Late last night Tesla announced that they would finally make leasing available for the Tesla Model 3. This is great for many as the monthly upfront cost is now lower than ever before.
“Beginning today, customers in the U.S. will be able to lease Model 3 for a small down payment and competitive monthly payments. Customers can choose any Model 3 variant and select an annual mileage option of 10,000, 12,000, or 15,000 miles.”
The starting price for the Standard Range Plus Model 3 is $39,500. With a 36 month/10,000 mile lease you can now own this car for just $504 a month and $3,000 down. While this is indeed cheaper, it’s no where near the best leasing deal on the market. The Tesla Model 3 lease residual sits at roughly 50% excluding the tax rebate.
For those who do not know, when leasing a vehicle your payment is based on the residual value plus interest. Simply put, the residual value is the estimated value of the vehicle at the end of the lease. During a lease you only pay the difference. EX. Your $100,000 car has a residual value of 30% so you pay $70,000 throughout your lease term plus interest. The higher your residual, the less you pay. The Tesla Model S currently holds a residual of around 40%.
Leasing negatively effects Tesla cash flow, so we prob won’t offer Model 3 leases for 6 to 9 months. Loan financing is a better deal anyway, as bank conservatism for new car models is v conservative about residual value, but Teslas have always had strong residual value.
— Elon Musk (@elonmusk) June 3, 2018
What is interesting here is that Tesla will not allow you to buy your vehicle back at the end of the lease. Tesla claims these vehicles will be used afterwards for their self driving ride-hailing network. Tesla is planning a fully autonomous Uber-like network with their cars.
Realistically, Tesla most likely is not allowing the buy back because they see the true residual higher than 50%. They’re leasing vehicles for more than they’re worth and will sell them afterwards at a higher than residual cost to double dip in profits. But that is just 100% speculation.
Keep in mind, when leasing a vehicle you do not qualify for the $3,750 tax rebate. Over a 36 month lease, that is about $100 monthly you are missing out on. The monthly payment difference between a lease and finance on a Tesla Model 3 is around 10%. During a lease you hold zero equity but I am not going to tell you which is better.