The new way to buy an electric car is to not buy one at all.
Just three years ago, four out of five electric vehicle drivers had financed their car or paid for it in cash, while only 21% had leased the electric vehicle, according to data from TransUnionBut in the second quarter of this year, leasing was the first choice: 48.7% of people leased their new electric vehicle, 34.7% financed it and 16.6% paid cash.
This represents a fundamental shift in the way people buy electric vehicles and could be great news for the electric car market – just think of all the used cars that will flood the market when those leases expire.
Why leasing has increased so much
There are numerous reasons for the rise of leasing, starting with financial matters. While electric cars still cost more than fossil fuel vehicles, the monthly payment on a lease is almost always lower than what you’d pay per month to finance the full cost of a vehicle. In this way, leasing puts electric vehicles within reach of budget-conscious drivers – Joseph Yoon, consumer insights analyst at Edmunds, recently told me that there are plenty of great lease deals on electric vehicles because dealers want to get rid of them.
A change in federal tax credits has also helped. Buying an electric vehicle outright has become more complicated this year after the government limited the incentives to vehicles with a minimum percentage of domestic production. However, these rules do not apply to leased vehicles. This means that EV lessees have the opportunity to get a discount on a car that they might not necessarily be entitled to if they financed it.
There are other hypotheses about the increasing popularity of leasing. A senior official at one of the credit bureaus told InsideEVs that leasing reflects buyers’ satisfaction with the subscription model that has taken over our economy as a whole. The data also shows that the total number of first-time lessees has actually declined somewhat since 2019, which to me suggests that perhaps a lot of people who always lease their vehicles have decided in recent years that it’s time to get an electric vehicle.
Given the current range of electric vehicles, leasing is also simply an attractive option. Most of today’s most popular models haven’t been on the road long enough to say much about their age – or what might go wrong when they’re eight, ten or twelve years old. Lessees don’t have to worry about that. And they don’t have to worry about the battery’s inevitable range deteriorating, either.
Because of this, I’ve started to rethink my own decision to buy my electric car from time to time. Instead of watching the battery weaken over the years, I could have leased it, returned it after three years, and gotten a cool new electric car that didn’t exist when I bought it. On the other hand, I’m getting closer to the last month’s payment rather than being trapped in the cycle of never-ending payments that leasing brings. So I’ve put that in motion for me, which is nice.
Why this is great for the EV market
The rise in leasing has clear implications for the electric vehicle market, as automakers in the U.S. in particular are still struggling to offer the affordable electric vehicles that buyers want. Luxury buyers, on the other hand, have always preferred leasing, as they want to afford a shiny, new car and avoid the unpleasant experience of owning a BMW, Mercedes-Benz or Audi without a warranty. About 90% of the electric vehicles of these three companies are leased vehicles. This figure has helped German luxury brands gain a foothold in the electric car market (especially given the staggering RRPs of most of their electric offerings).
And then there’s the question of what happens to all those leased vehicles. At the end of a typical three-year contract, the driver must return the vehicle to the dealer, presumably in the undamaged, low-mileage condition specified in the lease terms. From there, the vehicle begins its second life as someone else. brand new used car – so it’s good news that many people are leasing electric vehicles.
Leasing is one way to get around the high list prices of electric vehicles, buying a used car is another. Used cars have long been a better deal because someone else suffered the financial burden of buying a new car and seeing its value plummet once they drove it off the lot. (In fact, when you lease a car, you pay for the steep depreciation it suffers in its first few years of life. The dealership needs to get that money from leasing customers because it gets much less for the car when it comes out of the lease as a three-year-old and is resold as a used car.)
The market for used electric cars has not been particularly robust so far. Firstly, there are simply not that many vehicles on the market, as sales of electric cars have only really picked up in recent years. Further restrictions on supply are the falling Prices of used electric vehicles, which appear to lose value much faster than petrol cars or hybrid cars. Since owners would get so little back when selling their electric vehicles, more and more of them are holding on to their cars.
That’s why the rise in leasing electric vehicles could be good news for everyone else. In a few years, all of those electric vehicles will return to the market, where many of them will become used, certified pre-owned vehicles that sell for much less than new vehicles. And while the fate of federal tax credits is uncertain after this year’s election, used electric vehicles are currently Also qualify for a tax reduction.
Used electric vehicles come with their own problems. Their drivers can’t get the full range that the battery offered when new, and they have to pay for the longer-term repairs if they want to keep driving the car indefinitely. However, used electric vehicles with 80% or 90% of their original range are perfectly viable, and given these prices and tax breaks, they’re a bargain too. And with many leased electric vehicles coming onto the secondary market soon, you might even be able to find one.
