Leasing a New EV Is Better Than Buying One. Here’s Why

Conventional wisdom has long held that buying a car is better than leasing one. Buying a car means making a higher monthly payment in the short term. But you don’t have to keep paying for a new vehicle in perpetuity and you receive an actual asset on the back end.

The car world, however, is entering perhaps the most significant change in its history with the switch to electric propulsion. A lot of conventional car wisdom will be turned on its head. And right now, particularly with electric vehicles, it may be a better idea to lease than buy. Here’s why.

EVs are going to conquer the car market

We know EVs will take over for combustion vehicles. It won’t happen overnight; combustion cars will linger in the market for decades. But eventually, the vast majority of vehicles will be electric. And we know battery tech is in its infancy. Future EV batteries will be less costly and cumbersome, deliver longer range and charge more quickly.

toyota

But no one knows what that means for the used car market yet

What we don’t know about the EV transition is how and when it will play out and — significantly, if you are buying — how it will affect used car values. It’s possible EVs could hold value like classic combustion cars. But it’s also possible that used EVs with degrading batteries will plummet in value like your old iPhone. Huge developments like Toyota implementing solid-state batteries could be far more impactful than a new charging port and an upgraded camera.

Leasing an EV lets you escape that uncertainty

If you’re buying an EV, you will obtain a future asset. But you have no idea how valuable that car will be in five years and to whom. Leasing an EV lets you offload that uncertainty to the dealer and reenter a more mature EV market in a few years when there should be more and more affordable EV options.

Courtesy Ford

Leasing an EV is also a loophole to get a federal tax credit

The Inflation Reduction Act placed all sorts of restrictions on vehicles and individuals for claiming a $7,500 federal tax credit. The car has to be assembled in North America and meet convoluted battery and technical requirements. It must cost less than $55,000 for cars and $80,00 for trucks and SUVs. Only 15 EVs currently qualify.

Individual eligibility is limited by income; you must earn less than $150,000 annually ($300,000 for couples). And the credit is non-refundable, so you must owe $7,500 on your taxes to receive the total amount.

Leasing works differently. A lease is technically a commercial sale to the leasing company or dealer. That entity just gets a $7,500 federal tax credit for any EV without the onerous requirements. The leasing company is then free to apply that credit toward giving the buyer — regardless of income — a $7,500 discount (though there’s no obligation).

In short, buying a Hyundai Ioniq 5 earns you no federal tax credit. But leasing it is likely to get $7,500 credit applied to your lease, enough to knock more than $200 off the monthly payment.

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