Leasing Electric Vehicles: Weighing the Pros and Cons

Leasing an electric vehicle may seem like an attractive option, with the promise of reduced gas costs and enticing tax credits. However, as financial expert Jade Warshaw suggests, the financial implications of leasing an EV may not be as straightforward as they appear. In this comprehensive article, we'll explore the key factors to consider when deciding whether to lease or buy an electric car.

Unlocking the True Cost of Leasing an Electric Vehicle

The Hidden Expenses of Leasing

Leasing an electric vehicle may not be as financially sound as it initially appears. According to Warshaw, a lease is often one of the most expensive ways to operate a vehicle. Even after factoring in the cost savings from switching to electric and the federal tax credit, the overall cost of driving the car may still be higher than other options.One significant factor to consider is the tax credit. Leased electric vehicles are often classified as "commercial vehicles" under IRS regulations, meaning the $7,500 tax credit goes to the leasing company rather than the individual. While the leasing company may choose to pass on some of these savings, it's not a requirement, and the full credit may not be reflected in the lease terms.

The Rapid Depreciation of Electric Vehicles

Electric vehicles tend to depreciate at a faster rate than their gas-powered counterparts. A recent study by iSeeCars found that used EV prices have fallen four times faster than hybrids and six times faster than gas-powered vehicles, losing 24.7% of their value over the past year. This rapid depreciation can have a significant impact on the monthly lease payments, as the lessor must recoup their investment during the lease term.

Mileage Limitations and Penalties

Leasing agreements often come with mileage limitations, typically around 12,000 miles per year. Exceeding this limit can result in hefty per-mile charges, which can quickly add up. According to Kelley Blue Book, the average penalty for going over the mileage cap is $0.25 per extra mile. For example, if you exceed the cap by 4,000 miles, you'd be facing an additional $1,000 in charges at the end of the lease.

The Hidden Costs of Charging

While it's generally cheaper to charge an electric vehicle than to fill up a gas-powered car, Warshaw cautions that there are additional factors to consider. The time required for charging and the potential for higher costs associated with "quick charging" at public stations can add to the overall expenses of owning an EV.Furthermore, the upfront cost of installing a home charging unit can range from $300 to well over $1,000, excluding installation fees, according to J.D. Power. These expenses can further erode the perceived cost savings of leasing an electric vehicle.

Weighing the Alternatives: Buying an Electric Vehicle

Given the potential drawbacks of leasing an electric vehicle, Warshaw recommends considering the alternative of buying an EV outright, preferably a used model. This approach can provide greater long-term financial stability and control over the vehicle's ownership and usage.By purchasing an electric car, you can take full advantage of the federal tax credit and any applicable state or local incentives. Additionally, you'll have the flexibility to keep the vehicle for as long as you desire, without the constraints of a lease agreement.While the upfront cost of buying an EV may be higher, the long-term savings and ownership benefits can make it a more financially sound decision, especially for those who plan to keep the vehicle for an extended period.In conclusion, the decision to lease or buy an electric vehicle requires careful consideration of the financial implications. By understanding the potential hidden costs and drawbacks of leasing, as well as the advantages of purchasing an EV, consumers can make an informed decision that aligns with their long-term financial goals and driving needs.