What is the endgame on all these super-cheap EV leases?

[Brons2]

In case you haven't been paying attention, there are numerous EVs with very attractive lease deals the last few months. We got in with one on our Mach-E, on a vehicle that does not have the tax credit, but did have a $10,500 lease bonus. But there have been others that have taken lease prices below $300 a month, if you want examples just search Google, or look on YouTube for videos. The cheapest leases of course have very large buyouts, so it's unlikely people will buy them out. In our case the monthly payments are higher and the buyout is cheap, I asked for it to be this way. I would have bought the car outright if the incentive was available for a purchase, but in our case as in others I have seen, the incentives are only available on a lease.

Here's one list of under $300/mo leases for this month and how much up front (Sept 24):
https://electrek.co/2024/09/06/evs-for-lease-under-300-month-september/

This sort of gets me thinking about what the endgame is for the manufacturers. Maybe I don't know what the tax considerations are for the manufacturers on the backend for doing leases on cars they otherwise would sell at a loss. Some thoughts:

1. The manufacturers believe that the EV market will recover to previous growth levels three years from now and they will do better on these cars at resale than they are now from a new sale/lease perspective.
2. They will carry forward the losses on an accounting basis as an account receivable option to be repaid later.
3. They will go out of their way to ding people for damage or battery degradation upon the lease returns, thereby making some money back.
4. There are tax benefits for the manufacturers doing leases versus selling them outright at a loss, or it allows them to spread the loss over multiple tax years.
5. Something else

 

[JeffKeryk]

Well, car companies have to move product. And they need to know what works and what doesn't, and what owners like and what they don't.

 

[SC Maintenance]

Extend and pretend.

Kick the can.

I can probably think of some other sayings.

EV residual has collapsed since the rental EV fire sales, and now companies have devalued inventory they must move. Push it out on a 3 year lease, hope things are better then.

 

[JeffKeryk]

Extend and pretend.

Kick the can.

I can probably think of some other sayings.

EV residual has collapsed since the rental EV fire sales, and now companies have devalued inventory they must move. Push it out on a 3 year lease, hope things are better then.

Residual on EVs stinks. Don't ask me how I know...
Teslas keep getting cheaper and better.
As an early adopter, I am hardly surprised. Remember when the IBM PC came out?

 

[cptbarkey]

All of these have money down requirements, so it wasnt a good lease deal in the first place.

 

[zzyzzx]

My vote goes for kicking the can down the proverbial road. My other thoughts are that they need to move product and perhaps they are a small enough percentage of their product mix that the loss won't matter so much.

 

[SC Maintenance]

My vote goes for kicking the can down the proverbial road. My other thoughts are that they need to move product and perhaps they are a small enough percentage of their product mix that the loss won't matter so much.

I think if they kick the can they can defer the loss for three years, rather than recognizing it today.

Its like in 2008 when it was better for the banks to let people stay in there house with no mortgage payment, rather than forclose and sell the property at market price

 

[BMWTurboDzl]

In case you haven't been paying attention, there are numerous EVs with very attractive lease deals the last few months. We got in with one on our Mach-E, on a vehicle that does not have the tax credit, but did have a $10,500 lease bonus. But there have been others that have taken lease prices below $300 a month, if you want examples just search Google, or look on YouTube for videos. The cheapest leases of course have very large buyouts, so it's unlikely people will buy them out. In our case the monthly payments are higher and the buyout is cheap, I asked for it to be this way. I would have bought the car outright if the incentive was available for a purchase, but in our case as in others I have seen, the incentives are only available on a lease.

Here's one list of under $300/mo leases for this month and how much up front (Sept 24):
https://electrek.co/2024/09/06/evs-for-lease-under-300-month-september/

This sort of gets me thinking about what the endgame is for the manufacturers. Maybe I don't know what the tax considerations are for the manufacturers on the backend for doing leases on cars they otherwise would sell at a loss. Some thoughts:

1. The manufacturers believe that the EV market will recover to previous growth levels three years from now and they will do better on these cars at resale than they are now from a new sale/lease perspective.
2. They will carry forward the losses on an accounting basis as an account receivable option to be repaid later.
3. They will go out of their way to ding people for damage or battery degradation upon the lease returns, thereby making some money back.
4. There are tax benefits for the manufacturers doing leases versus selling them outright at a loss, or it allows them to spread the loss over multiple tax years.
5. Something else

Never assume the vehicle is being sold at a loss because the cost for R&D can be amortized in many different ways which will vary the degree of loss. These costs reduce taxable income just like any other business expense so it may be beneficial for an automaker to take the charge up front or over a shorter/longer period of time depending on current tax policy coming out of DC.
Automakers don't look at "dinging customers for damage or battery degradation" as a profit center. That's not how leasing works.
While the contract states a residual value if said value is below what used market will support the automaker can be willing to negotiate a lower buyout.

Some of the most profitable automotive brands lean heavily on subsidized leases.

 

[zzyzzx]

One of my other theories on this is that when the lease is up, they will lease it again. Yes, further kicking the can down the proverbial road.

 

[Brons2]

Never assume the vehicle is being sold at a loss because the cost for R&D can be amortized in many different ways which will vary the degree of loss. These costs reduce taxable income just like any other business expense so it may be beneficial for an automaker to take the charge up front or over a shorter/longer period of time depending on current tax policy coming out of DC.
Automakers don't look at "dinging customers for damage or battery degradation" as a profit center. That's not how leasing works.
While the contract states a residual value if said value is below what used market will support the automaker can be willing to negotiate a lower buyout.

Some of the most profitable automotive brands lean heavily on subsidized leases.

That's a good point. It's said that Douglas never made a dime on the DC-9 despite selling over 2000 of them when including all variants. They amortized the cost of R&D across every airframe rather than treating it as a sunk cost.

 

[Ausfahrt]

In case you haven't been paying attention, there are numerous EVs with very attractive lease deals the last few months. We got in with one on our Mach-E, on a vehicle that does not have the tax credit, but did have a $10,500 lease bonus. But there have been others that have taken lease prices below $300 a month, if you want examples just search Google, or look on YouTube for videos. The cheapest leases of course have very large buyouts, so it's unlikely people will buy them out. In our case the monthly payments are higher and the buyout is cheap, I asked for it to be this way. I would have bought the car outright if the incentive was available for a purchase, but in our case as in others I have seen, the incentives are only available on a lease.

Here's one list of under $300/mo leases for this month and how much up front (Sept 24):
https://electrek.co/2024/09/06/evs-for-lease-under-300-month-september/

This sort of gets me thinking about what the endgame is for the manufacturers. Maybe I don't know what the tax considerations are for the manufacturers on the backend for doing leases on cars they otherwise would sell at a loss. Some thoughts:

1. The manufacturers believe that the EV market will recover to previous growth levels three years from now and they will do better on these cars at resale than they are now from a new sale/lease perspective.
2. They will carry forward the losses on an accounting basis as an account receivable option to be repaid later.
3. They will go out of their way to ding people for damage or battery degradation upon the lease returns, thereby making some money back.
4. There are tax benefits for the manufacturers doing leases versus selling them outright at a loss, or it allows them to spread the loss over multiple tax years.
5. Something else

Are you happy with your lease deal?

 

[The_Jeff]

They are subsidizing EVs to sell gas cars. Remember all the cheap Cavaliers, Neons, and Escorts? They're all gone! It's easier & more profitable to move a few infinite-MPG EVs compared to 40 MPG crackerboxes sold at a subsidized $9999.

 

[fdcg27]

Buyout price may be baked into the lease, but what you can actually buy the lease return for will depend upon the market at that time.
The buyout price written in the lease is the maximum the lessor can hope to get. Much lower buyout prices can be negotiated if that's what the market dictates.
In the case of your car, I suspect that market price will be quite soft, so you'll probably be able to buy it cheaply if you want to.
I mean, these things aren't exactly flying off the lots now, so Ford is offering such a deal leases. There is little to indicate that the current car will become a hot commodity over the next three years, so you may be able to negotiate a such a deal buyout.

 

[Torrid]

All of these have money down requirements, so it wasnt a good lease deal in the first place.

This. Money down is the only way to make a lease an even worse deal that it already was. I've never understood perpetual leasing guaranteeing a monthly payment. I did it once and I couldn't get around it being a fancy long term rental that really wasn't mine. I bought that lease out a year early for that reason.

 

[E365]

Financially I don’t know, but it gets people in them to try. I leased a Blazer EV largely due to a good lease deal. 2 months later, I highly doubt I’ll ever buy another ICE car again. And I’d buy another GM EV if I don’t have any significant issues with it.

 

[Brons2]

Are you happy with your lease deal?

Yes. We intend on buying it out at the end of the lease, but, if it car reveals any fatal flaws during the lease period, or if the buyout is more than the market value of the vehicle at that time, we'll throw it back and get another.

 

[Brons2]

One of my other theories on this is that when the lease is up, they will lease it again. Yes, further kicking the can down the proverbial road.

Yeah, it could get to a point where the value of the car is irrelevant if they can find someone to lease it again for a similar price. They'll recoup their money eventually if they just keep leasing it out.

 

[Torrid]

Yes. We intend on buying it out at the end of the lease, but, if it car reveals any fatal flaws during the lease period, or if the buyout is more than the market value of the vehicle at that time, we'll throw it back and get another.

Did Ford change it where they allow buyout again? They used to require it to be turned in regardless when it came to EVs. That may have only been the early Mach-Es though. They cited wanting to evaluate them after lease for research purposes, though I don't know if that was actually why. I don't know that I'd lease again if I didn't have the option to buy out at the end. I did that with my F150 because I wasn't sure if I'd still want a truck after 3 years being my first truck, but I ended up buying it out and keeping it 3 more years.

 

[Brons2]

Did Ford change it where they allow buyout again? They used to require it to be turned in regardless when it came to EVs. That may have only been the early Mach-Es though. They cited wanting to evaluate them after lease for research purposes, though I don't know if that was actually why. I don't know that I'd lease again if I didn't have the option to buy out at the end. I did that with my F150 because I wasn't sure if I'd still want a truck after 3 years being my first truck, but I ended up buying it out and keeping it 3 more years.

Yes, the buyout amount is on the contract.

Probably didn't have buyouts in the early EV contracts because cars were so hard to come by in 2021, especially EVs. Whole market has flipped on it's head in the last 18-24 months.

 

[mk378]

A key term in a lease is how many miles you can put on the car each year. If you exceed that there is a severe penalty for every extra mile at turn in (Of course if you buy out, the miles don't matter). There is absolutely no mention of that in the article. Super low payment leases are not magic; they are realized by changing two other things: lots of money up front, and very low miles to keep the resale value up. The savvy consumer will either ask for a lease that allows a realistic number of miles against a higher payment, or consider buying instead. Remember that all car advertising is geared to get people into the dealer and hopefully put them into a deal that is more lucrative for the manufacturer.

The article also simply divides the "due at signing" amount by 36 to form an effective payment. This ignores the time value of money. They should consider what it would cost to borrow $3999 on a 36 month loan at a typical market APR and then make that payment plus the lease payment each month.