Electric car lease: What you need to know

Woman charging electric car with open trunk while standing outside houseImage: Woman charging electric car with open trunk while standing outside house

In a Nutshell

If you’re considering an electric car, leasing may help protect you from risks involving the faster depreciation that can occur with electric vehicles. But with leasing, you’ll also lose out on certain tax credits that can come with buying a qualifying electric car instead.
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The financial considerations of leasing an electric car can be different from those of leasing a traditional car.

While electric cars are starting to become more mainstream, they’re still very different than their gas-powered counterparts. Benefits include a lower total cost of ownership when you look at gas savings and typically lower maintenance costs. But expenses can pile up when you consider setting up a home charging station and fluctuating charging prices.

Here are some things you need to know about leasing an electric car.

Is it better to lease or buy an electric car?

If you’ve decided you want an electric car, the next thing to consider is whether to buy or lease one. Here are some key factors to consider.

Federal and potential state tax credits

When you buy an eligible electric car, you might be able to take a federal electric car tax credit of up to $7,500. This tax credit could help offset the purchase price if you qualify. Unfortunately, you don’t get to claim this tax credit if you lease the car. But the manufacturer might choose to include the value of the tax credit in your lease by offering a lower-priced lease.

How much does it cost to lease a car?

You may also qualify for state-specific tax credits or rebates. Some states may offer tax credits for leasing while others do not. Check the U.S. Department of Energy Alternative Fuels Data Center for a full list of state and federal tax incentives for electric vehicles.

Electric car depreciation

Electric cars may depreciate faster than gasoline cars. For instance, Kelley Blue Book estimates a 2019 Nissan Leaf S with a $30,855 MSRP will depreciate by $22,400, or roughly 73%, in just five years. At the same time, KBB estimates a 2019 Nissan Altima 2.5 S with a $24,895 MSRP will depreciate by $16,010, or only about 64%, in the first five years.

This difference in depreciation may not be a big deal if you buy the car and you qualify for federal and state tax credits or rebates that offset this depreciation significantly. But while tax credits are usually applied at the time you buy an electric car, keep in mind that if the car declines in value it will leave you with a smaller trade-in credit when you want to sell it and buy your next car.

Depending on your lease agreement, you may not have to take on the risk of a car’s depreciation beyond what’s stated in your lease, with the exception of excess mileage or excess wear-and-tear charges. Instead, the leasing company would deal with the loss in value if your electric vehicle depreciates more than expected.

Battery improvements

As electric vehicles become more common, the technology that goes into their battery packs continues to improve. But, generally, as your electric car ages, the battery’s range decreases.

If you’re hoping to sell your car down the road, an older battery and decreasing range may lower your car’s worth. But if you decide to lease, you and your dealership should set the residual value ahead of time, which might work in your favor.

Further consideration with electric car leases

Besides depreciation and technology innovation, keep in mind that electric cars also have real limitations that traditional cars do not.

Range limitation

Electric cars can only drive so many miles before they run out of battery power. Cars with shorter ranges, such as the 2019 Nissan Leaf’s 150-mile range for its 40-kWh battery, may limit you to local driving only.

Cars with longer ranges, such as the Tesla Model 3 Long Range’s 310-mile range, can make longer trips.

In any case, you’ll want to plan ahead for your drive to make sure you can access recharging stations if your trip exceeds the car’s range limitations. While charging stations are becoming more common, they aren’t nearly as common as gas stations.

Battery charging and degradation

When you have an electric car, you need a place to charge it. So you need to have parking near an electric outlet. You might be able to charge your car with a standard outlet in your garage, or use faster charging methods, called Level 2 charging, but this requires a 240-volt outlet. Chances are you don’t have one of these near your parking spot, so you’d have to pay an electrician to install one if you’re in a neighborhood or building that allows it.

And just like your cellphone battery’s life slowly decreases over time, your car’s battery will do the same. That means the range you can drive will shrink over time. If you operate the car in less-than-ideal situations, the battery life may be shorter as well. This is especially true in extremely cold temperatures. 

Should you lease a new or used electric car?

It’s possible to lease used cars rather than new cars. But finding a used electric car to lease may prove more difficult than finding a traditional used car you can lease. If you do find a used electric car to lease, there’s one major difference you’ll want to pay attention to.

If your battery life starts to falter, you may be responsible for repairing or replacing it, unless your lease warranty covers that cost. Due to the high cost of replacing a battery, you’ll want to make sure the car is under warranty — or that you’re prepared to pay for the cost of a new battery.

Otherwise, leasing a used electric car is much like leasing a used traditional car. Learn more about used-car leasing to determine if it’s a better option for you than leasing a new car.

What’s next?

If you’ve decided an electric car is for you, it’s time to take the next step in the process. You should read up on the leasing process to help you get the best deal possible if you’re planning to lease an electric car.

If you’ve decided to buy a new electric car, make sure you understand the process of buying a new car. Finally, you may want to consider buying a used electric car to save some money. If you do, you should read up on the used car buying process.

About the author: Lance Cothern is a freelance writer specializing in personal finance. His work has appeared on Business Insider, USA Today.com and his website, MoneyManifesto.com. Lance holds a Bachelor of Business Administration in … Read more.