Electric Vehicle Leases Drop to Unprecedented Lows

Why EV Leases Are Becoming More Affordable

The cost of leasing electric vehicles (EVs) has dropped significantly, in some cases to as low as $20 per month, due to tax incentive loopholes. As the sales prices of EVs have escalated, leasing has become a popular option for customers, according to a recent Bloomberg report. The average monthly payment for new vehicles in the U.S. increased to $735 in the first quarter of 2024, while lease payments decreased to $595, as per Experian's data. This shift in pricing has led to an increase in EV leases, which accounted for 32% of EV transactions in Q1, a significant increase from 11% the previous year, as reported by Cox Automotive. On average, EV leases are $88 cheaper per month compared to new electric vehicle loans.

Factors Contributing to Lower Lease Payments

Bloomberg suggests that the more affordable lease payments for electric vehicles can be attributed to a decrease in demand, incentives offered by automakers, and changes in the $7,500 federal tax credit. The latter now often makes leasing a more attractive option than buying. The Inflation Reduction Act of 2022 limited tax breaks for EV purchases, causing many models to be ineligible. However, a loophole allows leased EVs to qualify as commercial vehicles. This enables automakers to apply the tax credit to lease deals, thereby reducing monthly payments.

How Tax Credits Impact EV Leases

While manufacturers receive the tax credit on leased EVs, they often pass it on to consumers as a rebate or discount. This practice has resulted in some remarkable offers. For instance, in Colorado, leases for some 2025 Nissan Leaf models were available for as low as $20 a month in July, thanks to EV tax credits and state incentives.

Manufacturers' Response to Low Demand

At Koons Kia in Virginia, Finance Director Ramon Nawabi reports that few customers inquire about EVs due to their high prices. Some EV6 SUVs have remained unsold for over six months, prompting Kia to offer discounted leases in addition to the $7,500 tax credit. "In a sense, we're just giving them away," Nawabi told Bloomberg.

EV Leasing Trends

In the first quarter of 2024, BMW led in EV leases with 89%, followed closely by Audi at 87%, according to Cox. Tesla, the largest U.S. EV maker, leased only 24% of its cars. The lower appeal of Tesla's leases can be attributed to the absence of lease-to-purchase options and the fact that many models qualify for the $7,500 tax credit when bought outright.

Bottom Line

The landscape of EV leasing is changing rapidly, with prices dropping to unprecedented lows due to tax incentives and other factors. While this trend may make EVs more accessible to a broader range of consumers, it also raises questions about the long-term sustainability of these pricing models. What are your thoughts on this development? Do you think this trend will continue, or is it a temporary phenomenon? Feel free to share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.