FYI: Car leasing is experiencing a resurgence, driven largely by the electrification wave and favorable tax incentives, particularly in Germany.
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Until recently, car leasing was on the decline, but it’s making a significant comeback thanks to electric vehicles (EVs) and beneficial tax credits. Premium EVs, especially in Germany, are being leased at unprecedented rates, driven by these fiscal advantages.
### The Surge in EV Leasing
J.D. Power data reveals that Audi, BMW, and Mercedes-Benz are leading the charge in EV leasing across the industry. In the first quarter of this year, leasing accounted for nearly all of these automakers’ EV sales. Audi hit a remarkable 94% leasing rate for its EVs, followed closely by Mercedes-Benz at 93% and BMW at 89%. These figures reflect a more than 20 percentage point increase in leasing share year-over-year for these brands.
### Tax Credits Fueling the Boom
A significant factor behind this leasing surge is the EV tax credit. Typically, only 15 financed EV models qualify for the $7,500 federal tax credit, with prices ranging from $51,000 to almost $200,000. Consequently, many German-made EVs fail to meet the criteria. However, a loophole in the Anti-Inflation Act classifies leasing as a “commercial business,” allowing nearly all leased EVs to qualify for the full $7,500 tax deduction. This incentive has propelled Germany’s luxury EV sales and helped dealerships move vehicles that might otherwise remain unsold.
### Dealership Insights and Strategies
A vice president of sales and marketing for Mercedes-Benz Financial Services explained that the leasing option allows customers to test the latest technology and return to dealerships sooner than they would with a traditional loan. “The only real difference between the programs right now is the tax benefit offered for leasing,” he noted.
### Challenges Remain
Despite the benefits, leasing an EV isn’t without its downsides. According to Auto News, a three-year lease for an EV costs $1,800 more than for a gas-powered car. Even with vehicle price savings, incentives, and tax credits, some customers remain hesitant to switch to EVs. Pat Prim, a partner at Cascade Automotive Group’s Audi dealership in Cuyahoga Falls, Ohio, stated that many customers don’t even want to discuss EVs.
### Inventory Piling Up
Cox Automotive data indicates that EV inventory is increasing as sales slow, resulting in vehicles sitting on lots longer—an average of 104 days—compared to gas-powered cars. Tom McParland, an expert in car buying, emphasizes that leasing might not always be the best option for acquiring a vehicle.
### Conclusion
While EV leasing is on the rise, largely due to advantageous tax credits, it comes with its own set of challenges. The automotive landscape is evolving, and dealerships are adapting to help customers experience new technologies. Nevertheless, some consumers remain cautious about making the electric switch.
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Donald Smith, Editor of Automotive.fyi
