Why Most Electric Cars Are Leased Instead of Bought

When purchasing a car, there are numerous choices to make, such as color, engine type, audio system, and after-service options. These decisions are often deliberate, but an important yet often overlooked factor is the residual value. This refers to the car's market worth after use, and whether you’d be able to sell it at a reasonable price. This is where electric vehicles (EVs) currently fall short; second-hand EVs are not as readily available, making it difficult for prospective buyers to resell their vehicles.

Residual Value and Second-Hand Market

The second-hand market is crucial to the economic feasibility of buying a car as a second-hand buyer must factor in the resale value of the vehicle. In the case of EVs, the lack of second buyers poses a significant challenge. As new technologies evolve, the resale value of these vehicles is uncertain, leading to a lack of trust and reliability among consumers.

Trust and Reliability

A significant factor to consider is the trust and reliability of the company. Since electric vehicle technology is relatively new, there is a concern about the longevity and maintenance of these vehicles. This uncertainty can deter potential buyers, as they are hesitant to place their trust in a technology that may not be as reliable as they would like.

Behavioral Factors:

Behaviorally, today's consumers are more inclined to replace their vehicles more frequently than ever before. This is especially true for leases, where the demand for traditional cars has surged due to the convenience and affordability of leasing. Leasing allows for more regular upgrades, aligning with the preference for fresh, new technology and shorter duration ownership.

Leasing vs. Buying: The Battery Factor

The behavior of batteries can also influence the decision between leasing and buying. Many EVs rely on Lithium-ion batteries, and unfortunately, these batteries degrade over time. As a result, the range and performance of an EV can diminish, making the vehicle less valuable over time. Without proper battery management, the battery's health could become a ticking time bomb, leading consumers to prefer leasing to avoid commitment to a potentially declining asset.

Example: Tesla

Within the realm of EVs, Tesla is often an exception due to its superior battery technology and more reliable performance. In an article I wrote on the longevity of Tesla batteries, I discussed the extensive care and design that go into preserving battery health. However, even for Tesla models, the rapid advance of battery technology means that the decision to lease or buy needs careful consideration.

Cost-Efficiency of Leasing

Another factor that leans towards leasing is the affordability. Certain EVs, like the Tesla Model S and Model X, can be quite expensive. Leasing these models can provide more affordable monthly payments, making them a more appealing option for many buyers. As of April 2019, even the Tesla Model 3, which is the most affordable Tesla model, offers leasing options, making it even more attractive.

Ultimately, the decision to buy or lease an EV depends on individual circumstances and preferences. To make an informed decision, potential buyers should take advantage of opportunities to test drive both Tesla and non-Tesla EVs. This will help in understanding the value and performance of the vehicle in real-world conditions.

Conclusion

If you're considering purchasing an EV, it's essential to weigh the benefits of leasing against the potential drawbacks of owning. Leasing can offer a more flexible and cost-effective solution, especially for those who prefer more frequent upgrades. Whatever your choice, ensure you do your research and due diligence to find the best option for your needs.

References

For a more detailed discussion on Tesla battery longevity, you can read my answer: How long does a Tesla battery last before replacement.