Last Update: March 27, 2017
Like many, I think it’s better to own my car and hold onto it for a decade or so. That policy amortizes your money out over many years of ownership, and you end up with a low cost per year. Obviously other people follow other strategies, such as only leasing, or to only buy used cars and trading in one car for another every few months. That’s what makes our world interesting, that everyone is different.
But, at the current stage of the electric vehicle market it’s perhaps best to not buy an electric car, but to lease it. Why? It’s because of the rapidly changing technology. Leasing an electric car protects you against new technology invalidating the current technology.
Here’s a few strategies and considerations:
- Buying a brand new electric car (2015 model year) on a loan, or buying it outright: You’ll pay the full price premium, and are on the hook to pay for the entire value of the car. The electric car market already shows signs that EV values decline rapidly. Partly this is because of the federal tax break which then lowers the resale price. But rapid technology improvements have made the older EV’s less attractive — for example, the 2011 Leaf’s 73 mile range pales in comparison to the 85 mile range of the 2015 Leaf. Similarly, the 2011 Leaf’s 3.3 kiloWatt charger is a negative compared to the 6.6 kiloWatt charger on the 2013 or later Leaf’s.
- Leasing a brand new electric car (2015): When leasing you’re only on the hook to pay for the difference between the MSRP and the expected future value of the car. You and the leasing company essentially make a bet as to the future value, and the lease payment is a way to spread the payments out over the lease term. It means that if the car’s value in three years has plummeted you can walk away from the lease without owing additional money. The market for used electric cars is already weak, and indications are that some fantastic technology is just around the corner, therefore it’s wise to expect continued rapid price declines on used electric cars.
- Buying a used electric car: The low prices for used electric cars makes it a buyers market. It’s possible to pick up an amazing deal, assuming you’re willing to live with a possibly weak battery pack and a 3.3 kiloWatt charging system.
- Wait until the affordable 200 mile range cars are available: The car makers have made it clear they’re willing to risk the Osbourne Effect, and have pre-announced 200+ mile range electric cars. The first will be made by GM, and offer 200 mile range at about $37,500 MSRP. Tesla Motors and Nissan and Audi are all expected to follow suit with long range affordable electric cars. Tesla is planning to swamp the market by producing 100,000+ electric cars per year. Exciting times are coming, so the question is how to position yourself to jump into one of those cars at the earliest opportunity.
The current market condition is curious. Perfectly good used electric cars, only 4 years old, are going for bargain prices. Those who bought (or leased) in 2011-12 have often traded up, putting their old car on the market.
Another positive benefit of leasing is that the ownership cost is clearer. If you buy the electric car planning to sell it in a few years, can you predict its future value? Your cost to have purchased the car is the purchase price plus financing costs minus the price you sell it for. But the cost to have leased it is simply the MSRP minus the final value (or the sum of the lease payments).
UPDATE in early 2017: The first two points above were written in 2015, and it's now 2017 and the first of the affordable 200+ mile range electric cars are indeed available. The glut of off-lease electric cars has continued and it's possible to get a steal of a deal with a used electric car. It's unclear yet how the 200+ mile range EV's will fare, except that the Chevy Bolt EV is getting a good reception and is selling well. But will those vehicles hold their value in the long term given that the 85 mile range EV's did not?