New York September 12 2024: Chris Hilbert used to think of leases as “scummy” and a waste of money. But now that he’s in the market for a cheap electric car, he says, “the prices are just hard to pass up.”
The 44-year-old IT professional from Indianapolis already owns a Tesla Model S sedan and a Rivian R1S SUV. He recently spotted an offer to lease a Hyundai Ioniq 5 SUV for just $259 a month. But he thinks he can do even better. “I need a smaller car for my son to drive,” Hilbert says. “I would be very interested in paying less than $200 a month.”
Leases have emerged as a rare sign of optimism in an otherwise sluggish electric-vehicle market, in part because they can often be had at monthly costs that are far less than a new-car loan. Affording a set of wheels right off the lot has become increasingly difficult, with the average new-car buyer in the US paying $48,401 in July, according to vehicle price tracker Kelley Blue Book.
One painful result: Average payments for buyers of new vehicles in the US rose to $735 a month in the first quarter of 2024, according to credit reporting firm Experian. But the average monthly lease payment for new vehicles fell to $595.
This has led would-be EV buyers across the US to snatch up leased vehicles. Leases accounted for a record 32% of EV transactions in the US during the first quarter of this year, according to Cox Automotive. That’s up from 11% a year earlier and well above the auto-industry-wide rate of 19%. EV leases on average cost $88 less a month than a new electric-car loan, Experian says.
Lease payments for battery-powered models have lately come at a relative discount because of cooling consumer demand for those vehicles, additional incentives carmakers are using to help offload EVs that might otherwise linger on lots for months, and changes in the rules for the $7,500 federal tax credit for battery-powered vehicles that often favor leasing over outright purchases.
The Inflation Reduction Act of 2022 severely restricted tax breaks for purchases of battery-powered vehicles, so now just a handful of models qualify. Moreover, many of the roughly 75,000 EVs that Americans are leasing wouldn’t qualify for tax credits if they were bought because they exceed price caps in the law ($80,000 for SUVs and trucks; $55,000 for cars), use battery materials from China or aren’t assembled in the US. And the law put a cap on the net income of buyers applying for tax credits.
But there was a loophole for any EV marked for lease. The law considers leased EVs as commercial vehicles, allowing them to qualify for the full credit, even if they don’t meet federal battery and parts sourcing requirements. That’s allowed car companies or dealers to bundle the $7,500 tax credit savings into the lease financing cost, lowering consumers’ monthly payments.
The savings can add up big time. In Colorado, some leases on 2025 electric Nissan Leaf models were available in July for as little as $20 a month after EV tax credits and special state incentives. That’s less than a tank of gas.
Manufacturers technically receive the credit on leased EVs, but they’re inclined to pass it along to consumers as a rebate or discount if it helps move cars off the lot. At the Koons Kia dealership in Woodbridge, Virginia, Finance Director Ramon Nawabi estimates that only a couple of customers a month ask about electric cars, and the price tag sometimes scares them off. He’s got a few EV6 electric SUVs that have been sitting around for at least six months. Kia has been offering discounted leases on top of the $7,500 tax credit “just to move the car,” he says. “In a sense, we’re giving them away.”
The dealership rarely carries Kia’s most expensive electric model, the EV9, because at as much as about $80,000 each, “that takes a lot of Kia people out of the market,” Nawabi says. “They’re typically looking for a cheaper vehicle.”
Dealers say many people shopping for an electric car today aren’t aware that the rules have changed and haven’t budgeted for higher prices. “I think the $7,500 is a must in this climate,” says Andrew Starling, dealer principal at Starling Automotive Group, which operates a Chevy dealership in Orlando and other dealerships in Florida and South Carolina.
The carmaker with the highest percentage of EV leases in the first quarter of 2024 was BMW AG, at 89%, followed by Volkswagen AG’s Audi at 87%. Tesla Inc., the biggest EV maker in the US, leases just 24% of its cars, according to Cox.
Sebastian Mackensen, BMW of North America’s chief executive officer and president, says leasing appeals to customers who like the idea of EVs but aren’t ready to make a long-term commitment to an evolving technology. “You have the flexibility to hand the car back,” he says. Buying an EV can be risky if battery technology or market demand changes and the car loses its resale value.
Tesla leases are less attractive because the company doesn’t offer lease-to-purchase options like some other carmakers, and many of its new models qualify for the $7,500 tax credit outright, lowering the incentive to lease. Tesla has also been cutting prices, and there are some bargains on its models to be found in the used-car market.
Jim Trammell, an 83-year-old Air Force retiree from High Point, North Carolina, was considering buying a new Kia Niro earlier this year. But he found a lease in April that cost just $307 a month. That’s less than half what he would pay to buy the car with a six-year loan and no down payment.
Trammell was so excited that he drove 60 miles to a Kia dealership in Danville, Virginia, to sign the paperwork. “You can’t do anything for $300 a month,” he says. —With David Welch
