Is It Smarter to Buy or Lease an EV?

Both can be good deals; learn the pros and cons of each

An electric vehicle being charged at a public charging station

Marc Heckner via Unsplash

The 2011 Nissan Leaf and 2012 Tesla Model S were the first mainstream EVs on sale in the U.S. built in significant numbers. Since then, almost every automaker has built an EV or is making plans to sell one, two, or convert its entire lineup to EVs. Now, as charging stations proliferate, costs drop, and batteries improve, many people are wondering: Should I buy a new EV, or is it better to lease?

We've already made the case for buying used EVs. But what if you're set on a new car? Read our brief guide to help you make a decision that works for your lifestyle and budget.

Reasons to Lease (Instead of Buy) an EV

EVs depreciate fast. Take a look at used prices for the BMW i3 and Nissan Leaf—two of the first, mass-market EVs sold at reasonable prices when new—and in most economic conditions, you'll find them for a sliver of their original MSRP.

That's because their manufacturers upgraded these models with superior driving range and performance in less than a decade—and for the same cost or less as when the cars had just debuted. For this reason—and because EVs tend to be like smartphones that become far more advanced every couple years—it can be more beneficial to lease an EV than it would be to lease a regular car.

That’s because, when leasing, you're locked into a set residual (the resale value the automaker estimates the car will be worth when the lease expires). If the car ends up with a lower-than-predicted resale value when your lease expires—a very likely occurrence during an EV's model cycle— the manufacturer will be the one losing money, not you. So, when you decide to lease another car, you'll have equity from your old lease that you can use to offset costs on the next lease.

Or, you can buy out your car at the set residual which may be less than the car is worth (hence, you'll make a profit). Leasing also gives you the option to enter a new lease for the same or less money and swap into a brand-new car after two or three years. You'll not only have a fresh battery (which degrades from everyday usage, charging, and climate), you'll upgrade to a better overall vehicle with more technology and standard equipment.

Finally, since EVs have limited range compared to conventional vehicles, it’s unlikely you’ll exceed the lease contract's mileage restriction.

Reasons to Buy (Instead of Lease) Your Next EV

Whether you finance the vehicle or pay cash, you'll often be able to maximize your tax deductions when you buy a new EV. In a lease, the lessor (the automaker) receives the maximum $7500 federal tax credit and is not obligated to pass the savings to you, the lessee.

In a purchase, however, you claim the tax credit directly. You are also eligible for all state incentives or rebates tied to new EV purchases, which are not always available to lessees. 

If you own a business, the IRS might allow you to depreciate the full value of your new vehicle during its first year. Typically, leasing was the easiest way to deduct a vehicle’s cost on a business tax return. Now, buying could be the better option.

It's also helpful to buy a new EV when a newer model is coming out. Automakers know that most people don't want EVs (they represent less than 1 percent of all U.S. sales) and that most people who do will tend to lease them because the monthly payments are usually lower. That often leads to some pretty generous rebates from the factory, on top of everything else.

What if you don't like your new EV? You can always sell it or trade it in for another car. In a lease, you can't leave without buying out the full term or using a third-party lease transfer company, which typically charges high fees or may be forbidden by your contract. 

Buying any car always gives you maximum flexibility, even when facing a depreciation hit. And when you own, no one will penalize you for damage, miles, or modifications to your EV. (Ed. note: These things could, however, impact trade-in value.)

The Good Parts of Buying or Leasing

With an EV, the full bumper-to-bumper warranty applies whether you lease or buy. There's also the benefit of an 8-year/100,000-mile battery warranty (or 10-year/150,000-mile warranty in California and Zero Emission Vehicle states), which also applies to related components like the cooling system. 

Maintenance is also simpler than a conventional car. An EV is kind of like a bicycle without gears: It's much simpler and less prone to breaking down. Without a multi-gear transmission and internal combustion engine, there's little to replace except brakes and suspension parts.

Electric motors don't need much service and there are few moving parts compared to a gasoline engine. EVs use "direct drive," which is  otherwise known as a one-speed transmission.

What's most beneficial are your running costs. If your local electricity rates are low enough and you don't fast-charge at public stations that often, you will certainly pay less to drive and refuel an EV than any comparable gasoline or diesel vehicle.

EVs often score above 100 MPGe (the electric equivalent of miles per gallon) and electric motors are more efficient than the best engines, which means less energy is expelled as waste (exhaust and heat) and more energy is used to propel the vehicle.

In the end, you'll need to crunch the numbers and feel confident about the EV you'd like to own. Leasing offers lower monthly payments and protection from long-term depreciation, while buying extends more financial incentives and freedom to control how long you want to own the car.

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