Tesla is increasing its leasing penetration as its growth in the U.S. stalls and competition from other electric vehicle (EV) manufacturers intensifies. Analysts, including Tom Libby of S&P Global Mobility, observe that companies are driving the surge in leasing due to necessity and their financial capacity.
This shift comes in light of rival automakers leveraging the $7,500 federal lease incentive to offer attractive deals on their EV models.
After significant price cuts over the last two years, along with financing options such as a 0.9% APR for 60 months on the Model Y, leasing has emerged as a promising avenue for Tesla. The company also provides three months of free charging and a trial of its Full Self-Driving software.
Tesla’s increased focus on leasing responds to a decline in both global and U.S. sales. While CEO Elon Musk previously indicated that Tesla would surpass 1.8 million global deliveries, global sales fell by 2.3% in the first three quarters of 2024, with U.S. registrations down by 7.3%.
To strengthen its leasing program, Tesla introduced lease buyouts for the Model 3 and Model Y in November 2024, driven by consumer demand for flexibility. This option contrasts with Tesla’s earlier policy of requiring buyers to return leased vehicles at the end of their terms. It is worth noting that lease buyouts had been previously allowed for the Model S and Model X but were discontinued in 2022. The buyout option now applies across all Tesla models, including the Cybertruck, which began leasing at $999 per month.
Despite the benefits, leasing EVs carries risks, particularly regarding residual values. Libby warns that predicting future values is challenging due to the short history of EVs in the market and rapidly evolving technology. A study by iSeeCars in September 2024 revealed that used EV values fell by 25% from August 2023 to August 2024, compared to a 4% decline for gasoline vehicles. The Tesla Model 3 notably experienced the steepest value drop, highlighting risks as Tesla expands its leasing program.
However, Tesla’s strong financial position enables it to absorb potential losses from increased leasing. The company reported a third-quarter net income of $2.2 billion, an increase of 17% from the previous year, indicating it has the resources to manage the volatility tied to its expanded leasing strategy.
