Why are i3 residuals so much higher in Germany than in USA?

[tiburonh]

Jazz posted this link in another section of the forum today:

http://www.motornature.com/2013/10/the-bmw-i3-will-have-the-best-residual-value-of-all-electric-cars/

DAT is sort of the Kelly Blue Book of Germany. They project that the 3 year residual value of the i3 BEV will be 53.1%, and that for the i3 REx it will be 51.3%.

Why is BMW projecting the residuals in the US to be so much lower? Do they not have faith in their own car? Are they just trying to increase the amount the lessees and purchasers on the Owners Choice plan have to finance so they can make more money through BMW Finance? Does anyone have any thoughts on this?

 

[ecoangel]

Interestingly this German figure is very similar to something like an Audi A3 or A4 TDI - what do those drop by in 3 years in USA?

 

[tiburonh]

Interestingly this German figure is very similar to something like an Audi A3 or A4 TDI - what do those drop by in 3 years in USA?

The most recent figures I could find on a quick web search showed that for March of 2013 Audi USA's lease program was quoting for the A3 a residual of 54% for a 3 year, 15K miles/year lease and 56% for a 3 year, 12K miles/year lease.

The A4 TDI isn't available in the US.

In any event, the bigger point to me is that BMW's lease programs for their other models pretty much all have 3 year residuals that are more than 50%. Again, I'm hoping someone can explain why they would quote such a low residual for the i3.

 

[Yiiikes]

All BEVs are tracking low residuals and resale value.
http://www.usatoday.com/story/money...s-depreciation-resale-residual-value/4194373/

 

[tiburonh]

All EVs are tracking low residuals and resale value.
http://www.usatoday.com/story/money...s-depreciation-resale-residual-value/4194373/

Thanks. This is illuminating.

Are German used car buyers just smarter than US used car buyers?

 

[TomMoloughney]

Part of the reason is the $7,500 federal tax credit. In the US the car is instantly worth $7,500 less when you sign the contract. Lets say you buy a base i3 with no options so it's $42,275. The real price you paid (Most folks anyway) is $34,775 because you get $7,500 back. If you live in CA, you get an additional $2,500 so the effective price is actually $32,275.

So if the residual is 39%, it's $16,487 (42,274/.39). The effective residual is really 47% which is still low, but not crazy low. If you live in CA (which is where the majority of i3 buyers will be compared to any other state) the effective residual is actually 51%.

There is a LOT of uncertainty over the resale value of EV's. Batteries are continuously improving & better models are coming out nearly every year. If in fact Tesla delivers on the Model E and in three years they have a <$40,000 hatchback that goes 200 miles per charge then how much will a three year old i3 with 50,000 miles and a range of 70 miles be worth? $15 - 18K seems about right.

 

[tiburonh]

Part of the reason is the $7,500 federal tax credit. In the US the car is instantly worth $7,500 less when you sign the contract. Lets say you buy a base i3 with no options so it's $42,275. The real price you paid (Most folks anyway) is $34,775 because you get $7,500 back. If you live in CA, you get an additional $2,500 so the effective price is actually $32,275.

So if the residual is 39%, it's $16,487 (42,274/.39). The effective residual is really 47% which is still low, but not crazy low. If you live in CA (which is where the majority of i3 buyers will be compared to any other state) the effective residual is actually 51%.

There is a LOT of uncertainty over the resale value of EV's. Batteries are continuously improving & better models are coming out nearly every year. If in fact Tesla delivers on the Model E and in three years they have a <$40,000 hatchback that goes 200 miles per charge then how much will a three year old i3 with 50,000 miles and a range of 70 miles be worth? $15 - 18K seems about right.

Thanks Tom, this all makes sense.

The odd thing is that the Federal credit in effect ends up allowing BMW to inflate the price to the initial owner by $7,500. If the $42,275 car is only "worth" $34,775 the day the deal is signed, then BMW is getting paid $7,500 more than the car is worth, with that $7,500 being transferred from the government to BMW via the purchaser.

The credit is intended to benefit the purchaser, but it perversely ends up benefiting BMW. A somewhat twisted way of looking at it, I admit. But not totally off base.

 

[TomMoloughney]

Part of the reason is the $7,500 federal tax credit. In the US the car is instantly worth $7,500 less when you sign the contract. Lets say you buy a base i3 with no options so it's $42,275. The real price you paid (Most folks anyway) is $34,775 because you get $7,500 back. If you live in CA, you get an additional $2,500 so the effective price is actually $32,275.

So if the residual is 39%, it's $16,487 (42,274/.39). The effective residual is really 47% which is still low, but not crazy low. If you live in CA (which is where the majority of i3 buyers will be compared to any other state) the effective residual is actually 51%.

There is a LOT of uncertainty over the resale value of EV's. Batteries are continuously improving & better models are coming out nearly every year. If in fact Tesla delivers on the Model E and in three years they have a <$40,000 hatchback that goes 200 miles per charge then how much will a three year old i3 with 50,000 miles and a range of 70 miles be worth? $15 - 18K seems about right.

Thanks Tom, this all makes sense.

The odd thing is that the Federal credit in effect ends up allowing BMW to inflate the price to the initial owner by $7,500. If the $42,275 car is only "worth" $34,775 the day the deal is signed, then BMW is getting paid $7,500 more than the car is worth, with that $7,500 being transferred from the government to BMW via the purchaser.

The credit is intended to benefit the purchaser, but it perversely ends up benefiting BMW. A somewhat twisted way of looking at it, I admit. But not totally off base.

Well if it's any consolation when the feds drop the $7,500 tax credit(they will eventually) then the residuals will shoot right up. If that is the case and you've leased one then it would likely benefit you to purchase it at lease end and sell it on the open market because it will be worth more than your original lease contract specified.

Yes, the tax credits and state rebates definitely benefit the manufacturers as well as the individuals, but that is part of the plan. They are there to help ease the transition into plug in vehicles, since all new technologies cost more in the beginning. I also like to use this excerpt from a recent Electric Drive Transportation Association report on why the US supports electric vehicles with tax incentives:

"Federal support is reinforcing investment in electrification because of its potential to address a grave threat to our national security: oil dependence. U.S. transportation runs almost entirely on oil — nearly 60 percent of which is imported.

Oil dependence also has enormous economic costs. We spend about $1 billion a day on imported oil. Every $10 increase in the barrel price of oil costs our economy $75 billion. Electricity is a domestic, ample and affordable alternative. So, while projections of the speed at which we will electrify transportation vary, there is no doubt that we must."

 

[tiburonh]

Part of the reason is the $7,500 federal tax credit. In the US the car is instantly worth $7,500 less when you sign the contract. Lets say you buy a base i3 with no options so it's $42,275. The real price you paid (Most folks anyway) is $34,775 because you get $7,500 back. If you live in CA, you get an additional $2,500 so the effective price is actually $32,275.

So if the residual is 39%, it's $16,487 (42,274/.39). The effective residual is really 47% which is still low, but not crazy low. If you live in CA (which is where the majority of i3 buyers will be compared to any other state) the effective residual is actually 51%.

There is a LOT of uncertainty over the resale value of EV's. Batteries are continuously improving & better models are coming out nearly every year. If in fact Tesla delivers on the Model E and in three years they have a <$40,000 hatchback that goes 200 miles per charge then how much will a three year old i3 with 50,000 miles and a range of 70 miles be worth? $15 - 18K seems about right.

Thanks Tom, this all makes sense.

The odd thing is that the Federal credit in effect ends up allowing BMW to inflate the price to the initial owner by $7,500. If the $42,275 car is only "worth" $34,775 the day the deal is signed, then BMW is getting paid $7,500 more than the car is worth, with that $7,500 being transferred from the government to BMW via the purchaser.

The credit is intended to benefit the purchaser, but it perversely ends up benefiting BMW. A somewhat twisted way of looking at it, I admit. But not totally off base.

Well if it's any consolation when the feds drop the $7,500 tax credit(they will eventually) then the residuals will shoot right up. If that is the case and you've leased one then it would likely benefit you to purchase it at lease end and sell it on the open market because it will be worth more than your original lease contract specified.

Yes, the tax credits and state rebates definitely benefit the manufacturers as well as the individuals, but that is part of the plan. They are there to help ease the transition into plug in vehicles, since all new technologies cost more in the beginning. I also like to use this excerpt from a recent Electric Drive Transportation Association report on why the US supports electric vehicles with tax incentives:

"Federal support is reinforcing investment in electrification because of its potential to address a grave threat to our national security: oil dependence. U.S. transportation runs almost entirely on oil — nearly 60 percent of which is imported.

Oil dependence also has enormous economic costs. We spend about $1 billion a day on imported oil. Every $10 increase in the barrel price of oil costs our economy $75 billion. Electricity is a domestic, ample and affordable alternative. So, while projections of the speed at which we will electrify transportation vary, there is no doubt that we must."

Got it. Thanks for the, as always, wise explanation.

Meanwhile, I got to do two test drives over the weekend. Though I will deny it when I now actually try to negotiate a deal, I am beyond sold and can't wait for the cars to arrive in the real world.

 

[mabooker76]

My opinion that the car is 'worth' $7500 less at drive-off would only be true if the Feds gave you that money 'off the top'...

From a recently reprinted article by Edmunds.com:

"Up to" is the critical modifier. The federal incentive is usually referred to as a flat $7,500 credit, but it's only worth $7,500 to someone whose tax bill at the end of the year is $7,500 or more. If the buyer of a Volt, a Nissan Leaf or other eligible vehicle owes, for example, only $5,000 in income tax for a particular year, that's all the tax credit will be. Uncle Sam's not writing a refund check for the other $2,500. And an unused portion of the credit can't be applied against the following year's taxes.

The credits also are based on the electric car's battery size. And for some models, the maximum can fall well below $7,500. The Toyota Prius Plug-in, a hybrid hatchback, only qualifies for a $2,500 federal tax credit..

The Fed site does show the non-Rex i3 at the full $7500 level by the way. An argument can be made that the car is worth $2500 'less' for Californians - that does come off the top. Bottom line for me is the residual is still too low and that the i team and financial services have some work to do...

Martin B. (who will be and i3 electronaut...)

 

[bkkanu]

Tom
Thanks for your explanation on 39% residuals, however I see that your are using $7500 as the tax credit which is true if you are buying the car but from what I read on these blogs it will be less for the lease. So $2K+ that BMW is not passing on the customer will reduce the residuals which customer end up compensating for it.
Another case can be made from Gas Engine BMW lease Vs EV BMW lease is how much $ BMW allocate for their maintenance program. They provide Free 4yr /50K service and maintenance program to customer however it must be costing them some $/yr. One of the side incentives about the EV is that there aren't that many parts that can go wrong or wear out. So on a long run EV maintenance should cost them less then Gas (providing there is no outstanding issue with their battery or motor).