for a minimum of three years, and breaking this contract can be expensive. But with a car subscription, there are no commitments – some offer as short as 30-day, month-to-month memberships. You are also not locked into a single car. Imagine having a garage that is continually being filled with the latest EVs, and all you have to do is use the app to drive something different the next day. That is what you get with car subscriptions. Total freedom and flexibility are at the heart of what makes a car subscription valuable and different from leasing.
Still Set on a Lease?
Leasing a vehicle can be considered a sensible option for customers who want to pay a lower monthly payment and avoid taking out a loan or putting down the recommended 20% when purchasing a vehicle.
Drivers who choose to lease an electric car will have additional considerations such as mileage restrictions, wear-and-tear, and fees that may be associated with ending a contract before it is set to expire. Leasing companies will impose additional charges for mileage overages and damage to the vehicle upon lease expiration.
After reading this post, you have already done more research on leasing an electric vehicle than most and are well on your way to making an informed decision on if you should lease an electric car. Consider all the factors and then make the best decision for you.