You’ve made up your mind. You want your next car to be a Tesla. You love how they look, and you’re excited at the thought of never visiting a gas station again. But when it comes to affording it, what’s the best path to take? Do you lease the Tesla, or do you buy it outright?
This can depend on your financial circumstances, whether you want to keep the car long-term and many other factors. In this article at Electrly, we’ll take an in-depth look at whether you should lease or buy a Tesla.
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Contact ElectrlyDoes Tesla Offer Leasing in Your State?
First off, let’s look at leasing. It allows you to afford a more expensive vehicle than you’d typically be able to get by purchasing it outright with a loan.
But before you get into the details of a Tesla lease agreement, you need to know if Tesla offers leasing in your state.
Tesla currently offers leasing in the following states: AK, AL, AR, AZ, CA, CO, CT, DC, FL, GA, HI, IA, ID, IL, IN, KS, LA, MA, MD, ME, MN, MO, MT, NC, ND, NJ, NM, NV, NY, OH, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WV, WY.
However, this doesn’t mean you can’t lease a Tesla in other states. There are numerous third-party auto leasing companies which you can arrange leasing through. Even if you can lease directly with Tesla, it may be worth checking out other lease providers for the best deal.
Lower Monthly Payments vs. Overall Cost-Effectiveness
Leasing means you can stretch your budget. Instead of a large loan for the total amount, leasing gives you lower monthly payments so you can afford a nicer, pricier vehicle, as you’re only paying to cover the depreciation. But at the end of the term, you return the car and have to start again.
To begin a lease with Tesla, you must pay an acquisition fee of $695, and then there’s a $1,390 delivery fee. You’ll also need to factor in any taxes or registration fees as well as the down payment, which starts at $4,500.
Tesla leases run over 24 or 36 months, so you can switch cars sooner rather than later, which is great if you want a new model on the regular.
The Annual Percentage Rate (APR) ranges from 1.90% to 6.36%, depending on your chosen model.
If we take a Model 3 for example, at $44,380 (including all the initial fees) with a down payment of $4,500, over a 36-month lease at $334 per month, you would be paying a total of $18,609 over three years.
That’s almost half the value of the car.
So while your monthly payments are lower, you will give the car back at the end of it, and you’re left with nothing. If you had a loan, you’d be $18,609 closer to paying off the whole amount and owning your Model 3 outright.
Leasing is not a cost-effective option if you’re looking for long-term ownership. However, if you had an auto loan to buy the Tesla, you could extend the payment time over five or maybe even seven years. And once that final payment is made, the car is yours forever.
How Do Tesla Models Depreciate?
As a rule of thumb, all cars depreciate. There are exceptions to this, but those are generally limited production models, which are usually astronomically expensive. When it comes to EVs, the vast majority dropped in value by 52% over three years.
This is primarily due to electric vehicles being relatively new technology compared to the time the internal combustion engine has been around. Take, for example, the Nissan Leaf. They can lose as much as 80% of their value in five years.
But Tesla bucks that trend.
The Tesla Model S, X and 3 depreciate at 36.3%, 33.9% and 10.2%, respectively, over three years. It takes more than 50,000 miles of driving before the battery capacity drops by 5%.
This means that buying a Tesla may be a more attractive option than leasing since it could hold its value better in the long run.
Do You Qualify for EV Tax Credit?
As of 2023, Tesla models do qualify for tax credits, but be careful, as this can change. For a long time, Tesla wasn’t eligible.
The 2023 tax credit is a federal incentive that can reduce the cost of buying a new electric vehicle (EV), such as a Tesla. According to the IRS, eligible buyers can claim a clean vehicle tax credit of up to $7,500 under Internal Revenue Code Section 30D for qualified plug-in EVs or fuel cell vehicles (FCVs) purchased in 2023 or after.
The credit amount depends on the battery capacity and the gross vehicle weight rating of the vehicle. Several Tesla models qualify for this credit, including the Model 3, Model Y.
However, the 2023 tax credit is not available for leasing a Tesla or any other EV. The leasing company is the actual owner of the vehicle and therefore the only one who can claim the tax credit. Some leasing companies may pass on some or all of the savings from the tax credit to the lessee in the form of lower monthly payments or a reduced down payment, but this is not guaranteed.
Therefore, if you are considering whether to buy or lease a Tesla in 2023, you should factor in the tax credit as a potential benefit of buying.
How Much Will You Drive Your Tesla Per Year?
If you’re going into an auto lease agreement, you’ll be asked how many miles per year you drive. The leasing company needs to know this to determine how many miles will be on it when they get it back and, therefore, how much depreciation needs to be offset by your monthly payments.
You might be tempted to underplay this figure, so say you drive 15,000 miles a year but put 10,000 instead. Don’t. By doing this, you get lower monthly payments, but you’ll end your lease with a huge over-mileage bill.
Always try to keep under the mileage amount you agree to. This can balance out, so if you drive 12,000 miles one year and 8,000 another, the total for two years will match 20k – 10k per year.
It’s best to figure out how many miles your regular trips are. For example, your daily commute to work or how many long trips you take to visit family in a year. Add them all together, then give yourself a buffer in case you go over.
If you plan to put a high amount of miles on your Tesla in a short time, then it’s probably better to buy rather than lease.
What Range and Performance Do You Need?
It isn't actually necessary to have a Tesla with an extremely long range unless you frequently travel long distances for work or commute.
The current longest-range Tesla is the Model S Long Range, with 405 miles on a single charge. But at nearly $80,000, it’s also up there with the most expensive models in the range.
Performance in the Model S is comparable to the quickest Model 3. Both will hit 60 mph in 3.1 seconds, depending on the model you go for.
The entry-level Model 3 will make the 0-60 sprint in 5.8 seconds, which is still plenty quick enough for most people and is capable of up to 272 miles on a single charge.
But with EVs evolving so quickly, you can bet that Tesla will update or even beat these figures with new models or spec changes. This makes leasing a much better bet than an outright purchase, as it makes it easy to switch to the new, latest model.
Once your two or three year lease is up, you can hand it back and jump straight into the newest Tesla on the market.
Conclusion
Deciding whether to lease or buy a Tesla depends on your individual needs and circumstances. Leasing allows you to drive a new car every few years with lower monthly payments and less commitment.
However, you don’t own the car and must adhere to mileage and wear-and-tear restrictions. Buying gives you ownership and the freedom to drive as much as you want, but monthly payments are typically higher. Consider factors such as your budget, driving habits, and long-term plans when making your decision.
