Published on April 25th, 2019 | by Vijay Govindan0
If A Tesla Model 3 Lease Is House Lannister, & Owning A Model 3 Is House Targaryen, Who Will Win?
April 25th, 2019 by Vijay Govindan
I just got to season 2 of Game of Thrones. If you are not a fan, no worries, there is only one small reference to GoT at the very end.
In prior articles, I discussed choosing a Model 3 versus a Model Y. Another discussed the differences between Standard Range (SR) and Long Range (LR). I even went so far as to compare the finances of a Model 3 LR versus keeping our Odyssey minivan.
Though, a new wrinkle was introduced. Tesla now allows you to lease your Model 3. Does it make more sense to own or lease your Tesla? That is always an individual question. I’ll present arguments for and against.
Arguments for and against owning a Model 3:
- Drive it as far as you like. Who wants to be restrained to 10,000–15,000 miles a year?
- If you own the car for more than 5 or 6 years, it is more cost effective from a total cost of ownership (TCO) or annual cost standpoint.
- Keep the car as many years as you want.
- The future potential of Tesla Network allows you to rent your car out as a robotaxi when you are not there.
- Driving for Uber or Lyft is an option.
- Renting your car on Turo is an option.
- The car will depreciate (i.e., lose value) every year you own it.
- It is more expensive up front, with higher down payments and higher monthly payments.
- Maintenance will be more.
- Insurance will be less as time goes by.
Arguments for and against leasing a Model 3:
- Get the latest and greatest Model 3 every few years.
- This allows you to test an EV and see if you like it.
- Get a better Model 3 for less money if you don’t plan to hold it less than six years anyway.
- Down payments are less for a lease.
- If you drive fewer than 10,000 miles a year, it’s cheaper.
- You don’t have to worry about your car depreciating.
- Zero to very little maintenance expense.
- You can save the difference from owning and invest it.
- You can use Tesla Network, Uber, Lyft, or Turo, but that carries more risk.
- The new terms mean you have to give the car back to Tesla at the end of the lease. There is no option to buy it at the end of the lease.
- The Model 3 must be returned to Tesla in excellent condition.
- It will be difficult to take advantage of the Tesla Network.
Of course, that’s in addition to all the usual Model 3 benefits (fun to drive, lower TCO than a gas car, zero emissions, super safe, supporting Tesla’s mission, chance to use the Tesla Network, special events, referrals).
In the same spirit as my previous minivan article, I did a net present value (NPV) analysis for the SR+, whether it is better to own after 60 to 72 months or lease for 10,000 or 15,000 miles.
Some of my assumptions:
- Numbers from Tesla’s US site as of 4/19/2019
- I am comparing the base Model 3 SR+
- Interest rate used is 4.25%, same amount Tesla used
- I discounted all payments by 2.25%
- Sales tax for Texas is 6%
- All purchases receive the benefit of US tax incentives next year
- The SR+ holds 70% of its value every 3 years
- 70% at year 3, 49% at year 6, 34.3% at year 9
- These are similar numbers as the Kelley Blue Book forecast of Model 3 depreciation
- Every 3 years, you lease a new Model 3
- If you own the Model 3, you sell it after 9 years
- I accounted for down payments, monthly payments, depreciation, tax incentives, saving the difference, and selling the car
- Costs for adding a charging station were not included. (I have received quotes for a NEMA 14-50 charger from $150 to $650. It pays to ask friends who own EVs.)
- Fuel costs, maintenance, and insurance costs are not included (insurance payments would hurt the lease more, due to the higher costs of a new vehicle in years four to nine, and the lower value for insurance if you purchase).
- The charts are similar for LR AWD and Performance, just larger for every period.
The result of two days of furious calculations and re-calculations is the following chart.
What does this tell us?
First 3 years
- Leasing is cheaper the first three years, due to lower payments and no depreciation
- The lease with 15,000 miles is more expensive than 10,000, but still very affordable
- A 72-month purchase is less expensive than a 60-month purchase, due to the value of lower payments
- Depreciation is highest in the first three years
- Leasing is still cheaper than owning
- The lease cost steadily increases, due to a new downpayment
- We see the 60-month purchase is cheaper than the 72-month purchase
- This is the value of not making payments in year 6 and saving the difference
- These are the most surprising results
- The lease costs continue to climb, due to another down payment and continued monthly payments
- Purchase costs are now cheaper than leasing
- Due to the value of saved payments and selling the car, the 60-month purchase has the lowest NPV at any time in its history and lower NPV than any other option
- The 72-month purchase now has a similar cost as years 1–3
- If you really want a Model 3, the choice to own or lease depends on how long you expect to hold the car.
- If you hold the car for less than six years, leasing is the way to go (yeah, Lannister’s!).
- If you expect to hold the car for nine years or longer, owning the car after 60 months is the best choice (go, Targaryen’s!).
- I’m not a fan of the 72-month option — you save about $100 a month compared to the 60-month option but with worse NPV after year 3.
- The payments for the 72-month purchase option are very similar to the 15,000 mile lease.
- If you need more miles on your lease, the 15,000 mile lease is not much more in cost than the 10,000 mile lease.
- The 48-month purchase is not shown, but I would expect it to be cheaper than the 60-month version in year 9, with higher upfront costs.
- If you hold the Model 3 for more than 9 years, the NPV due to the saved payments will continue to reduce your NPV to zero, probably around year 12.
- Owning the car allows you to not worry about mile limitations while leasing, which can be of great benefit once the Tesla Network is up and running.
- We can’t compare lease and purchase to other EVs, as they will have different payment amounts and depreciation schedules.
International versions of the above chart will be created for the Netherlands, Norway, Sweden, and China in my next articles. After that, I will tie in the Tesla Network and how it can reduce the cost of ownership. I have the opposite of writer’s block — I have writer’s waterfall, with six more ideas floating in my head.
For our purposes, we went with the 60-month purchase option on our Model 3 LR with FSD. I have attached my calculations, found at this link.
Always buy what you can afford! There is no harm in waiting and saving.
If this article helps you decide to order a Tesla, take advantage of my Tesla referral link to get up to 1,000 miles of free Supercharging on a Model S, Model X, or Model 3. Here’s the code: ts.la/vijay59877
Or use anyone else’s who helped you with your purchase.
Disclaimer: I currently own Tesla shares. I think $TSLAQQ people and bots have a severe problem with facts and logic, not to mention antisocial attitudes, and they are generally people I actively try to avoid. This article is my opinion and is not meant to be investment, financial, or car buying advice. Please see a properly licensed financial advisor to discuss investments. Follow me on Twitter @vijaygovindan17.