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Why do companies Lease EV at loss

Sat Feb 25, 2017 5:32 pm

In the USA , it looks lie a trend now
Most EVs are not sold cheap , but leased cheap.
e.g a 40K EV will be leased quite cheap by assuming the cars value will be 37K after 3 years , hence the lease will be cheap

Why do they do this. Virtually no one will buy a less range 3 years old lease car for 37 k , when new improved is 40 k , hence most will return them
Its like then will be able to push the losses to the Lease arm , after 3 years.

Why do they do this. Why cant simply sell the new EV cheaper now for 35K
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Re: Why do companies Lease EV at loss

Sun Feb 26, 2017 2:51 am

My guess is to increase sales so that they earn valuable CARB credits that allow them to sell more ICE vehicles and to help them meet EPA fleet average fuel consumption requirements. I.e., their losses on cheap leases are compensated by their sales of profitable ICE vehicles that would not be possible without them buying CARB credits from EV manufacturers with excess credits (e.g., Tesla).

There may also be manufacturer tax benefits that favor leases over sales, but that's a pure guess.

I have read opinions that leases are insured against losses, but what insurance company would insure against losses that are guaranteed to occur with such cheap leases?

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Re: Why do companies Lease EV at loss

Sun Feb 26, 2017 5:34 pm

A lot of factors go into pricing a lease on an EV in the United States. Among the factors are:
- The MSRP is likely inflated due to the Federal Tax Credit. Find a "true" price for anything when subsidies exist is difficult, but you can pretty safely assume that the MSRP of EV's would drop in the US if the Federal Tax Credit were to go awaty
- The leasing company "buys" the vehicle from BMW NA at an internal price that is lower than any price a Dealer could get the car for. This is due to the fact that the transfer of ownership is internal to the OEM (the financing company is likely a different entitity, but rolls up to the OEM at some level). Since the financing company generates some profits on the lease (e.g. financing charges, lease initiation fees, disposal fees, transfer fees, etc.), not all the profit has be generated with the "sale" of the car to the dealer on behalf of a customer.
- The leasing company receives the full Federal Tax Credit (they generate enough profit to get the full credit). The leasing company may also get State tax credits (depends on the state).
- If the car is leased in a CARB state (California plus about 10 other states), BMW receives "CARB Credits" that have a value of ~$8,000-$10,000. By receiving these credits, BMW can also sell ICE vehicles that they would otherwise have to buy credits to sell. Note this is one of the sources of income for Tesla - they sell every CARB credit they receive since they do not sell ICE vehicles. This is estimated to be on the order of $200M/year.

So, if you add up all those points, its likely that BMW is not losing money on the i3 leases (nor are other manufacturers losing money on their EV leases). In fact, if you add up all the various incentives, you'll probably find that BMW is making a "profit" on leasing EV's at an apparent loss.

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Re: Why do companies Lease EV at loss

Sun Apr 09, 2017 9:59 pm

ok , thanks for insights.

I believe this model of estimating Residual value like 3 years in advance is breaking down.
Not just for EV.
like in US , lot of cars were sold few years back, and the market rates are going down for alll cars 2-3 years old.

currently, the lease companies are not really reducing the residual value to market rate. They are taking the losses by auctioning the cars or giving sale discounts to dealers. They will give little discount to the customer directly.

eventually something has to give way, when the losses increase too much.
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Re: Why do companies Lease EV at loss

Sat Nov 10, 2018 2:00 pm

e.g a 40K EV will be leased quite cheap by assuming the cars value will be 37K after 3 years ,
I don't think this is accurate at all, a $40K leased car isn't going to have a value of $37K after 3 years. And no BMW dealer on the planet is going to lease out a $40K car for $83 a month. ($40K - $37K= $3,000 payments over 3 years, or $83.33 a month)

For example - a 2018 BMW MSRP $38,695 230i Coupe can be leased right now from BMW for three years - at the end of which the purchase option value is stated as $20,508. And as a lease-return, it will likely be auctioned off to a used car dealership for less than that, and sold on their lot for under $20K.

The 3 year old i3 lease return I just bought retailed for $55K new (Dealer window sticker still in the glove-box). I bought it from an auto broker, who bought it at auction. I payed roughly 30% of the original list price for it, and it only had 9,600 miles on it.
Mark H.
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