Despite still making up less than about 1% of all cars on the road in the United States, electric vehicles (EVs) continue to make progress and gain ground in popularity. Overall sales of EVs in the U.S. has skyrocketed since 2018, jumping from just a couple hundred thousand sold per year into the range of 2 million + as of last year’s data. While they might not be every driver’s cup of tea or able to replace the mystique of a classic ICE vehicle, they’re positioning themselves as a viable alternative and are showing no signs of slowing down.

In this blog, we’ll break down the costs and benefits of leasing versus buying an EV, using the Tesla Model Y Long Range AWD as an example, and offer guidance for making the best choice for your situation.

Let’s Do Some Comparisons

Let’s look at the costs of leasing, buying outright, and financing a Tesla Model Y Long Range AWD over three years.

Leasing

The Tesla Model Y is available for a lease of $299 per month for 36 months, with an upfront payment of $3,000. Over three years, you’ll spend:

1. Monthly lease payments: $10,764
2. Upfront cost: $3,000
3. Total cost over three years: $13,764

Leases often include mileage limits; in this case, you’re restricted to 10,000 miles annually. Exceeding this limit could result in penalties, making leasing less ideal for high-mileage drivers.

Buying Outright

Purchasing the Model Y outright costs around $42,000 USD. After three years, depreciation will reduce the vehicle’s value significantly. A 2021 Tesla Model Y Long Range AWD currently has a resale value of approximately $26,500, meaning you’ll lose $16,000 in depreciation.

This loss doesn’t factor in other costs like maintenance and insurance, but it does offer the advantage of ownership, no mileage limits, and no ongoing payments.

Financing

If you finance the Tesla Model Y, your monthly payment is approximately $531, which totals $19,116 over three years. After three years, you could sell the car for $26,500, potentially recouping your expenses. However, you’ll also need to pay off any remaining loan balance, which varies based on your loan terms. Financing provides flexibility but comes with additional interest costs depending on your credit and lender.

Financing Tools and Resources

To calculate the exact cost implications of financing an EV, use these tools and platforms:

1. Bankrate Auto Loan Calculator – Estimate monthly payments and total loan costs.
   
2. NerdWallet Auto Loan Calculator – Compare loan scenarios based on interest rates and terms.
   
3. Edmunds Loan Calculator – Tailored for vehicle loans with detailed breakdowns.
   
4. Tesla Loan Estimator – Calculate costs specific to Tesla vehicles, including financing options.
   
5. Cars.com Affordability Calculator – See what fits your budget for different car prices and loans.

Tax Credit Implications

One major consideration with EVs is the $7,500 federal EV tax credit.

1. Leasing: The credit goes to the leasing company since they own the vehicle. Some companies pass on part or all of this credit as a reduction in your lease payments or upfront costs. Check with your leasing company to see how they handle this benefit.
2. Buying or Financing: The full credit applies to you if you’re eligible, lowering your total purchase or financing cost.

Bottom Line

Here’s how the total three-year costs compare:

1. Leasing: $13,764 (no resale value, mileage limits)
   
2. Buying outright: $16,000 loss (after resale value)
   
3. Financing: Depends on loan terms, but often more costly than leasing when factoring in depreciation and interest.

Comparing EVs to ICE Vehicles

For comparison, consider a 2024 Honda Accord Sport, a reliable internal combustion engine (ICE) vehicle. It’s available for approximately $34,000 to buy outright or $289 per month to lease.

1. Lease cost: Around $12,404 over three years, slightly lower than the Tesla lease. However, gas costs (averaging $1,500 annually) and maintenance expenses add to the total cost.
   
2. Purchase cost: ICE vehicles depreciate slower than EVs, but higher maintenance and fuel costs often balance out the difference.

Tools for Comparing EVs to ICE Vehicles

To make a side-by-side comparison of electric vehicles (EVs) and internal combustion engine (ICE) cars, check out these platforms:

1. Edmunds Car Comparison Tool – Compare specs, pricing, and features for EVs and traditional vehicles.
   
2. Car and Driver Compare Cars – Access detailed reviews and specifications for head-to-head analysis.
   
3. Kelley Blue Book (KBB) Comparison Tool – Evaluate vehicle costs, features, and fuel efficiency.
   
4. Fueleconomy.gov Comparison Tool – Focus on energy costs, fuel efficiency, and environmental impact.

Additional Considerations to Make

Driving Habits and Mileage

If you drive more than 10,000 miles annually, leasing may not be ideal due to mileage caps. On the other hand, purchasing or financing allows for unlimited mileage.

Lifestyle Flexibility

Leasing offers the ability to upgrade to newer models every few years, which is especially appealing with rapidly advancing EV technology. Buyers, however, gain full ownership and flexibility to modify or sell the car anytime.

Long-Term Costs

Buying outright involves higher upfront costs but can be cheaper over time if you keep the car for many years. Leasing keeps monthly payments low but doesn’t build equity.

Environmental Impact

Both EVs and ICE vehicles have environmental trade-offs. EVs generate zero emissions while driving but involve higher emissions during production. Leasing short-term EVs may amplify this impact if manufacturing outpaces the car’s useful lifespan.

Bringing it All Together

The choice between leasing and buying an EV depends on your financial situation, driving habits, and priorities. Leasing can be the cheaper option over three years, especially if you drive fewer miles and want to upgrade to newer models frequently. However, buying or financing makes more sense if you value ownership, drive significant miles, or plan to keep the vehicle long-term.

Ultimately, each approach offers trade-offs, and understanding these nuances will help you make an informed decision tailored to your needs.