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Electric vehicle leasing activity 'slips' to 75%

October 23, 2015
Excluding Tesla, lease penetration in the EV market is 75 percent in 2015, a decline from above 80 percent in 2013 and 2014. Back in 2011, leasing represented just 27 percent of the overall market. (Because Tesla does not use a traditional dealership model, its leasing data is not shared with auto industry trackers such as Edmunds.com.) 
Leasing penetration in the EV market is far higher than in the car market overall. Leasing penetration across all cars is at 28 percent. In the luxury-car market, where leasing is much more common, leasing penetration is at 49.5 percent, according to Edmunds.com. 
The range on most EV models is so low — less than 85 miles per charge, excluding Tesla’s Model S — and the technology accelerating so quickly, that it does not make sense to make a long-term commitment, creating a scenario much like wanting to upgrade a smartphone every two years. 
But battery technology continues to improve for year-to-year model editions. The range of EV batteries has improved by about 5 to 10 miles per year, according to ChargePoint, an EV charging station infrastructure company. Within the next couple of years, it expects to see mid-priced EVs with a 200-mile range. Manufacturers know this and offer attractive leases. 
As of this month, seven EV models offer leasing deals of less than $200 per month for 36 months. Conversely, the Tesla Model S 70D leases for $838 a month.
Tesla does promote leasing on its website, but the impetus is more likely the popularity of leasing among luxury car buyers, the market which Tesla existing models target, and the fact that Tesla buyers are also typically early adopters and tech fanatics, always wanting the newest and best technology. Leasing a car — and not just a Tesla, but any luxury high-tech car — allows Tesla enthusiasts to benefit from the technology cycle at the end of a lease term. Tesla leasing payments, though, will be significantly higher. The company’s estimates that a monthly payment for a Tesla Model S with a base price of $75,000 leased in California would be more than $900.
Tesla declined to provide leasing details, citing its policy of not breaking down sales data for external use. 
 
Anil Goyal, vice president of automotive valuation and analytics at Black Book, a vehicle appraisal data company for the automotive industry, said Tesla just began leasing last year and there are signs it is growing — Tesla was able to bring in U.S. Bank to be its partner on lease financing, where previously it handled leasing on its own. 
"In the beginning no bank was coming forward to do it but when the market started growing they could get a partner," Goyal said. He said an educated guess of how much of Tesla’s sales are leased would be 30 to 40 percent. That’s based on the fact that it’s a luxury car (where leasing penetration is 50 percent) but an EV that does not face the mileage concerns of all the other EVs having the range of a conventional gas vehicle (where leasing is at 27 percent). He also said that unlike most EVs, where retention value is very low, retention on Teslas has been strong. "Teslas don’t behave like other EVs," Goyal said. 
Because the federal and state tax credits go to the owner of the car — in the case of a lease, the finance corporation — dealerships reduce the price of the lease. Goyal said a major reason leasing is an attractive option with EVs is because between the sale price, residual value of car — how much it will be worth at the end of a lease term, which is a factor in calculating the lease payments — and manufacturer’s incentives, federal and state tax credits are rebates, dealerships are able to offer compelling monthly lease terms.
Manufacturers will offer these incentives strategically around factors such as week-to-week sales and delivery schedules. In March, Fiat dealers in California received fresh shipments of 500e models and began a limited-time offer for a $2,100 discount on the $32,000 MSRP. When combined with the $7,500 federal tax credit and California’s $2,500 state rebate, the down payment for the 500e cost eagle-eyed buyers $1,000 down and $82.75 per month for a 36 month lease. That rate pays off almost at once as monthly gas prices cost the average internal combustion owner more than $100 each month. 
Currently, the Nissan Leaf is offering $5,000 cash and, for those who want to buy, zero percent financing. Edmunds.com keeps tabs on all car incentives and rebates.
EVs prices, in general, remain too high for buying to make sense, when taking into account lack of confidence on the part of car shoppers about the future value of the car, fears about length of battery life, and anxiety about mileage range becoming outdated quickly when new models arrive. 
"Typically, you would have about 40 to 50 percent retention from three years after a vehicle is new. EVs are only at 25 to 30 percent retention from their original price, even after factoring in the $7,500 federal incentive," Goyal said. 
An EV that started out $15,000 more expensive than a conventional car would be valued about the same as that conventional car three years later.
 
 

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