Loophole in the EV Credit - Lease it!

[FlyingPoint]

Read this morning from Business Insider that leasing effectively qualifies high MRSP vehicles for the $7,500 EV credit. While the credit will remain with the lessor, it will be passed through as a cap cost reduction just as it was under the prior law.
I have not thoroughly researched the law but if correct, this is a great work around the Infrastructure Act.

https://www.businessinsider.com/aut...es-tax-credits-commercial-vehicle-7500-2023-1

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[WasserGKuehlt]

Read this morning from Business Insider that leasing effectively qualifies high MRSP vehicles for the $7,500 EV credit. While the credit will remain with the lessor, it will be passed through as a cap cost reduction just as it was under the prior law.
I have not thoroughly researched the law but if correct, this is a great work around the Infrastructure Act.

https://www.businessinsider.com/aut...es-tax-credits-commercial-vehicle-7500-2023-1

Lol: https://www.eenews.net/articles/manchin-bill-slaps-back-at-biden-in-ev-tax-credit-fight/

Maybe not so coincidentally, but my SA reached out the day before pick-up to say Porsche is offering a 7.5k reduction in price if I leased the car. (It didn’t make sense.) Now it’s clear why, and also clear that it won’t work for long.

 

[NuJerzPorsche]

Makes no sense when your MF is gonna be sky high.

 

[FlyingPoint]

Makes no sense when your MF is gonna be sky high.

The incremental cost of MF over the cost of capital would have to extremely high to go through $7,500. Discussion aside, I would hesitate to own rather than lease a Taycan. For the following reasons:

• Decrease in value due to an accident
• Uncertainty of tech advancement timelines
• Effect on the used market in a recession (and we are all headed for a recession, IMO)
• Would not own without a warranty. The cost to repair these things is outrageously expensive. Cost me north of $3500 for a standard windshield.

 

[whitex]

TLDR; it's probably not worth it if you lease instead of paying cash for the car. It might me worth it if you were financing anyways and can significantly reduce the residual, or if you can invest some money every month so you have enough for residual at the end of the lease. If you were going to lease anyways, this definitely is a win.

Long version
It's not just MF. I am currently waiting for some answers from the dealer's financial guy, but here are the costs of doing a lease vs. paying cash:

1. Lease initiation and termination fees (doc fees, lean registration, lean removal, possibly early termination fee, etc)
2. Interest, depending on minimum number of payments you have to pay. I'm told 3-6 months is minimum, they are looking into it. Since this is the beginning of the loan, rough calculation is (residual+cap_cost)*MF*2. So say you're buying a Turbo S for $200K and lease percentage is 7.99% APR (could be more, financing through Porsche shows 6.99% APR, leasing is usually higher but I couldn't find it). So with 0 down, the interest for 3 months would be roughly $4,000, 6 months would be ~$8,000. You need to add sales tax on top of this btw, depending on your state, as sales tax is added to every payment, so you pay sales tax on interest (vs. interest on sales tax when you take a loan, but no interest if paying cash).
3. Re-registration when purchasing the car - some states ask that you register the car again when ownership changes from leasing company to you. Registration where I live would be ~ $2,000 per year on a $200K car, so if I buy a car out after 3 months, that's $1,500 lost. I'm still looking into whether I would have to do this or not.

Then of course there is the risk of government clawing it back as per article @WasserGKuehlt linked:


So while I am still waiting for answers on the rates, costs, maximum down payments, etc. I gotta tell you it's not looking good when comparing against paying cash. If all goes well and I manage to buy it out after 3 months, I gain maybe $1,000 total, but risk $7,500 if they claw it back. If the lease termination takes a month longer, I about break even for the trouble and taking the risk. If it takes more than 4 payments to close the lease, I lose money. If your car is $150K instead of $200K, or if Porsche lets you put down a large deposit to reduce the cap cost, it buys you a little longer runway, but still seems like a lot of trouble and risk for small gain. Once I have all the number back from Porsche, I can calculate it for myself. The key information will be minimum number of payments before I can terminate, initiation and termination fees, maximum deposit I can put down (e.g. if I can put down 99.9% of the car down, the interest drops to almost nothing, I would wait a full year to buy it out to save or registration), and of course the lease APR (or money factor, which is just APR/24).

If you were going to finance however, calculations will change, as you would be paying interest anyways, however you are paying off the car more slowly. Unless they let you set the residual to $1, then your total cost of leasing vs. financing would be just the difference in interest over the whole term which would be:
number_of_years * amount_borrowed * (leaseAPR - loanAPR)/2
Note that the above applies if your residual is $0 (or $1 or some small amount). If not, the cost is greater plus it's not an apples-to-apples comparison as at the end of the lease you still owe the residual. You can still calculate but now gets a lot more complicated (doable, but more data needs to be considered).

 

[gt3dude]

Will this last?!

 

[minstril]

I’m closing a deal on my car this week. Dealer floated this option but, for me, the math didn’t work out vs. buying. It was basically a wash.

I will say that if it looks good for your transaction, I wouldn’t worry about the feds clawing it back. If they do, it’ll be from Porsche, not you, and I’m pretty sure once you’re signed on the lease Porsche can’t retroactively change the contract to add $7500 back into the equation.

Will this last? Almost certainly not.

 

[FlyingPoint]

Will this last? Almost certainly not.

I agree. This provision was included to jump start EV fleet vehicles and not effectively provide the EV credit to an end user exceeding the income limitation or the MSRP cap. This will be interesting to keep an eye on. The IRS has indicated it will release its interpretation by 3/31/2023. I suspect legislators will deal with it via a Technical Corrections Act as well.

 

[SergeyIndy]

I am interested in this topic with my Taycan expected to arrive in April.

I have never leased a car so complex calculations and being taken advantage of as a naive leaser, deter me from considering a lease unless I can clearly see how the outright purchase of the car for cash can be reduced by $7,500 through the lease route with intent to buy the car at lease end since I intend to keep it long term.

I wonder if someone can guide me on what questions to ask and what variables I need to stick to when asking the dealer to draw up the lease to take full advantage of this loophole.

 

[Skilly]

TLDR; it's probably not worth it if you lease instead of paying cash for the car. It might me worth it if you were financing anyways and can significantly reduce the residual, or if you can invest some money every month so you have enough for residual at the end of the lease. If you were going to lease anyways, this definitely is a win.

Long version
It's not just MF. I am currently waiting for some answers from the dealer's financial guy, but here are the costs of doing a lease vs. paying cash:

1. Lease initiation and termination fees (doc fees, lean registration, lean removal, possibly early termination fee, etc)
2. Interest, depending on minimum number of payments you have to pay. I'm told 3-6 months is minimum, they are looking into it. Since this is the beginning of the loan, rough calculation is (residual+cap_cost)*MF*2. So say you're buying a Turbo S for $200K and lease percentage is 7.99% APR (could be more, financing through Porsche shows 6.99% APR, leasing is usually higher but I couldn't find it). So with 0 down, the interest for 3 months would be roughly $4,000, 6 months would be ~$8,000. You need to add sales tax on top of this btw, depending on your state, as sales tax is added to every payment, so you pay sales tax on interest (vs. interest on sales tax when you take a loan, but no interest if paying cash).
3. Re-registration when purchasing the car - some states ask that you register the car again when ownership changes from leasing company to you. Registration where I live would be ~ $2,000 per year on a $200K car, so if I buy a car out after 3 months, that's $1,500 lost. I'm still looking into whether I would have to do this or not.

Then of course there is the risk of government clawing it back as per article @WasserGKuehlt linked:


So while I am still waiting for answers on the rates, costs, maximum down payments, etc. I gotta tell you it's not looking good when comparing against paying cash. If all goes well and I manage to buy it out after 3 months, I gain maybe $1,000 total, but risk $7,500 if they claw it back. If the lease termination takes a month longer, I about break even for the trouble and taking the risk. If it takes more than 4 payments to close the lease, I lose money. If your car is $150K instead of $200K, or if Porsche lets you put down a large deposit to reduce the cap cost, it buys you a little longer runway, but still seems like a lot of trouble and risk for small gain. Once I have all the number back from Porsche, I can calculate it for myself. The key information will be minimum number of payments before I can terminate, initiation and termination fees, maximum deposit I can put down (e.g. if I can put down 99.9% of the car down, the interest drops to almost nothing, I would wait a full year to buy it out to save or registration), and of course the lease APR (or money factor, which is just APR/24).

If you were going to finance however, calculations will change, as you would be paying interest anyways, however you are paying off the car more slowly. Unless they let you set the residual to $1, then your total cost of leasing vs. financing would be just the difference in interest over the whole term which would be:
number_of_years * amount_borrowed * (leaseAPR - loanAPR)/2
Note that the above applies if your residual is $0 (or $1 or some small amount). If not, the cost is greater plus it's not an apples-to-apples comparison as at the end of the lease you still owe the residual. You can still calculate but now gets a lot more complicated (doable, but more data needs to be considered).

This.

Loan origination will be around $700.00-$1,000.00 and then the min payments to avoid penalty has been 3 in the past, but I am hearing 6 for this. Rates for MF are going to put Porsche Fin Leases around 10% - this easily gobbles up the $7,500.00 and puts you upside down on a car at this cost.

The structures of the DP can be manipulated somewhat through mileage factors, but the programming for a DP will be hard coded outside of that. All you would be doing is changing your monthly payment to lower the residual.

 

[ssim]

This.

Loan origination will be around $700.00-$1,000.00 and then the min payments to avoid penalty has been 3 in the past, but I am hearing 6 for this. Rates for MF are going to put Porsche Fin Leases around 10% - this easily gobbles up the $7,500.00 and puts you upside down on a car at this cost.

The structures of the DP can be manipulated somewhat through mileage factors, but the programming for a DP will be hard coded outside of that. All you would be doing is changing your monthly payment to lower the residual.

@SergeyIndy

Porsche Financial Services' (PFS) Acquisition Fee is ~$1,029. My SA mentioned that 3 payments must be made to avoid the dealer being charged back their back-end profit. The key here is to figure out how much of the monthly payment is 'rent charge' aka interest. The Leasehackr Calculator can tell you, but it requires you to plug in the residual value % and money factor the dealer is using. No dealer is using buy-rate (the rate set by PFS); they're all marking-up the rate, though some dealers are more aggressive than others (PFS guidelines set a max mark-up that is allowed).

I think the $7,500 rebate will net ~$3-5k in savings after factoring at least 3 months worth of interest and the initial Acq Fee. Also, given your car lands in April, the loophole will likely be closed by then.

Hope this helps! If you have any additional questions / want more in-depth guidance, you're welcome to PM me.

 

[Skilly]

@SergeyIndy

Porsche Financial Services' (PFS) Acquisition Fee is ~$1,029. My SA mentioned that 3 payments must be made to avoid the dealer being charged back their back-end profit. The key here is to figure out how much of the monthly payment is 'rent charge' aka interest. The Leasehackr Calculator can tell you, but it requires you to plug in the residual value % and money factor the dealer is using. No dealer is using buy-rate (the rate set by PFS); they're all marking-up the rate, though some dealers are more aggressive than others (PFS guidelines set a max mark-up that is allowed).

I think the $7,500 rebate will net ~$4-5k in savings after factoring at least 3 months worth of interest and the initial Acq Fee. Also, given your car lands in April, the loophole will likely be closed by then.

Hope this helps! If you have any additional questions / want more in-depth guidance, you're welcome to PM me.

Not likely unless you are thinking about a base model. if you calculate using the following:

Money factor .00383 (9.2% APR equiv)
purchase price 150,000
residual 93,000 (62%)
up front: $10,000
loan fee: 1,200

It's more like >$4K in costs. If you have to go 6 months the $7,500 rebate evaporates in lease costs.

I call this going broke saving money...kind if like when your significant other comes home with 2 full bags from Saks and says "you won't believe how much money I saved!".

 

[ssim]

I call this going broke saving money...kind if like when your significant other comes home with 2 full bags from Saks and says "you won't believe how much money I saved!".

I ran a 39/10k $0 Down (just inception fees due) lease for a $190k MSRP Taycan Turbo (right at MRM) using a calculator. Buy-Rate is 0.0034; I did 0.0038 to account for a slight mark-up (max a dealer could do right now is 0.0042, so 80 basis points). You multiply the decimal by 2,400 to convert it to an APR.

Monthly Payment with 9.5% LA tax is $3,784--$1,037 of which is interest/rent charge. So, you're right: 3 months of that + Acq Fee, and you're right around $4k in costs, so $3k-ish in savings. Probably not worth the effort.

If someone is purchasing a RWD/CT4 or even a 4S/GTS, it could be worth taking advantage of the loophole, depending on how much energy you have. I ran a similar lease structure for a $140k MSRP Taycan 4S, and ~$700 of the monthly payment was rent charge.

 

[SergeyIndy]

Thank you everyone for the help and lightning fast response with data figures. My build is basically $200k before taxes and fees on a Taycan Turbo so definitely not worth it to me going this route.

 

[ssim]

Thank you everyone for the help and lightning fast response with data figures. My build is basically $200k before taxes and fees on a Taycan Turbo so definitely not worth it to me going this route.

If your Turbo MSRP is $200k, then you're definitely above MRM, so leasing would be entirely unfavorable. I'd stick to your original purchase method.

I'm very jealous As much as we love our CT4, part of me wants to build a $200k Frozen Blue / Atacama Beige Turbo Sedan! Lol

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