Should You Buy or Lease a Plug-in Car?

When the Chevrolet Volt and Nissan Leaf were launched in December 2010 as the first of the new generation of mainstream-priced plug-in cars, some early adopters were prepared to ante up full price and more, and they made sure that they purchased, avoiding a lease.

Leasing was offered and some consumers went that route, but some EV advocates stung by the memory of General Motors’ lease-only EV-1s – crushed in the early 2000s after they’d been recalled – opted to buy.

General Motors EV1.

General Motors EV1.

This minority line of thinking may still linger for a few, but really, the proverbial horses are out of the corral. While internet “trolls” will occasionally drop in on GM-Volt.com and ominously declare disdain and hatred for GM and the Volt, and claim insiders told them GM is thinking of discontinuing it, the Volt remains available for lease or purchase – and a second-generation model is due also.

Overall, the new breed of all-electric and plug-in hybrids begun just a few years ago are increasing in sales, their makers have all lined their trophy cases with high consumer approval ratings and review accolades, and more models are coming along.

Whether the best decision now is to lease or buy need not be based on fear of the plug-in car industry dying in the cradle, but there are still more than the usual considerations one must weigh in deciding to go one way or the other.

Leasing 101

Before we get to that, understand: plug-in cars are still cars. They are depreciating consumer goods, not assets likely to increase in value – though if anyone presented a preserved EV1, this might be an exception.

Otherwise, the same rules apply as would in any car lease contemplated.

Speaking of the general car market, around 20 percent of consumers lease their cars, and the majority choose to buy.

Leasing may make sense for tax considerations for individuals in certain situations, for those who like a new car every few years, and as is the normal case, being that a lease is a glorified long-term rental, you are not tied to a car after the term ends.

Ford Fusion Energi.

Ford Fusion Energi.

Do be aware of the actual capitalization cost in a given lease contract, and lease rate – essentially interest charge – as well as any hidden fees. Dealers have been known to monkey with numbers to pad their profits, and egregious rules may apply legally – such as in Texas where a leased car is taxed on the full sales price.

Make sure a leased car is well insured also, as one that’s damaged and not fully covered by your insurance company leaves you on the hook for the balance.

We’ll link you to cost calculators the makers of the top half dozen plug-in cars sold offer, but be sure to shop around.

The Case For Buying

Regardless how bad memories were for some over the EV1, unlike gun enthusiasts defending their rights, we’ve never seen a Nissan Leaf with a bumper sticker that reads: “They can take my EV from me when they pry it out of my cold dead hands.”

Even so, purchasing a car can be nice – though remember you do not “own” unless you pay cash, and a car being financed is not fully yours until it is paid off.

But you can do things like personalize a purchased car, perhaps with accessories, or different wheels, or maybe you just like the idea of having something you control.

C-Max Energi.

C-Max Energi.

You can keep the new-tech car till it’s a relic, or sell it or trade it in if you want. And you can drive the car as many miles as you want, with no mileage penalties which could erase any financial advantage of leasing.

And to be sure, it is ultimately a financial decision. EVs and PHEVs are all subsidy eligible on the federal level, and states offer incentives in some cases too.

Assuming your income tax situation lets you capture maximum available benefit, a purchase can be the better way to go.

Comparing all foreseeable front end and back end costs is the balance sheet method to determine what makes better sense for your budget.

SEE ALSO: Should You Buy a Plug-in Hybrid?

Unless a special lease deal is available, purchasing can make financial sense. The standard current lease deals compared to purchase deals offered by Chevrolet, Nissan, Ford, and Toyota are not especially inexpensive.

As for Tesla, it does not offer a lease. It does offer a hybrid form of financing that lets you “put” the car back to Tesla after 36 months and before 39 months, but you otherwise can only buy it.

Tesla_Store_King_of_Prussia

As part of your due diligence, you will want to check resale value services to estimate what you think the car will be worth 3-5 years down the road.

Standard lithium-ion battery warrantees are usually 8 years/100,000 miles and are in place to relive consumer concerns.

It’s expected also an aftermarket for replacement batteries and components will continue to grow. Owners of the Toyota Prius regular hybrid which has been in the U.S. since 2000 have long-since had some options, including upgrading to a larger battery and converting to plug-in.

What’s more, the cost per kilowatt-hour of lithium-ion batteries is expected to keep coming down.

Thus it truly is conceivable someone could keep a first-generation EV or PHEV going for as long as a conventional car.

All their manufacturers have engineered them for acceptable durability, so the prospect of making one a keeper is not out of the question.

The Case for Leasing

A lease may make sense on a purely dollars and sense basis – for example, if you go for advantage one of the super low deals on Nissan Leafs offered in places like the San Francisco Bay area, or even take advantage of Nissan’s own $199-$299 lease deals.

Leasing also caters to the person unsure about the future.

We know what happened to the Sony Betamax and Pioneer LaserDisc – two worthwhile products that were superceded by more popular alternatives.

Honda's limited-market Fit EV is lease only.

Honda’s limited-market Fit EV is lease only.

Potential issues with EVs and PHEVs to decide about include improvements that are likely to come along.

It’s believed, for example, the all-electric range for the Leaf will be upgraded in coming years — especially if Nissan wants to stay competitive and Tesla manages to pull off its $35,000, 200-mile range electric sedan maybe around 2016. And the Chevy Volt may see generation two come along in 2015 or 2016 and GM’s CEO keeps dropping hints about how great it will be.

Likewise, the Prius plug-in hybrid, while criticized even by plug-in car advocates for what they consider too-short EV range, is also likely to be given longer range and wireless charging in 2015.

We’re not sure what to expect yet from the still-fresh Ford Fusion Energi and C-Max Energi, but these will likely be updated and improved in the key areas for which people buy these kinds of cars in the first place.

Critical factors for electric cars are: battery power, electric range, and costs. Because the current plug-in cars are all first generation, they are likely to see bigger evolutionary leaps than a mature-tech conventional car.

Toyota Prius Plug-in Hybrid.

The Toyota Prius Plug-in Hybrid’s Price was lowered recently.

Granted all products get better over time, so this is a personal decision.

Also unknown is how range may diminish in truly high mileage, several-year-old plug-in cars. The Tesla Roadster is the oldest EV in the current gene pool, and it’s done alright, but incidents have been reported.

Another issue is resale value. When GM slashed the Volt’s price this year by $5,000, where do you think that left the early adopters who bought at MSRP – or several thousand higher?

Leasing avoids lots of these unknowns because you treat the car like a disposable car, whether it is one or not.

And do you think this is just our opinion? This is the precise rationale Honda explained to us in an interview in Texas this month regarding its $259 per month lease-only Fit EV which includes a level 2 charger at that price, and is worth looking at, if you can get one of the limited-market cars.

Honda says it takes all the risk in a product it knows will be replaced with a superior one after so many years.

Beyond this, let’s not forget the more-usual financial aspects. The same rules apply: shop and see what you can find.

Last year GM had been teasing cheaper lease rates, but it appears offers are not as sweet at the moment.

Ouch! $5,191 due at signing for a 48-month lease that's twice Nissan;'s entry level with $1,999 due?

Ouch! $5,191 due at signing for a 48-month lease that’s twice Nissan’s entry level with $1,999 due?

The Nissan Leaf can be had for a reduced cost that factors in the full $7,500 federal tax credit to reduce the cap cost. The Volt lease applies the tax credit as an increase to the residual, not a reduction in cap cost. So, the Leaf lease is better in this regard. If possible, we’d recommend any eligible car you lease include a rate reduction passed on for the tax credit the lease company will get.

As the car’s owner, the leasing company can apply for it from the government and since the precedent’s already been set, you’ll ideally want this credit passed on to you, not put in the lease company’s pocket.

Aside from these considerations, you never know what you may find. We are however aware the 50-state-available Leaf in particular has been the subject of creative lease arrangements by motivated dealers in hot EV regions.

Nissan Leaf.

The Nissan Leaf’s price was slashed this year as the car got a mid-cycle refresh.

We’ve heard of deals as low as $79-$129 per month for a base Leaf S that have come and gone. These typically require a few thousand down, instead of the $1,999 down Nissan charges on its value-priced lease. A monthly payment less than an iPhone is not bad however – and then there’s the cheap operational costs …

Our view: A motivated shopper willing to call around who found a super lease rate might find it worth it to have the EV transported from states away assuming it’s much pricier locally

As for a plug-in hybrid found inexpensively somewhere, these can be driven home from anywhere in the country.

Is your local dealer not dealing? Cast a wider net.

Silver Lining

We talked about some of the potential pitfalls one risks when opting for a plug-in car but want to emphasize something people don’t always realize: Plug-in cars can be a tremendous value any way you slice it.

2013_Ford_Fusion_Energi

Unless you pay far above the 12 cents per kilowatt the federal government uses to estimate costs, electric power is maybe a quarter to a third the cost per mile than for an efficient gas car.

Charging at home is on your terms, and if you have access to charging at work – even with the standard 120-volt cord – it can increase your electric range, and may equate to free miles if there’s no cost to plug in. Range can also be extended if you have a public charger within your orbit.

What to do?

Decide what plug-in car best meets your needs and shop. Or, if your situation lets you be flexible between models, survey prices available.

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Do your homework and proceed as well informed as you can be.

There are more things to consider in choosing a plug-in car but a growing market proves they can make sense now.