Electric vehicles (EVs) are becoming increasingly popular as more models come to market and prices drop. Although let’s face it—even with the price slashed by thousands of dollars, the cost of a Tesla is still prohibitively high for most drivers.
Still, with their increasing popularity, along come the arguments for leasing EVs. And who wouldn’t want drive a shiny new car at a lower monthly payment, instead of financing it—even if the latter scenario means you’ll theoretically own it outright someday? Unfortunately, it’s not quite so simple. While there are many incentives to lease an EV, it might not be the most cost-effective route for most drivers. Here’s what to know about buying versus leasing an EV.
Buying versus leasing any car
Table of Contents
Before diving into the world of EVs, let’s review the “buy versus lease” debate. Buying a car means you own it and build equity in the vehicle with monthly payments (if you finance the purchase); leasing essentially means that you rent the car for a specific time period (typically two to five years).
When you lease, you don’t own the car. There are restrictions to how long and how far you can drive it. You’ll always have monthly costs and a lack of control over modifications to your ride. Even still, people are drawn to leasing because of (1) lower upfront costs, (2) lower monthly payments, and (3) the ability to try out a brand new car every few years at the end of every lease term.
Here’s the catch: The promise of leasing is often misleading. When you consider the total spend on car payments over the years, leasing may cost you more than buying a new car outright. So, to be crystal clear: You should probably never lease a car. That being said, there is some additional nuance to consider in the the “lease versus buy” decision when it comes to electric vehicles.
There are valid reasons to lease an EV
I’ve hopefully established by now that the tantalizing promise of lower monthly payments can be deceiving. That said, there are some unique reasons you might still consider leasing an EV.
You can choose your ideal EV model
One major advantage of leasing is it allows you to always drive the latest EV model. EV technology is rapidly advancing, with each model year offering longer driving ranges and introducing new features. Leasing enables you to exchange your EV for a new one in just a few years, so you’ll be able to upgrade to take advantage of the newest innovations. (Kind of like getting a new iPhone after your two-year cell contract is up.)
You can take advantage of EV tax credits
For 2023, there is a federal nonrefundable EV tax credit of up to $7,500 available when you buy an electric vehicle. But there are many more restrictions on that credit when it comes to buying—for both the models eligible, and the buyers who will qualify for the full value. For instance, the vehicle must be made in North America, its battery components and minerals must meet specific sourcing requirements, and the buyer’s income cannot exceed a certain amount.
Now, here’s why leasing has become such a tempting offer these days: the so-called “EV lease loophole.” Leased EVs are free from many of the strict eligibility requirements for receiving the $7,500 tax credit. This means that leasing is a savvy way to see that credit on a wider selection of vehicles. The catch: The tax credit belongs to the lessor, not to you. When the dealer claims the credit, they then have the option to apply it to your lease to lower your monthly payments. This means you could see some or all of that highly coveted tax benefit, just in a different form, like an overall reduced lease price. It’s dealer’s choice—literally—and no doubt the most compelling argument for leasing over buying an EV.
You can avoid a pricey EV battery replacement
EV batteries degrade over time and may need replacement after 5–8 years. With a 3-year lease, you won’t have to worry about this major replacement cost down the road. The leasing company will handle battery maintenance and replacement once you turn in the leased EV.
Reasons to avoid leasing an EV
Despite all the valid reasons to lease, here’s why it might not actually be the most cost-effective route in the long run.
The costs are higher than they appear
I’m going to keep belaboring this point: At first glance, the monthly payments on an EV lease might seem affordable. But the lower monthly payments will actually hit you harder over time. Once you factor in insurance (which is typically higher for leased models, as the vehicle owner will have more stringent requirements), electricity costs, and maintenance, the total cost of leasing an EV is typically much higher than leasing a comparable gas-powered car. Plus, EV insurance premiums are higher due to the vehicles’ high replacement costs.
You won’t own the EV
Leasing any vehicle means you won’t own it outright at the end of the lease term. With an EV, you’re also missing out on potential rebates, tax credits, and other incentives designed for buyers. As I mentioned above, ensuring you’re realizing the full value of the $7,500 federal tax credit is only possible if you purchase the car (and meet all those conditions).
All vehicle leases are limiting
Leasing contracts contain restrictive provisions. There are often mileage limits, and going over can result in fees of 20–30 cents per mile. You may need to keep the car in pristine condition to avoid excess wear and tear fees. Most leases prohibit modifying or customizing the car, too.
The bottom line
There are many compelling reasons to lease an EV—namely, that loophole that lets you reap the benefits of an otherwise out-of-reach tax credit. It’s up to you if all the perks of leasing do in fact override my number one anti-leasing rule: You won’t actually save money in the long run.
To maximize savings and take full advantage of EV ownership, you should purchase rather than lease your vehicle. If that’s untenable given your car-buying budget, consider a more affordable hybrid or conventional car. Either way, avoid signing an EV lease you may later regret.