Residual value of leasing an Air Touring with credits

[ashishmh]

Hi, I currently own a Model 3 which I am selling. Booked a 2023 Air Touring with DDPro, SoundPro, Glass roof, Cosmos silver and santa cruz.
I am keen on leasing to get the 7.5k (6.5k actual) EV credit but my sales rep told me (after I asked) that the option to buy after the lease term will not honor all the credits I am getting right now. So the residual value will be based on market condition on the original MSRP, which is like 22k more than the discounted price).

Is it true? Does it make more sense to finance now (5.0% APR) and sell after 3 years? I will be getting an SUV (preferably Gravity) after approx 3 years.

My ordered config (see screenshot):
Cosmos Silver Metallic, Santa Cruz Leather Interior, 19” Aero Range Wheels, Platinum with Glass Canopy and Dual Motor, All-Wheel Drive
DreamDrive Pro, Surround Sound Pro
MSRP - $111,700

Credits:
Air Credit - $7,500
Pro Credit - $11,900
Conquest Credit - $2,000
EV Credit - $7,500 (6,500 actual as Lucid charges around 1k for this). Only possible on leasing.
Referral Credit - $1,000 (I hope this is still valid. Advisor told me he can apply referral)

 

[par11768]

Probably not. You are getting an additional $7500 off with the lease so the monthly payment should be much lower than if you set up a longer term loan where the amount owed after 3 years would be the same as the lease residual value. The $7500 spread over 3 years is more than $200/month. Also, you can turn in the car at the end of the lease without having to worry about the value you would get selling the car, plus you said you are likely to move to an SUV in that time frame. You will have a significant risk buying and selling in 3 years because luxury cars can have very high depreciation rates, especially EVs with tech that changes quickly.

 

[momo3605]

my sales rep told me (after I asked) that the option to buy after the lease term will not honor all the credits I am getting right now. So the residual value will be based on market condition on the original MSRP, which is like 22k more than the discounted price).

This is where your sales rep is mistaken. The residual value is always lower than msrp and even the discounted price. The residual value is fixed and is NOT based on market conditions. On average the 36 month residual is around ~50%. In November when I got my car it was like 46%.

Now what could happen is that say after 3 years the car is only worth 40% of original msrp. Lucid may give you an additional discount to buy it since they would lose money to take it back and try to resell as a used car. This is not guaranteed though. And only would happen if the cars market value is less than the residual.

Also remember depending on which state you’re in, you may have to pay taxes on all those discounts.

 

[ashishmh]

@par11768
Yeah i think leasing makes sense rather than buying and then selling. I am just confused about the rep saying that the residual value will be calculated on the MRSP which is like 112k.

@momo3605
If the residual value is fixed, why can't the rep tell me the value right now? He said Lucid will decide residual value based on the car's resale value after end of lease.
He also said that the residual value will be calculated based on MRSP which is 112k and not 85k (after discounts).

My main issue is that I will most likely want to buy this car at the end of the lease (for myself or someone else in my family), so I would want the residual value to be 85k minus what all I have paid in the lease (minus the cost of financing the lease). So if Lucid says, its going to be 112k minus the payments made, I would have to walk away which I don't want to do.

 

[joec]

The residual value will be in the paperwork of the lease agreement. It has to be. That’s how leases work. The price is determined at the beginning of the lease, not the end.

 

[arosenbe]

@par11768
Yeah i think leasing makes sense rather than buying and then selling. I am just confused about the rep saying that the residual value will be calculated on the MRSP which is like 112k.

@momo3605
If the residual value is fixed, why can't the rep tell me the value right now? He said Lucid will decide residual value based on the car's resale value after end of lease.
He also said that the residual value will be calculated based on MRSP which is 112k and not 85k (after discounts).

My main issue is that I will most likely want to buy this car at the end of the lease (for myself or someone else in my family), so I would want the residual value to be 85k minus what all I have paid in the lease (minus the cost of financing the lease). So if Lucid says, its going to be 112k minus the payments made, I would have to walk away which I don't want to do.

Your sales rep is flat out wrong about not knowing the residual value when you lease the car. The residual value is determined when you lease the car and is clearly spelled out in the actual lease paperwork. My residual was 50%, BUT the residual is based on the “gross capitalized cost,” so it is calculated before any discounts.

 

[sri]

@par11768
Yeah i think leasing makes sense rather than buying and then selling. I am just confused about the rep saying that the residual value will be calculated on the MRSP which is like 112k.

@momo3605
If the residual value is fixed, why can't the rep tell me the value right now? He said Lucid will decide residual value based on the car's resale value after end of lease.
He also said that the residual value will be calculated based on MRSP which is 112k and not 85k (after discounts).

My main issue is that I will most likely want to buy this car at the end of the lease (for myself or someone else in my family), so I would want the residual value to be 85k minus what all I have paid in the lease (minus the cost of financing the lease). So if Lucid says, its going to be 112k minus the payments made, I would have to walk away which I don't want to do.

Price of the vehicle is $110k after discounts not $85k. MSRP is 137k not 112k.

 

[xponents]

Price of the vehicle is $110k after discounts not $85k. MSRP is 137k not 112k.

Yup, the discounts are the 112k price as advertised! To note, this is only for inventory 2023 models(which are all, since 24 gts dont exist yet).

 

[ashishmh]

So I talked to bank of america today (which is handling the leasing).
Seems like the rep was right about credits not getting applied on the residual value at the end of the lease.

Down - $0
36 months, 7500 miles, $0.25/mile after
Monthly - $1,501.98
Due at signing - $6,107.62
Includes title, license and registration, first lease payment, cap cost reduction
Residual - $55,015
Total cost of leasing - $113,700 (If I buy after 3 years)

If I finance the car for 3 years
Rate of interest - 5.5%
Length of loan - 36 months
Monthly payment - $2,578.73
Tax, registration at 10% (seattle) - $11,200
Total cost of financing - $92,850

Seems like financing is $21k cheaper which will cover any amount of depreciation after 3 years.
Am I missing something in my calculations?

 

[ashishmh]

How is the price 110k after discounts? The MSRP is 111,700 (for my config) and discounts are applied on top of that.

 

[momo3605]

How is the price 110k after discounts? The MSRP is 111,700 (for my config) and discounts are applied on top of that.

I think people were confused that you had a GT. Since your build is a Touring, you are correct

So I talked to bank of america today (which is handling the leasing).
Seems like the rep was right about credits not getting applied on the residual value at the end of the lease.

Down - $0
36 months, 7500 miles, $0.25/mile after
Monthly - $1,501.98
Due at signing - $6,107.62
Includes title, license and registration, first lease payment, cap cost reduction
Residual - $55,015
Total cost of leasing - $113,700 (If I buy after 3 years)

If I finance the car for 3 years
Rate of interest - 5.5%
Length of loan - 36 months
Monthly payment - $2,578.73
Tax, registration at 10% (seattle) - $11,200
Total cost of financing - $92,850

Seems like financing is $21k cheaper which will cover any amount of depreciation after 3 years.
Am I missing something in my calculations?

You're miscalcuating on the finance version. The car is $92k before taxes and interest. So the total cost with financing + tax will be 2774*36 + tax = $110k. The difference is only $3k

 

[ashishmh]

PS - Please ignore my last post. I corrected my calculation but cannot edit/delete the post.

So I talked to bank of america today (which is handling the leasing). Seems like the rep was right about credits not getting applied on the residual value at the end of the lease.

36 months, 7500 miles, $0.25/mile after
Down - $0
Monthly - $1,501.98
Due at signing - $6,107.62 (includes title, license and registration, first lease payment, cap cost reduction)
Residual - $55,015
Total cost of leasing ~ $115,200 (if I buy after 3 years)
(i think this doesn't include $2k Conquest credit and $1k referral credit)

If I finance the car for 3 years
Financed amount - $84,400 (117)
Rate of interest - 5%
Length of loan - 36 months
Monthly payment - $2,724.35
Tax, registration on MSRP (10% in seattle) - $11,200
Total cost of financing ~ $109,300

Seems like financing will be $5,900k cheaper in total. Am I missing something in my calculations?
Tool I used for financing numbers

 

[momo3605]

PS - Please ignore my last post. I corrected my calculation but cannot edit/delete the post.

So I talked to bank of america today (which is handling the leasing). Seems like the rep was right about credits not getting applied on the residual value at the end of the lease.

36 months, 7500 miles, $0.25/mile after
Down - $0
Monthly - $1,501.98
Due at signing - $6,107.62 (includes title, license and registration, first lease payment, cap cost reduction)
Residual - $55,015
Total cost of leasing ~ $115,200 (if I buy after 3 years)

If I finance the car for 3 years
Financed amount - $84,400 (117)
Rate of interest - 5%
Length of loan - 36 months
Monthly payment - $2,724.35
Tax, registration on MSRP (10% in seattle) - $11,200
Total cost of financing ~ $109,300

Seems like financing will be $5,900k cheaper in total. Am I missing something in my calculations?
Tool I used for financing numbers

I think your lease calculator is off too. From the Lucid calculator, with conquest and referral, your monthly should be $1400 including tax. Not $1500. Which should drop your lease cost by $3600

You have to add $3k down in the calculator to account for $2k conquest and $1k referral. But anyway, now i think you should be clear that the rebates are still included in the lease. The difference between financing and leasing is not that large

 

[ashishmh]

Yeah if I just subtracted $3k from the Lease due at signing amount, so that becomes $3100.
Even if I add 2800 buffer miles costing around $700 ($0.25/mile) over 3 years, the total diff b/w leasing and financing is $3600 which is like $100 per month.

I think I will go with leasing. Thank you everyone for all the help

 

[lpinprov]

Important to note, the primary benefit (in this case) is that Lucid (or the bank) is carrying the risk of depreciation. If the car is worth less in 36 months than the residual -- which is based on the MSRP, as noted above -- then you will turn the car back in, and Lucid will be stuck with a car the lease valued at $55k but is actually worth far less than that. Or, you can negotiate with them or the bank to pay market rate for the car.

If you buy the car, then you carry that risk. In many states, you also only pay sales tax on the lease payments, whereas if you buy it, you pay sales tax on the full amount of the purchase. So, if you end up turning the car back in, you will save those taxes.

The way manufacturers enable low leases is either through bumping up the residual or offering a cheap 'money factor' (i.e. interest rate) on the lease. Bumping up the residual percentage leaves them at major risk if the vehicle depreciates faster than they expect.

If a lease had been available at attractive terms when I bought, I'd have done it in a second. Why carry the risk of extensive depreciation (and the risk of Lucid going belly up) if you can shift that risk for virtually no cost? Given the resale prices that Lucid cars have been experiencing, it is hard for me to believe that the 50% residual (of current, arguably inflated, MSRP) doesn't grossly overstate the likely actual market value of your car in 3 years' time. At present, if actual market value of the new car is the actual transaction value (~$85k, give or take), then the residual of $55k is 65% of the sale price. I think the likelihood that the car is worth $55k in 36 months is very, very, very low.

Look at the price pressure on electric cars already. Manufacturing costs are continuing to fall (batteries, design/assembly efficiency, and scale economies), manufacturing capacity and the number of electric options are going to increase substantially. Letting Lucid carry the risk is a no-brainer when they're offering cheap leases.

 

[momo3605]

Important to note, the primary benefit (in this case) is that Lucid (or the bank) is carrying the risk of depreciation. If the car is worth less in 36 months than the residual -- which is based on the MSRP, as noted above -- then you will turn the car back in, and Lucid will be stuck with a car the lease valued at $55k but is actually worth far less than that. Or, you can negotiate with them or the bank to pay market rate for the car.

If you buy the car, then you carry that risk. In many states, you also only pay sales tax on the lease payments, whereas if you buy it, you pay sales tax on the full amount of the purchase. So, if you end up turning the car back in, you will save those taxes.

The way manufacturers enable low leases is either through bumping up the residual or offering a cheap 'money factor' (i.e. interest rate) on the lease. Bumping up the residual percentage leaves them at major risk if the vehicle depreciates faster than they expect.

If a lease had been available at attractive terms when I bought, I'd have done it in a second. Why carry the risk of extensive depreciation (and the risk of Lucid going belly up) if you can shift that risk for virtually no cost? Given the resale prices that Lucid cars have been experiencing, it is hard for me to believe that the 50% residual (of current, arguably inflated, MSRP) doesn't grossly overstate the likely actual market value of your car in 3 years' time. At present, if actual market value of the new car is the actual transaction value (~$85k, give or take), then the residual of $55k is 65% of the sale price. I think the likelihood that the car is worth $55k in 36 months is very, very, very low.

Look at the price pressure on electric cars already. Manufacturing costs are continuing to fall (batteries, design/assembly efficiency, and scale economies), manufacturing capacity and the number of electric options are going to increase substantially. Letting Lucid carry the risk is a no-brainer when they're offering cheap leases.

The residual on my 18 month lease on Air Touring is $73k….i doubt I could get that much even if I sold 1 day after purchasing lol

 

[ashishmh]

I am also getting a slightly used Air Touring at $73k plus taxes and registration.
Exact same config but with 20" Aero wheels.

Spec:
Air Touring, Cosmos silver, Santa cruz
Glass roof, DDPro, Sound Pro, 20" aero wheels
Full body PPF - worth approx 4.8k (owner is claiming this, will ask for invoice)
Mileage - approx 2500 miles, clean title, no accidents

With taxes and cost of financing (3 yrs) at 5.5%, the total comes out to $86k.
Does it seems like a good deal? It is like $26k cheaper than leasing and $23k cheaper than financing a new car from Lucid.

 

[momo3605]

I am also getting a slightly used Air Touring at $73k plus taxes and registration.
Exact same config but with 20" Aero wheels.

Spec:
Air Touring, Cosmos silver, Santa cruz
Glass roof, DDPro, Sound Pro, 20" aero wheels
Full body PPF - worth approx 4.8k (owner is claiming this, will ask for invoice)
Mileage - approx 2500 miles, clean title, no accidents

With taxes and cost of financing (3 yrs) at 5.5%, the total comes out to $86k.
Does it seems like a good deal? It is like $26k cheaper than leasing and $23k cheaper than financing a new car from Lucid.

At that point, you have to make a decision. Do you want to own the car for a long time? Or do you want to enjoy the car for a short term and limit your short term depreciation. Buying used vs new is a simple decision

But leasing comes down to how likely you are to buy the car down the road. Based on my residuals, i'm probably not going to buy after my lease is up. If you think you're going to buy, then skip the lease, and probably just get the used one.

If you're comparing total cost of leasing+purchase at the end, it sounds like you want to buy the car, in that case I would say don't do the lease. Just buy a new car if you want the fresh and new car smell, or buy it used and enjoy the $20k saved.

 

[IntenseDriver]

I just signed the contract on a Lucid Air Pure. The residual after 18 months is approximately 60% which appears to be very high ($53K). Gross cap cost is $88. I received a total of $16.5K in discounts/incentives. Should I attempt to negotiate this number now with Lucid financial or wait until the end of the lease? I am interested in purchasing the car at this point based on my experience over the term of the lease. It's with 0% MF so leasing was a no brainer for me and I put $0 down.

 

[lpinprov]

I just signed the contract on a Lucid Air Pure. The residual after 18 months is approximately 60% which appears to be very high ($53K). Gross cap cost is $88. I received a total of $16.5K in discounts/incentives. Should I attempt to negotiate this number now with Lucid financial or wait until the end of the lease? I am interested in purchasing the car at this point based on my experience over the term of the lease. It's with 0% MF so leasing was a no brainer for me and I put $0 down.

Not sure what you want to negotiate at this stage? If you want to buy out the lease, I don't think at this point the buyout price (i.e. residual) is likely to be negotiable. I would imagine the lease gives you the option to buy it out by prepaying all the future payments and the end-of-lease buyout, but I can't see the lender or Lucid negotiating the end-of-lease buyout right now. So, given you have a 0% loan, I think just continuing with the lease for the time being is sensible.

I think a 60% residual for the 18 month term is perhaps reasonable, perhaps even conservative; it is not unusual to see numbers north of 50% for 36 month leases, sometimes even north of 60%. The issue as it relates to Lucid is that residual percentage is applied to MSRP, and actual 'selling' prices are way lower than MSRP. In your case, you got a discount of 19% off MSRP. Thus, in your lease, it seems the 'effective' residual, based on actual selling price, is almost 75% (residual of $53k residual/$71.5k 'selling' price).

i think you'll have to wait til the end of your lease approaches to see what the market for used Lucids looks like, and use that to try to negotiate the buy-out terms with Lucid or BofA (who I think are the lender here). Or, be willing to consider buying a different used Lucid at that point, if the lessor is not willing to negotiate.

There is a great website, Leasehacker, that has lots of useful information on leases, deals, etc. I haven't looked there to see if there is a Lucid forum, but for anyone interested in leasing, it's a useful site to visit and learn about leasing.