Thinking about an electric car? Leasing might actually be a good idea
A lot of car-buyers weigh whether a purchase or lease makes more sense for them.
Automakers might want to lean on leasing EVs.
A car owner might also get the commercial tax credit through leasing.
Leasing an electric car is a little different from leasing a gas-powered one.
Leases are trending downward, from 30% of all new vehicle retail sales in 2019 to below 20% now, according to Cox Automotive, largely thanks to low inventory and high prices.
Even as it falls in popularity, leasing could make a lot of sense for some potential EV drivers, especially when considering how technology might change and the availability of incentives.
There are a lot of variables to weigh.
Why you might lease instead of own
Many buyers might opt to lease EVs as a way to drive electric but not fully commit to an expensive purchase — especially if they think battery technology will get better. Leasing means an owner won't have the car, if the tech does age, for very long.
It also means an owner wouldn't have to deal with the potential depreciation of their EV. While the used EV market is relatively young and data is limited, some research suggests certain EVs have depreciated at a faster rate than gas-powered vehicles, though that is shifting. Depreciation is already something car buyers weigh when looking to make a purchase.
"At the end of the day, leasing is a great solution for customers that want to try it out, that might be afraid of some of the residual value pieces," GM CFO Paul Jacobson said at a November investor day. "Lease is going to be a very valuable tool across EVs."
Consumers don't appear to have heard him. While Teslas have always had a higher purchase rate, EV leasing overall took a tumble in 2022, according to Experian. Only 12.6% of new EVs were leased last year, down from 26.5% the year before.
"This shift is driven by Tesla's market share, new affordable entrants, and limited supply," Scott Case, Recurrent CEO, told Insider via email.
He expects things to change this year.
"Provisions in the Inflation Reduction Act allow for a greater variety of models to qualify for tax credits as leases through large-scale commercial purchasers," he said.
Car buyers obviously wouldn't get the new EV purchase tax credit with a lease, but there is a sort of loophole. Lucid recently encouraged its customers to consider leasing in order to qualify for the commercial EV credit (for cars that are too expensive or don't otherwise qualify for the purchase credit). This means that the automaker or its finance arm leasing the vehicle receives the tax credit, but could pass it down to their customer in the form of a lower monthly payment.
Automakers also have a reason to lease EVs
As EV tech improves, these vehicles might not depreciate as much — and automakers will want to capitalize on that, especially because EVs aren't very profitable yet.
Federal incentives "will drive a lot of manufacturers to prioritize leasing new EVs versus selling them because of the residual value of the used vehicle," Alex Oyler, director of North America for SBD Automotive, said.
It's why companies like Tesla and Ford don't allow customers leasing their EVs to buy the vehicle once its lease contract is up.
Auto companies also might bank on offering lower-cost EV leases to draw customers in — especially if the lease payment for an EV comes out the same as one for a gas-powered vehicle. (A recent Bloomberg analysis suggests Teslas are nearing and even surpassing parity.)
"I really expect automakers to have pretty favorable leasing terms out there and you can get into an entry-level EV at a much lower monthly lease payment, under the presumption that they upsell that particular driver on different capabilities in the car," Oyler said.
"A lot of the experiences will be driven by unlocking different features at different price levels," he added. "It's all, at the end of the day for the automaker, upside, because when that car comes off the lease, they're still going to be able to sell that used, especially with government incentives, at a reasonable profit."
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