Electric vehicle buyers get cold feet when it comes to outright buying new EVs and plug-in hybrids. Instead, they hedge their bets and lease. Eighty percent are currently leased versus about 30 percent of all other vehicles, according to Bloomberg Intelligence.
For contrarians and possible risk-takers, there’s a strong argument in favor of buying EVs used. At three years of age, some sell for as little as 25 percent of their initial price and there are fewer wear parts, other than the battery. Most combustion-engine cars retain 35-55 percent of their value at three years of life.
Electric vehicle lease rates are about 80 percent, led by BMW i3 (red line). All other vehicles are about 30 percent (black line). Chart shows lease rates since December 2014. (Source: Bloomberg Intelligence via Bloomberg News)
Lease When You Suspect Residual Is Low
EVs and plug-ins only have a few years of sales data and residual values that can be tracked. Bloomberg quotes the Black Book auto data analytics group as saying a 2014 EV, now four years old in model-year years, has a residual value of 23 percent of the original list price. Combustion-engine cars from the same year retain 41 percent of their value, or a whopping 78 percent more.
Kelly Blue says three-year-old car residuals range from 54-57 percent (of original list price) for full-size and mid-size pickups; with sports cars, vans, and most SUVs in the 40s; and sedans of all sizes, subcompact SUVs, and minivans in the 30s. EVs are at 27 percent, and comparable combustion engine subcompact and compact cars are at 28 percent and 36 percent, respectively.
Plus, some automakers, such as Nissan and BMW, have been offering lease rates as low as $100 per month in some areas, in conjunction with power companies that need to show reduced overall emissions in their regions.
Knowing that, and knowing automakers promote dazzling lease offers from time to time, it’s hard not to consider an EV lease.
BMW i3 lease rate is often above 90 percent. Some months, it approaches 100 percent.
Buy When You Know Used Is a Good Deal
A three-year-old EV for ten to twelve grand is not a bad deal, especially if the battery is warranted for at least five more years, either via the original warranty or an extended warranty if the car is offered through a dealer certified used-car program. Outside of the battery, there are fewer parts to age and wear out: no engine, no fuel pump, no muffler, and no catalytic converter.
Bloomberg found a cream puff 2015 Nissan Leaf for $12,000 on Cars.com with just 5,500 miles and a battery warranted until 2023. (It’s sold.) Its range when new was rated at 84 miles, but the current 2018 Leaf is rated at 150 miles, and within 24 months there’ll be a 200-miles-plus Leaf. That used example was an outlier because of its low mileage, but there were many in the same range with 20,000-40,000 miles.
While the price falloff seems high, remember many EVs were sold with $7,500 federal tax credits and some state rebates of several thousand dollars. So a four-year-old $40,000 EV that cost $32,500 after the tax credit has an actual residual of 30 percent relative to the selling price.
A three-year-old Nissan Leaf EV may sell for $12,000, just one-third its original price. The battery? It’s warranted until the early 2020s.
Contrarian Thinking Works for Gasoline Cars, Too
While we’re at it, conventional wisdom can be turned on its head dealing with mainstream cars. To wit: Leasing a new car works best when it has a very high residual value. The lease amount is actually on the loan on the difference in value between the car when new and 24 or 36 months later. According to KBB, in the 10 vehicles for model year 2017 holding their value best were pickups, SUVs, and a Subaru, retaining 72-55 percent of value after three years, and 58-47 percent after five years:
- Toyota Tacoma (best overall)
- Toyota 4Runner
- Chevrolet Silverado
- Jeep Wrangler
- Toyota Tundra
- Chevrolet Colorado
- Honda Ridgeline
- GMC Sierra
- GMC Canyon
- Subaru WRX
For comparison, the best EV for resale value was the 2017 Chevrolet Bolt EV. But its 36-month residual is just 30 percent, and the five-year residual 18 percent. To make the new car lease a good deal, the automaker may use market development funds to subvent (underwrite) some of the lease cost.
Separately, if you’re looking at a used car, look for ones whose residuals are well below the norm, but with good reliability records. Also look for ugly ducklings (today’s counterpart to the Pontiac Aztek), sedans in general (hemorrhaging market share), and cars from companies that oversold into the rental market. There are lot of rentals and lease cars coming back in 2018.
Tech features generally command lower residuals than the rest of the car, so you’ll do well looking at vehicles with lane departure warning, blind spot detection, and adaptive cruise control.