Why 75% of electric-car buyers don't buy electric cars
A smartphone on four wheels is the market mentality of electric-vehicle (EV) buyers, who overwhelmingly continue to lease rather than buy EVs.
Excluding Tesla, lease penetration in the EV market is 75 percent in 2015 (it was above 80 percent in 2013 and 2014). In 2011, leasing represented just 27 percent of the market. (Because Tesla does not use a traditional dealership model, its leasing data is not shared with auto industry trackers like Edmunds.com.)
Leasing penetration in the EV market is far higher than in the car market overall. Leasing penetration across all cars is at 28 percent. In the luxury-car market, where leasing is much more common, leasing penetration is at 49.5 percent, according to Edmunds.com.
The range on most EV models is so low — less than 85 miles per charge, excluding Tesla's Model S — and the technology accelerating so quickly, that it does not make sense to make a long-term commitment, creating a scenario much like wanting to upgrade your smartphone every two years.
Battery technology continues to improve for year-to-year model editions. The range of EV batteries has improved by about 5 to 10 miles per year, according to ChargePoint, an EV charging station infrastructure company. Within the next couple of years, it expects to see mid-priced EVs with a 200-mile range.
Manufacturers know this and offer attractive leases.
- 2015 Fiat 500e ($169 per month, $1,999 down)
- 2015 Ford Focus Electric ($199 per month, $2,079 down)
- 2016 Mitsubishi i-MiEV ($189 per month, $3,388 down)
- 2015 Chevrolet Spark EV ($139 per month, no money down)
- 2015 Smart Fortwo EV ($139 per month, $1,433 down)
- 2015 Nissan Leaf S ($199 per month, $2,399 down)
- 2015 Volkswagen e-Golf ($199 per month, $2,349 down)
Other models, above the $200-per-month ceiling, include:
- 2015 Kia Soul EV ($249 per month, $1,999 down)
- 2015 BMW i3 ($439 per month, $7,500 down)
- 2015 Mercedes-Benz B-Class ($319 per month, $4,113 down)
- 2015 Tesla Model S 70D ($838 per month, $6,553)
Edmunds.com's Phillip Reed used to drive a Nissan Leaf and now drives a Toyota Rav4 EV (2014 model), but he did not own the Nissan and does not now own the Toyota. Reed says leasing is often a better decision than buying in the EV market, for multiple reasons.
"Most people I talk to in the EV market are leasing," Reed told CNBC recently.
Tesla does promote leasing on its website, but the impetus is more likely the popularity of leasing among luxury car buyers, the market which Tesla existing models target, and the fact that Tesla buyers are also typically early adopters and tech fanatics, always wanting the newest and best technology. Leasing a car — and not just a Tesla, but any luxury high-tech car — allows Tesla enthusiasts to benefit from the technology cycle at the end of a lease term. Tesla leasing payments, though, will be significantly higher. The company's estimates that a monthly payment for a Tesla Model S with a base price of $75,000 leased in California would be more than $900.
Tesla declined to provide leasing details citing its policy of not breaking down sales data for external use.
Anil Goyal, vice president of automotive valuation and analytics at Black Book, a vehicle appraisal data company for the automotive industry, said Tesla just began leasing last last year and there are signs it is growing — Tesla was able to bring in U.S. Bank to be its partners on lease financing, where previously it had to handle leasing on its own.
"In the beginning no bank was coming forward to do it but when the market started growing they could get a partner," Goyal said. He said an educated guess of how much of Tesla's sales are leased would be 30 to 40 percent. That's based on the fact that it's a luxury car (where leasing penetration is 50 percent) but an EV that does not face the mileage concerns of all the other EVs having the range of a conventional gas vehicle (where leasing is at 27 percent). He also said unlike most EVs, where retention value is very low, retention on Teslas has been strong. "Teslas don't behave like other EVs," Goyal said.
Because the federal and state tax credits go to the owner of the car — in the case of a lease, the finance corporation — dealerships reduce the price of the lease. Reed had to put $2,000 down on his Rav4 EV lease, and he immediately got $2,500 back from California's EV rebate program. The Rav4 EV he leased had a cash price of $50,000, which was reduced by $16,000, to $36,000, with lease incentives. And the car buyer has to wait until the end of the year to use tax incentives, while lease payments are immediately lower.
Goyal said a major reason leasing is an attractive option with EVs is because between the sale price, residual value of car — how much it will be worth at the end of a lease term, which is a factor in calculating the lease payments — and manufacturer's incentives, federal and state tax credits are rebates, dealerships are able to offer compelling monthly lease terms.