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

Discussion in 'Clarity' started by Kieran973, Apr 12, 2018.

  1. Kieran973

    Kieran973 New 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....
     
  2. iluvscuba

    iluvscuba Active Member

    The question is, why would anyone buy your used car at the price you want (which you think is around your original purchase price) when they can buy a new car that is around the same price (provided that rebate/tax credit is still available)
     
  3. Atul Thakkar

    Atul Thakkar Active Member

    In Canada, ON, they are smart. They Give $ 13000/- discount but with a condition that you at least have to own/lease the car for 3 years or else pay back government rebate back. They have slabs for payback depending upon time lapse.
     
  4. iluvscuba

    iluvscuba Active Member

    You can however buy the car and sell it in 1 year as the condition for getting the 13K rebate is 1 year ownership for purchase instead of lease. But again, if the rebate is cancelled, you won't be able to get a cheaper new EV and if the rebate is intact, the resell value will just be much lower as no one will buy your 1 year old car if your asking price is almost the same as a new car with rebate.
     
  5. Viking79

    Viking79 Well-Known Member

    Exactly, and imagine if you paid $4000 less than MSRP? People have been doing this with Volts for a while.

    There is always a buyer willing to buy a nice used car that might not be eligible for tax credit, and sometimes it is nicer not to deal with that. Low mileage used cars are also generally very reliable (maybe more reliable than new cars as they have already had recalls and defects from manufacturing fixed).

    I just bought a nice used off lease 2015 BMW i3 REx with 5500 miles for about $23k to replace my 2012 Volt. For one, those cars don't have the great deals in Iowa that they do in CA, so I can't get a new one anywhere near that price locally, but I am still getting a basically new car for $30k off MSRP, but maybe only $10k off what someone would have paid in CA with all the deals, credits, etc.
     
  6. Domenick

    Domenick Administrator Staff Member

    To echo everyone else (I think), the market takes incentives into account on the used market. It's part of the reason some people think EV/PHEVs have low resale value. Take the price when new, subtract $7,500, and then use your depreciation percentages and that should be actual used market price.
     
  7. sniwallof

    sniwallof Active Member

    NY requires three years ownership. If you sell sooner than 3 years, you have to pay the $1,700 back to NY state.
     
  8. Atul Thakkar

    Atul Thakkar Active Member

    No. The rebate value is priced per year of ownership. As soon as owner ship transferred , YOU have to PAY BACK to government depending upon time of sale. It has nothing to do with what price you sell at and to whom you sell.
     
  9. HappyValley

    HappyValley New Member

    Is trade-in value affected by the federal rebate? If not, would this same scenario play out similarly by trading in a PHEV every 2 or 3 years, assuming the rebate does not go away at some point?

    It does seem like a good idea and fantastic way to upgrade!
     
  10. lorem101

    lorem101 Member

    Where are you getting this info from?

    The Guide (2096E) mentions this:
    And further down in the same doc:
    http://www.forms.ssb.gov.on.ca/mbs/...=PROFILE&SRCH=1&ENV=WWE&TIT=2096&NO=023-2096E
     
    iluvscuba likes this.
  11. S L .

    S L . Member

    It might be possible short term, but the $7,500 tax credits will eventually run out...
     
  12. BillInArkansas

    BillInArkansas New Member

    I bought my 2012 Volt for $37.5k (as I remember). I traded 28 months later, paid $15k difference for a new one (and got my second $7,500 rebate). My net “depreciation” over that time was $7,500 (after the tax credit), roughly $270 per month. Not exactly free. I had zero maintenance cost and spent around $600 on gas to go 30,000 miles, so my total cost was right at $300 per month.
    With the Clarity, I’ll get my third $7,500 tax credit in six years. I’m not sure that the math would have been a lot better had I sold the Volt a year earlier.
    The maintenance costs on the Volt (and I expect on the Clarity) were very low (zero maintenance cost for 6 years of Volt ownership, though I did buy windshield wipe fluid once - the first oil change was free and only needed every 2 years). Our 2016 Honda Pilot, bought about the same time as the 2015 Volt, had roughly $800 of maintenance in our 2.5 years of ownership. That’s a real operating cost difference that offsets some of the depreciation the PHEV’s seem to have because people don’t understand them.
     
  13. Mikep00

    Mikep00 Active Member

    Your strategy hinges on two big assumptions.

    1. Credit still available when purchasing the replacement vehicle.

    2. No material improvement in technology or no material decrease in manufacturers MSRP.

    Lose the credit and your cost for replacement goes up significantly.

    If tech improves, the resale value of your vehicle takes a huge hit. Given how much has improved in even the last 3 years, I prefer to assume my resale value will be poor when costing out my options. Better to be conservative and later surprised.




    Sent from my iPhone using Inside EVs
     
  14. Atul Thakkar

    Atul Thakkar Active Member

  15. Kieran973

    Kieran973 New Member

    Thanks, everyone, 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 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.
     
  16. Kieran973

    Kieran973 New Member

    sniwallof, if this is true, this is indeed another thing I overlooked. So this would then set your "lease" price back $1,700 if you sell less than 3 years after buying....
     
    kencoul likes this.
  17. Kieran973

    Kieran973 New Member

    Domenick, thanks for your comments - here and elsewhere. I've been learning a lot from your posts, particularly on the BMW i3 forum...

    Can I ask you a question about this? I don't understand at all how the math works if depreciation does not include the tax credits/rebates. Because take the Chevy Bolt, for example. KBB says the Bolt's 5 year depreciation will be $29,501. So if this projected depreciation does not include the $7,500 tax credit, then the Bolt's resale value after 5 years would be $36,620 - 29,501 - 7,500 = $-381. How could the Bolt be worth negative money after 5 years, or even worth $0 after 5 years? This is why I assumed that the $7,500 tax credit was already factored into the projected depreciation....
     
  18. kencoul

    kencoul New Member

    Agree with SL. I think there's no way you can trick the gov and pay less, but hey, it's still the better choice than an 8-liter Dodge.
    Cheers, Ken Guide
     
  19. Domenick

    Domenick Administrator Staff Member

    To be honest, I don't really know how KBB arrives at its values for used EVs. It looks like they might include the $7,500 in its devaluation model. I can imagine a Bolt selling for $8,000 or so in 5 years time. My remark was more geared towards those who look at a steep fall in value without taking the $7,500 tax credit in to account and thinking EVs depreciate at a much faster rate than their internal combustion counterparts..
     
  20. dstrauss

    dstrauss Well-Known Member

    It's clear that manufacturer interest in EV's is increasing, as is competition that brings. Factor in technology and design improvements, and I think you are safer to buy the 2018 Clarity on the assumption you will own it for a longer time frame, than trying to "guess" how well you can do in the resale/trade market in 18-24 months. That's not saying I wouldn't trade in two years for an updated model with "correct" software, 50% more battery and 75-100 miles EV range...:confused::D... just saying this is an auto category that may defy prediction.
     
    Johnhaydev likes this.

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