A Volkswagen ID.4 electric car on display at a VW dealership in California
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EV leases are becoming more popular as customers focus on monthly payments.Leasing is a lower-stakes financial commitment than a car loan.A loophole in EV leasing provides more access to federal discounts.
More car shoppers are opting to lease their EVs in an attempt to keep monthly payments low while the average sticker price remains out of reach.
At the end of July, leases accounted for 75% of EV purchases, compared to 51% of purchases in the same month a year ago, according to data from car-shopping website Edmunds. Overall, only about 25% of vehicles are leased, according to Experian data.
While EVs still tend to cost about $10,000 more than the average car, monthly payments in July were actually about $160 cheaper than the industry-wide average monthly payment, according to Edmunds.
Affordability is becoming increasingly important in the electric-car market as a wave of wealthy early adopters gives way to more frugal and practical shoppers. Regardless of powertrain, these customers are usually budget-conscious and shop based more on monthly payments than the overall sticker price.
That’s where leases come in.
Leases require less financial commitment
Leasing is a lower-stakes financial commitment than purchasing a car, as the lessee is only responsible for the vehicle’s depreciation during the lease term. The monthly payment is calculated by subtracting the residual value of the car from the current value and dividing that by the lease term (plus taxes and fees, of course).
A car loan, on the other hand, requires the purchaser to cover the entire cost of the vehicle. The monthly payment is calculated by dividing the cost of the vehicle by the length of the loan term plus the average interest rate, taxes, and fees.
“A lease is a great way for these new EV customers to test the waters on these cars,” Ivan Drury, an automotive analyst for Edmunds, told Business Insider.
The bumper-to-bumper coverage offered by a lease, as well as the fact that the dealer will take back the car after the lease is up, are also attractive to a new group of EV shoppers, who are often more hesitant about making the leap to electric.
As EV leases have become more popular, average monthly payments for these cars have plummeted. In July, the average EV customer paid $575 a month for their battery-powered car in July, about $200 cheaper than the average monthly payment a year ago.
“A drop in monthly payments like this almost never happens. This is once-in-a-lifetime stuff, and I don’t think it will last long,” Drury said. “If you’ve been thinking about getting an EV, the time is now.”
The EV leasing loophole
As EV shoppers have become pickier, the industry has been forced to adjust to a slower growth rate for these cars.
In addition to changing production schedules and future product plans, car companies and their dealers are attempting to juice demand for EVs by taking advantage of a loophole in EV leasing that gives customers more unfettered access to a $7,500 federal EV tax credit.
New restrictions on this tax credit have made it harder for purchasers to qualify for the discount, but leasing is not held to the same standards.
Leased EVs do not have to meet the same rigorous parts-sourcing requirements or income caps that restrict buyers from accessing the $7,500 credit.
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