R1S Lease vs. Buy - I did the math

[greyboundary]

I myself don't smile, or chuckle, or have anything to say at all for how people go about dealing with their financial decisions. It is their decision alone to make based on their circumstances. I respect that.

IN my case, I have no interest whatsoever in ever reselling either of my Teslas or my R1S. I could not care less either about how much my EVs might be worth one, two, three years down the road or right now. Heck, each might as well be worth $0 today for all I care. It matters not to me. I own them outright, and always will do so again, and again. And again.

For me, one of life's greatest satisfactions is the complete freedom from not having financial institutions, financial predators' filthy paws on my vehicles (or my home for that matter); wanting their filthy name on my vehicle title also; ordering me what to do like how much auto insurance or home insurance to get, or else we will get it for you and charge you; checking in with them every now and then; on and on and on. This is priceless. Will never have it any other way.

This is true in principle but do you ever actually want/have an insurance policy different than what they ask?

> This is priceless.
Technically it does have a price, which I know you know: "What the cash would have been worth if better spent elsewhere." Personally, I too think it's annoying to have a financial institutions name on the title. But what does it actually mean, what effect does it have in reality? I've personally flip flopped on whether that cost was worth it, but it was a fairly predictable cost actually.

Easily agree on the resale value of EVs (er, all cars) however. It's not an investment. It's an expenditure, and I've enjoyed the ones I've been able to choose.

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[bigsky]

This is true in principle but do you ever actually want/have an insurance policy different than what they ask?

> This is priceless.
Technically it does have a price, which I know you know: "What the cash would have been worth if better spent elsewhere." Personally, I too think it's annoying to have a financial institutions name on the title. But what does it actually mean, what effect does it have in reality? I've personally flip flopped on whether that cost was worth it, but it was a fairly predictable cost actually.

Easily agree on the resale value of EVs (er, all cars) however. It's not an investment. It's an expenditure, and I've enjoyed the ones I've been able to choose.

Exactly. Contrary to what many think, a car is an expense, never an investment. A home is an investment. To me it matters not what the monies might have been worth if spent elsewhere. Where and on what would one draw the line when purchasing goods and services!?
Each EV was an expense that was earmarked, budgeted for and planned.
The financial freedom, the complete independence that comes with not having any debt, car, home, credit card, loans, etc., NADA, is one of the greatest satisfactions and accomplishment imo. Nobody shall ever tell me what to do in that regard. That reality, that state of financial zen is what I mean by priceless.

 

[Hereforthesnacks]

I myself don't smile, or chuckle, or have anything to say at all for how people go about dealing with their financial decisions. It is their decision alone to make based on their circumstances. I respect that.

IN my case, I have no interest whatsoever in ever reselling either of my Teslas or my R1S. I could not care less either about how much my EVs might be worth one, two, three years down the road or right now. Heck, each might as well be worth $0 today for all I care. It matters not to me.

(Edited to cut to the chase).
My principle on financial matters like this is simple: if I cannot afford something (pay cash), I neither buy it nor need it.

If I can pay less for the same thing, I’ll take it lol. I can afford $120k. But why not pay $105 instead if it’s easy and legit?

I financed every car I bought from 2010-2021. Interest rates were 1.75%. Took the money and invested it. Paid for probably 30% of the cars with no effort. I can afford cash. But it doesn’t always make sense to do so.

Even billionaires don’t spend cash lol. They will borrow against their equityfor cheap if rates are low. This way they don’t have to pay taxes on their money. And they can afford everything!

 

[bigsky]

If I can pay less for the same thing, I’ll take it lol. I can afford $120k. But why not pay $105 instead if it’s easy and legit?

I financed every car I bought from 2010-2021. Interest rates were 1.75%. Took the money and invested it. Paid for probably 30% of the cars with no effort. I can afford cash. But it doesn’t always make sense to do so.

Even billionaires don’t spend cash lol. They will borrow against their equityfor cheap if rates are low. This way they don’t have to pay taxes on their money. And they can afford everything!

If I can pay less for the same thing, I’ll take it lol. I can afford $120k. But why not pay $105 instead if it’s easy and legit?

I financed every car I bought from 2010-2021. Interest rates were 1.75%. Took the money and invested it. Paid for probably 30% of the cars with no effort. I can afford cash. But it doesn’t always make sense to do so.

Even billionaires don’t spend cash lol. They will borrow against their equityfor cheap if rates are low. This way they don’t have to pay taxes on their money. And they can afford everything!

Perhaps. Worth pointing out that money for my rides I set aside. Making more money off it just might not be necessary at all. That is the job of other monies set aside for just that, make more money. It is all baked into the life cake and accounted for. Nothing is affected by paying cash.

I myself would be hard pressed to LOL while servicing debt even if at 0.00001% APR. Everybody's situation is different.

 

[R1Tom]

Perhaps. Worth pointing out that money for my rides I set aside. Making more money off it just might not be necessary at all. That is the job of other monies set aside for just that, make more money. It is all baked into the life cake and accounted for. Nothing is affected by paying cash.

I myself would be hard pressed to LOL while servicing debt even if at 0.00001% APR. Everybody's situation is different.

One of my favorite movie lines is in Wolf Of Wallstreet...."You know what I call them....fun coupons!"....

 

[COdogman]

 

[Jivian]

I’m not quite following your scenario #4, the buyout of $97k. Seems you may be missing the sales tax in there, as Uncle Newsom will want his cut of the buyout too

I know what NPV is. But I have no idea what you're trying to show here. It seems like you've accounted for the sales tax on scenario #1 where you buy the car with cash, but haven't fully accounted for it in scenarios #2, #3, #4 where you'll owe the remainder of the sales tax at buyout time. This makes the rest of your numbers invalid for purposes of comparison.

CORRECTED TABLE BELOW

Ok, I think I did miss part of the sales tax for Scenario #4 only but it's fully accounted for in Scenarios 1-3.

What's missing is adding the monthly sales tax in for the remaining 35 lease payments at $116.37 for the early buyout. I think my organization of the table was a little confusing considering you can't see the formulas I used that help explain the logic, but the sales tax in the leasing scenarios is already included for the residual.

The actual residual at the end of the lease is $71316. The number for the residual shown at the last month of the lease in the cash flow scenario is $77913 which is $71316 plus the 9.25% CA sales tax. The rest of the sales tax is part of the lease payment monthly which is $116.37 per month in my case.

Side point, I think someone asked this. My MSRP is actually 110,200 which is the price of the vehicle, $111,400 - $3000 gas-->EV incentive + $1800 destination fee. The destination fee seems to be included in the price of the car the way they quote the lease but is itemized separately for the financing scenario.

Therefore, my residual is 64.7% including the destination fee.

@Jivian , first of all, thank you so much for sharing your thoughts and math. Wow - I couldn't have ask for a better helpful thread with where I am. I have a delivery of a Gen2 R1T Dual Max Blue next week, and need to close on the options. I am also considering option#4, and was looking for any lease insights (never done a lease before but the 7500 credit is making me think about it - compared to #1). I am also in Bay Area, and picking up from San Jose service center next week.

Some Qs on #4:
* Shouldn't #1 and #4 actual difference be $7500 (EV credit benefit with #4)?
* for early buyout, are you sure Chase will not ask us to pay the "rent" for the remaining term months?
* Does more or less downpayment change the "monthly rent"? i.e., if I don't want to pay any additional cash vs paying $20K cash downpayment, is there any benefit?
* This is likely obvious - early buy/payout still gets to enjoy the $7500 EV credit advantage. Correct?

I might DM you with some newbie questions. Congrats on your TriMax!

I'll try to answer your questions here for the forum's benefit.

1. As you can see in my response above, I was missing adding the monthly portion of the sales tax back into the final residual (but I had added the sales tax for the residual itself). The difference is now pretty close to $7500 number but some savings in sales tax due to the $7500 itself not being taxed.
2. A different poster who actually went through this process has found you do not need to pay the rent for an early buyout-- which makes sense. It would be like paying interest on a loan principle you're paying back early.
3. I think there is essentially no difference in paying more money upfront vs the least possible from a financial perspective if you're actually going to buyout ASAP. That being said, there is less risk with less money down in case something goes wrong. That gives me an idea though, I wonder if there is a max down payment you can put down. Like what if you put 99% down and then had close to a 0 monthly payment? Maybe you could "buy" the car from the beginning but still qualify for the $7500. That'd be a neat trick!
4. Yes

Item	Cash Purchase	Lease Full Term @4%	Lease Full Term 6%	Lease w/ immediate buyout 4%	Time (months)	Cash Flow Lease Full Term
Trade In	$5,320	$5,320	$5,320	$5,320	1	$10,571.81
Vehicle Price	$108,400	$108,400	$108,400	$108,400	2	$1,391.62
Acquisition Fee	$0	$895	$895	$895	3	$1,391.62
Destination Fee	$1,800	$1,800	$1,800	$1,800	4	$1,391.62
Documentation Fee	$85	$85	$85	$85	5	$1,391.62
License Fee	$997	$997	$997	$997	6	$1,391.62
Sub Total	$111,282	$112,177	$112,177	$112,177	7	$1,391.62
Sales Tax	$10,294	$1,305	$1,305	$1,305	8	$1,391.62
Residual w/tax	$0	$0	$0	$0	9	$1,391.62
EV Credit	$0	$7,500	$7,500	$7,500	10	$1,391.62
Monthly Payment	$0	$1,392	$1,392	$1,392	11	$1,391.62
Deposit	$500	$500	$500	$500	12	$1,391.62
Initial Registration fee	$71	$71	$71	$71	13	$1,391.62
Tire Fee	$7	$7	$7	$7	14	$1,391.62
Cash Outlay	$121,654	$10,572	$10,572	$10,572	15	$1,391.62
Montly Depreciation+ Taxes	$0	$682	$682	$682	16	$1,391.62
Residual at early Buyout (incl Tax + equity)	N/A	N/A	N/A	$103,979	17	$1,391.62
Total (NPV)	$121,654	$125,171	$119,662	$113,825	18	$1,391.62
Difference from Cash purchase	N/A	$3,518	-$1,992	-$7,828	19	$1,391.62
					20	$1,391.62
					21	$1,391.62
					22	$1,391.62
					23	$1,391.62
					24	$1,391.62
					25	$1,391.62
					26	$1,391.62
					27	$1,391.62
					28	$1,391.62
					29	$1,391.62
					30	$1,391.62
					31	$1,391.62
					32	$1,391.62
					33	$1,391.62
					34	$1,391.62
					35	$1,391.62
					36	$1,391.62
					37	$77,912.73
					Total Cash	$137,191.24

So, overall conclusions with this table don't change but Scenario 4 was a little too good to be true with leaving out the monthly tax total.

Thanks for the discussion!

 

[phaduman]

Thank you @Jivian! That answers all my Qs - and I think #4 is surely a good opportunity...looks like I am behind you in just a few weeks - so will closely follow how you are able to complete the early buyout a month or two in, and I will follow suite. Cheers - PN

 

[tjrivian]

Side point, I think someone asked this. My MSRP is actually 110,200 which is the price of the vehicle, $111,400 - $3000 gas-->EV incentive + $1800 destination fee. The destination fee seems to be included in the price of the car the way they quote the lease but is itemized separately for the financing scenario.

Therefore, my residual is 64.7% including the destination fee.

Just want to let you know of two minor corrrections here:

1. The MSRP is actually $113,200, it's calculated as vehicle price($111,400) + destination charge($1,800). The residual is calculated as a percentage of that MSRP. And with a residual of $71,316 and an MSRP of $113,200 you get a 63% residual. Side note - if you ever calculate a residual / MSRP and get get something other than an whole number(or maybe a 0.5) percentage then there's probably something wrong with your calculation.

2. The $3k gas->EV incentive, you may or may not owe sales tax on it. If it's classified as an incentive similar to the $7500 then you owe sales tax on it, if it's classified as a discount on the purchase price then you don't owe sales tax on it. Confusing? You betcha! But with your high 9.25% tax rate, whether or not you have to pay sales tax is a $277 difference, so it's non-negligible when you're trying to compare different scenarios. I think at least in CA it's considered a discount on the purchase price and therefore non-taxable, but I can't officially confirm that.

No one should enter into a lease contract until they understand exactly how all the numbers work. The leasehackr calculator is very simple and user-friendly. The dealer should give you enough information that you can plug into a blank leasehackr form and quickly get very close to the DAS + payment. If you can't do this, then IMHO you shouldn't be signing that contract because you haven't fully comprehended how it works. Sounds like you've got a good handle on it, but it amazes me to see what people will sign without knowing the math behind the calculation. Rivian's ufpront pricing and no-negotiation means that Rivian generally isn't trying to pull a fast one on you, but other dealers certainly will if you're not careful. Rivian also doesn't explictly list the MF anywhere in the lease document, so it may come as a surprise to some that they're paying an effective interest rate of nearly 8%. But if you do the leasehackr calc yourself, there's no way that would be a surprise to you.

 

[phaduman]

@tjrivian , great inputs and thoughts.

dumb Q (will also use the leasehacker calculator) - the (monthly) rent is on the depreciation, correct? In the above example, if residual is 57%, then rent is calculated on the 43% of the total price (list + destination). Correct?

For CA, the “vehicle price” shown in the “you are approved” lease page subtracts the GAS car incentive ($3K) and adds the delivery fee ($1800).

 

[Jivian]

Just want to let you know of two minor corrrections here:

1. The MSRP is actually $113,200, it's calculated as vehicle price($111,400) + destination charge($1,800). The residual is calculated as a percentage of that MSRP. And with a residual of $71,316 and an MSRP of $113,200 you get a 63% residual. Side note - if you ever calculate a residual / MSRP and get get something other than an whole number(or maybe a 0.5) percentage then there's probably something wrong with your calculation.

2. The $3k gas->EV incentive, you may or may not owe sales tax on it. If it's classified as an incentive similar to the $7500 then you owe sales tax on it, if it's classified as a discount on the purchase price then you don't owe sales tax on it. Confusing? You betcha! But with your high 9.25% tax rate, whether or not you have to pay sales tax is a $277 difference, so it's non-negligible when you're trying to compare different scenarios. I think at least in CA it's considered a discount on the purchase price and therefore non-taxable, but I can't officially confirm that.

No one should enter into a lease contract until they understand exactly how all the numbers work. The leasehackr calculator is very simple and user-friendly. The dealer should give you enough information that you can plug into a blank leasehackr form and quickly get very close to the DAS + payment. If you can't do this, then IMHO you shouldn't be signing that contract because you haven't fully comprehended how it works. Sounds like you've got a good handle on it, but it amazes me to see what people will sign without knowing the math behind the calculation. Rivian's ufpront pricing and no-negotiation means that Rivian generally isn't trying to pull a fast one on you, but other dealers certainly will if you're not careful. Rivian also doesn't explictly list the MF anywhere in the lease document, so it may come as a surprise to some that they're paying an effective interest rate of nearly 8%. But if you do the leasehackr calc yourself, there's no way that would be a surprise to you.

So, perhaps I used the wrong term, MSRP, but what I really meant is the Gross Capitalized Cost.

Why are residuals always whole or half percentages?

 

[tjrivian]

@tjrivian , great inputs and thoughts.

dumb Q (will also use the leasehacker calculator) - the (monthly) rent is on the depreciation, correct? In the above example, if residual is 57%, then rent is calculated on the 43% of the total price (list + destination). Correct?

For CA, the “vehicle price” shown in the “you are approved” lease page subtracts the GAS car incentive ($3K) and adds the delivery fee ($1800).

The way leases are calculated is made up of 2 parts, a depreciation charge and a rent charge. They are calculated as follows:
1) (Purchase price(technically gross capitalized cost) MINUS residual) / # of months. That's the monthly depreciation charge. Think of this as you paying monthly the amount of value the vehicle has lost that month.
2)(Purchase price PLUS residual value) * MF. That's the rent charge. Think of it as an interest rate based on the average amount of money you're borrowing from the bank. A real average would be (Purchase price PLUS residual value)/2. But the way the lease calculation works you don't need that divide by two factor.

Hope that answers what you're looking for. The way you framed it is incorrect: "the (monthly) rent is on the depreciation" is not a correct statement. The depreciation and rent charge are two entirely different things, calculated as I described above. They both take purchase price and residual as inputs though.

 

[tjrivian]

So, perhaps I used the wrong term, MSRP, but what I really meant is the Gross Capitalized Cost.

Why are residuals always whole or half percentages?

Probably just a holdover from how finance worked before we had massive computing power available everywhere. But realistically do you think anyone can conclusively determine that 3 years from now the car's value would be 63.4% instead of 63.6%? Whole numbers have fine enough precision for something that has a large element of guessing in it to begin with. The banks set their residuals as a percentage, and then calculate the dollar value from MSRP * percentage.

Also note that if they based the residual$$ in the contract on gross_cap_cost * percentage instead of MSRP * percentage, then your $3k discount would effectively go away when you leased.

 

[phaduman]

Super. On #2, the "rent charge" - would the outcome of the rent in the calculation you have described in #2 (and also what I have seen else) be close to (depreciation * APR * # of yrs) divided by total # of yrs? I wonder why bank wants to look at average (purchase price+residual)/2 vs just not looking at depreciation to determine rent (on the depreciated amount).

Finally - if I buyout before lease term (say 1 month after lease start for a 36month lease), would the bank use a simple payout calculation that is: Residual amount + (monthly depreciation * 35)? as the total amount I owe (+ some fee perhaps)?

 

[tjrivian]

Super. On #2, the "rent charge" - would the outcome of the rent in the calculation you have described in #2 (and also what I have seen else) be close to (depreciation * APR * # of yrs) divided by total # of yrs? I wonder why bank wants to look at average (purchase price+residual)/2 vs just not looking at depreciation to determine rent (on the depreciated amount).

Nope. Just do the math. Depreciation and rent are two entirely different concepts, and calculated independently. The depreciation in the above example is $38,884 ($110,200 - $71,316). $38,884 * 7.8%(your formula) is $3032. The proper way to calculate the monthly rent charge is (purchase_price + residual) * MF, which in this example is ($110,200 + 71316) * 0.00325 = $590.

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