Is Tesla Leasing a Good Deal?

Apr 15, 2019   

Currently, Model 3 leasing starts at $504/month with $3,000 down for a black Standard Range Plus model with Autopilot on a 36-month/10k miles a year term, or an effective net cost of $587/month. An additional $695 acquisition fee (which is a typical bank fee for leases) and first month’s payment are due at signing. At the end of the lease term buyers won’t have the option to purchase their vehicle as Tesla plans to use them in their autonomous taxi fleet.

The total cost of a three-year lease on a $40,700 Standard Range Plus Model 3 is roughly $23,000. In comparison, we have estimated the total three-year cost of ownership for purchasing the same vehicle outright and financing it on a 72-month term would be around $13,000. This takes into account the tax credit of $3,750 which can’t be claimed by a lessee (Tesla says they add it to the residual, though the effect on payments is minimal) as well as 4.25% interest and a depreciation rate of 70%. Kelley Blue Book is currently tracking the Model 3 to retain 70% of its value over the first three years of ownership, and 50% over five years.

Tesla’s own residual rates (the amount the vehicle is worth at the end of the lease) for a 36-month lease term are 54% for 10k miles, 53% for 12k miles, and 51% for 15k. These residuals are conservative compared to Kelley Blue Book’s anticipated rate of 70%, which is best-in-class. By comparison, BMW’s residual rate is 60% (higher is better for the lessee) for a 2019 3 Series on a 36-month/10k term. Despite holding the best resale value in the industry, Tesla’s lease at higher-than-average rates. We would estimate based on the payments that the money factor, or interest, on the lease is also higher than the industry average.

A general rule is that a favorable lease deal is when monthly payments are within 1% of the vehicle’s sale price, with zero down. By that logic, Model 3 would lease at $395/month (Standard Range Plus), $495/month (Long Range All Wheel Drive), and $595/month (Performance) for its respective configurations which we would find to be a fair lease deal.

We think that Tesla could offer a more competitive lease by passing on the tax credit as a capitalized cost reduction. Other manufacturers add the tax credit as a rebate to lease, which is effectively like a down payment of up to $7,500.

We have confirmed with Tesla that the minimum they require a lessee to put down as a capitalized cost reduction is $2,500, which is the order payment required to order any car from Tesla. It isn’t typically advisable to put any money down on a lease as it is difficult to recover if the car is totaled, which lessees should keep in mind.

The only customers the current leases could make sense for are those that want to upgrade every three years without taking cost into consideration, or businesses that are able to deduct the lease payments from their taxes.

Rates could improve over time, as new vehicles are typically significantly more expensive when automakers begin leasing them then rates improve as manufacturers raise residuals and add incentives. Though that hasn’t been the case with the Model S or X, Tesla has had strong enough demand that they haven’t needed to offer additional incentives or rebates on their leases. Since Model 3 is a mass-market vehicle, we expect to see Tesla offer better lease rates as they are able to.

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– Adam Qureshi