"Lease" a new EV/PHEV for free every 1-2 years?

Discussion in 'General' started by Chris12, Apr 12, 2018.

  1. Chris12

    Chris12 Well-Known Member

    I've seen countless articles which say that 80% of EV drivers lease and that leasing an EV is the smartest way to go. However, it seems like there is a "smarter" way to get into an EV: buy it using dealer discounts/EV tax credits, then sell it 1-2 years later right before the residual value equals what you paid for it. What I'm wondering though is whether this "smarter" way is actually smart, or if I've overlooked something and this way is actually quite dumb.

    Here's an example of what I mean: according to Edmunds, the residual value of a Honda Clarity PHEV (base) after 36 months and 15K miles a year is 44% or $15,087.60. While depreciation is certainly not linear (it happens faster in the first year than subsequent years), that's an average annual depreciation of 18.67% (56% depreciation/3 years) or $6,400.78 per year. So, let's say that one were able to buy a 2018 Honda Clarity PHEV right before the end of the 2018 model year for $30,000. In the New York City area, the math would work like this:

    $30,000 x 1.08875 (8.875% combined state and local sales tax) = $32,662.5
    - $1,700 NY State EV rebate = $30,962.50
    -$7,500 Federal EV tax credit = $23,462.50 total

    At this price, it would take 1 year and 8 months of average annual depreciation for the value of the car to drop to its purchase price.

    So my question then is: instead of leasing, why not buy the Clarity, then sell it 18 months later for slightly more than you paid for it? Or sell it 20 months later for the exact same amount you paid for it? Then just use that money to buy the next EV/PHEV of your choice, and rinse and repeat until the government turns off the tax credits/rebates? In effect, this seems like a way to lease an EV/PHEV for free every 18 or so months.

    By the way, the math seems to work similarly for the VW e-golf and Chevy Bolt. Either by using the Edmunds residuals for the e-golf and Bolt, or the KBB projected depreciation for these cars, or by just looking at the KBB value of a 2016 e-golf or 2016 Volt, it seems that if 1.) you can get a decent dealer discount, and 2.) you qualify for the federal tax credit and state tax rebates, then you can buy these cars and sell them 18-24 months later for the same amount or slightly more than you paid for them.

    Would this be wrong? Would this be fraud? Would this be stupid?

    You'd be increasing the amount of EVs in circulation.

    There appears to be no limit to the number of times you can claim the federal EV tax credit.

    If there's an ethical/political problem with "stealing" other working people's tax dollars, my response would be that we should just raise taxes on Goldman Sachs to pay for it (or better yet, cancel the massive corporate tax give away that occurred in December).

    The 1% buys a new car every year. This way, "the people" can too.

    In all seriousness, the reason I'm thinking about this is not because I'm trying to game the system or get a free car, but because I want to get an EV or PHEV, but there are none available right now that I feel would be a wise 10 year investment. PHEVs: my suspicion is that after the 5th year of ownership their elegant double-powertrains become very expensive. EVs: high sticker prices, rapid depreciation, often no or poor thermal battery management. So the car you buy today is a fraction of the car you own 5 years from now. And if you wait 5 years to sell it, good luck getting anything close to a decent sized down payment towards your next car. Hence my recent thinking that the way to do it is to just buy and sell an EV every one to two years.

    If this plan is stupid, that won't hurt my feelings - I'd like to know. My backup plan is to buy a used Leaf or Chevy Spark for 7K, use it only as a commuter car for 5+ years, and resign myself to the idea of taking my wife's CRV everywhere else....
    BillLin and xcel like this.
  2. xcel

    xcel PZEV, there's nothing like it :) Staff Member

    Hi Chris:

    Nobody is going to buy a used PHEV for the same price they can buy a new one for. The second owner does not receive the Fed or State tax credit/rebate so there would be no benefit to buy used for the same price or more than a new one.

    The reason it makes sense to lease a BEV is because a BEVs depreciation can be as high as 75 percent in just two to three years. An outright purchase and you lose.

    Jay and BillLin like this.
  3. Chris12

    Chris12 Well-Known Member

    Hey Wayne, I guess I was assuming that, while a private sale might be tough, somewhere like CarMax might buy it?
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  4. xcel

    xcel PZEV, there's nothing like it :) Staff Member

    Hi Chris:

    CarMax will have to sell it for a profit to someone that will not have the ability to take the credit and rebate either. They will not take it for nearly the amount that you would need to cover the new price minus the credits.

    BillLin likes this.
  5. Chris12

    Chris12 Well-Known Member

    Yeah, that's a good point. If CarMax low-balls you, and Jimmy Craigslist low-balls you, then you're stuck with the car. Kind of like that handful of used Ioniq EVs selling for 29K...
    xcel and BillLin like this.
  6. BillLin

    BillLin PV solar, geothermal HVAC, hybrids and electrics

    I like creative thinking , even if just for the mental exercise.

    One problem, at least in MA, the state rebate is limited in available funds and a minimum of 3 years registration is a condition of the rebate.

    Getting one of the lightly used BEVs may be a good alternative. Often 2 model years old and with very low mileage.
    xcel likes this.
  7. Chris12

    Chris12 Well-Known Member

    Thanks, Bill and Wayne, for your thoughts. I agree that there are several potential problems with this: regardless of what KBB says the value of your used EV is, potential buyers won't actually buy your used EV if they can get a new one for practically the same price; improved tech in future EV models would probably drive down the resale value of your current vehicle, etc. And Bill, I've been told NY State has the same 3 year rule on the rebate (though I haven't confirmed this).

    And yet, here's another example of what I'm talking about: the VW e-golf (SE).

    In some parts of the country, at least until about a month ago, people have been getting $8-9K of msrp. Combine this with the tax credits/rebates, and you have a situation like this:

    $22,000 (sticker price) x 1.08875 (NY state/local area sales tax) = $23,952.50
    - $9,500 (Federal Tax Credit + NY State Tax Rebate) = $14,452.50 (total price)

    Right now on KBB, a 2016 VW e-golf SE, with outdated battery tech (the older, 83-mile battery), has a trade-in value of $13,071 and a private party value of $14,873. So if you can get someone to buy your 2 year old used e-golf private-party, you break even/make a few hundred bucks. Or, if you instead trade in your used e-golf (assuming the dealer honors the KBB price), then your 2 year "lease" has only cost you $1,381.50. At this rate, you'd only be spending $2,072.25 every 3 years, and I don't know of any EV leases, even in California, that only cost $2,000.

    But so who would actually buy your 2 year old used e-golf for $13K-14.5K when they could just buy a new one? My answer would be people who either 1.) don't qualify for the tax credits/rebates, 2.) aren't being offered the $8-9K dealer discounts that you got, or 3.) both. In other words, people who could only get a new e-golf for say $21K, and who therefore see your used $13K-14.5K e-golf as a bargain.
    xcel and BillLin like this.
  8. Chris12

    Chris12 Well-Known Member

    Anyway, regardless of whether this math would work out in real time, what do you guys (or anyone else) think about this statement from my original post:

    "PHEVs: my suspicion is that after the 5th year of ownership their elegant double-powertrains become very expensive."

    Is this an accurate assumption about PHEVs? On the one hand, the reliability of the Chevy Volt and Prius Plug-in seem to have held up over the last 7-8 years. On the other hand, it seems that the PHEV is by its very nature prone to reliability issues by the simple fact that it's 2 powertrains crammed into one platform. Like if an EV has 1/3 of the parts of a PHEV, then shouldn't cars like the Chevy Bolt or VW e-golf actually be more reliable (less expensive to maintain after 5+ years) than the Honda Clarity PHEV, despite Honda's normal reliability advantage over Chevy and VW?
    xcel and BillLin like this.
  9. BillLin

    BillLin PV solar, geothermal HVAC, hybrids and electrics

    I'm betting on the Prius Prime lasting a lifetime of use with fewer repairs than the regular Prius hybrid and ICE cars, but more repairs than a BEV. I do expect the battery to degrade from calendar years. I trust Toyota's engineering to keep the battery in good shape no matter how we use the EV range though we're still going to use our knowledge of batteries to not kill the battery from heat and overcharging. It will never over discharge because of the bottom reserve used for charge sustaining mode (hybrid mode when the battery is "empty").

    My rationale is based on my ownership of the first gen Prius Plug-in (25% EV miles overall in my use without even trying to make full use of the EV mode) and 2010 Prius before that and the fact that the ICE in the Prime runs less though still regularly gets a workout so the gas engine is not going to fail from disuse.
    EdwinTheMagnificent and xcel like this.
  10. 08EscapeHybrid

    08EscapeHybrid Moderator

    If you're playing the depreciation game, it is better to buy the new model as soon as it comes out, instead of late in the model year. If you buy it late in the year, that first annual depreciation hits you quite quick.
    EdwinTheMagnificent, xcel and BillLin like this.
  11. Jay

    Jay Well-Known Member

    Any battery powered car has hot and cold weather limitations that a conventional ICE doesn't have. Hot weather will decrease battery life and cold weather will suck the charge out of the battery via self-discharge. If you live in an area without weather extremes, a PHEV would probably serve you well and be very reliable. Where a PHEV becomes expensive is depreciation. Much of the used car market is garageless so what good is a PHEV to them? Those that have garages don't want the battery liability. There's another factor in depreciation that PHEV and BEV owners don't consider and that's the lack of used parts or the locked-down nature of the parts. For example, if I have an expensive part fail on my aging Acura RSX, there's a good chance I can find a replacement in a wrecking yard and get the car going again cheap. My car retains resale value because of this parts availability. PHEV and BEVs lack this ready source of used parts. Teslas, especially, are locked down so that if you find a spare part in a wrecking yard, it won't work because it has to be flashed in with a proprietary dealer tool and the cost of the flashing is prohibitive. Even Tesla door handles (which are high-failure items) have to be flashed to work. Tesla used car prices suffer accordingly.

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