Why Leasing An Electric Car Can Be Better Than Buying

  • Many car buyers weigh whether buying or leasing makes more sense for them.
  • Automakers may want to rely on leasing EVs.
  • A car owner can also get the commercial tax credit by renting.

Renting an electric car is a little different than renting a gas-powered one.

Leases are down, from 30% of all new car retail sales in 2019 to less than 20% today, according to Cox Automotive, largely thanks to low inventory and high prices.

Although it’s falling in popularity, leasing can make a lot of sense for some potential EV drivers, especially considering how technology is changing and the availability of incentives.

There are many variables to weigh.

Why you can rent instead of own

Many buyers may choose to lease EVs as a way to drive electric but won’t fully commit to an expensive purchase — especially if they think battery technology will improve. Leasing means that an owner will not have the car, if the technology is old, for a long time.

This also means that the owner does not have to deal with the possible depreciation of their EV. While the used EV market is relatively young and data is limited, some research suggests that some EVs depreciate at a faster rate than gas-powered cars, although that is changing. . Depreciation is already something that car buyers evaluate when looking to buy.

“At the end of the day, leasing is a great solution for customers who want to try it out, who may be afraid of some residual pieces of value,” said GM CFO Paul Jacobson on a day of investors in November. “Leasing is going to be an important tool across the EV spectrum.”

Consumers don’t seem to hear him. While Teslas have always had a higher purchase rate, EV leasing overall will fall by 2022, according to Experian. Only 12.6% of new EVs were leased last year, up from 26.5% the year before.

“This shift is driven by Tesla’s market share, new low-cost entrants, and limited supply,” Scott Case, Recurrent CEO, told Insider via email.

He hopes things will change this year.

“The provisions of the Inflation Reduction Act allow a greater variety of models to qualify for tax credits such as leasing through large commercial buyers,” he said.

Car buyers obviously won’t get the new tax credit on EV purchases with a lease, but there is a loophole of sorts. Lucid recently encouraged its customers to consider leasing to qualify for the commercial EV credit (for vehicles that are too expensive or don’t qualify for the purchase credit). This means that the automaker or its finance arm that leases the car receives the tax credit, but can pass it on to their customer in the form of a lower monthly payment.

The 2023 Chevrolet Bolt EV electric hatchback.

GM’s CFO said last year that leasing is important for the EV part of its business.


Automakers also have reason to lease EVs

As EV technology improves, these vehicles may become less expensive — and automakers want to take advantage of that, especially since EVs are still not very profitable.

Federal incentives “will prompt many manufacturers to prioritize leasing new EVs versus selling them because of the residual value of the used car,” said Alex Oyler, North America director for at SBD Automotive.

This is the reason why companies like Tesla and Ford do not allow customers to lease their EVs to buy the car when the lease contract is over.

Auto companies can also bank on offering lower-cost EV leases to attract customers — especially if the lease fee for an EV turns out to be the same as one for in a gas powered car. (A recent Bloomberg analysis suggests that the Teslas are closer and even more than equal.)

“I really expect the automakers to have favorable lease terms out there and you can get into an entry-level EV for a much lower monthly lease payment, under the assumption that they sell the particular driver on the different capabilities of the car,” Oyler said.

“More experiences can be brought by opening different features at different price levels,” he added. “It’s all, at the end of the day for the automaker, upside, because if that car is off lease, they can still sell it used, especially with government incentives, at a reasonable profit.”

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