Almost no one is buying German luxury EVs. Roughly 9 out of 10 customers chooses to lease, not purchase, their Mercedes, BMW or Audi EV, per J.D. Power data reported by Automotive News. And the reason comes from everyone’s favorite boogeyman: The federal government.
The 2022 Inflation Reduction Act—America’s biggest climate bill to date—redefined the rules for the $7,500 federal clean vehicle tax credit. While the original tax credit only excluded manufacturers that had exceeded a 200,000-credit cap, the revised version has strict requirements designed to promote local production and battery sourcing.
EV Leasing Bonanza
Since stricter tax credit rules came into force, buyers have been incentivized to opt for leases. That’s ok, though. With high interest rates, low EV residual values and a breathtaking rate of improvement in the EV industry, we’d recommend leasing over buying for most buyers, even on cars that qualify for the tax credit.
Vehicles built outside of of North America do not qualify for any tax credit. Vehicles built in North America but with too many (Non-Chinese) foreign battery components only qualify for $3,750, while those built with battery components from China lose eligibility entirely. That means only North-American built cars with American battery supply chains get the full $7,500 credit, leaving few qualifying models. But if you lease a car rather than purchase it, all of those restrictions vanish. Everyone’s eligible.
BMW has offered extremely aggressive lease deals on its flagship EV SUV, the iX. It’s my favorite luxury SUV on sale, and I’m not surprised that contributor Tim Stevens jumped on one of the subsidized lease deals.
Perhaps that’s why 94% of all Audi EVs are lease, per the AN data. All of Audi’s EVs are built outside of the U.S., which means none of them qualify for tax credits. Mercedes builds its EQE and EQS SUVs in the U.S., but the EQS starts above the $80,000 cutoff for the federal purchase incentive. The EQE SUV technically starts a bit below that cap, but you’ll never find one on a dealer lot without options that push the price over the cap. Leasing can still get you the credit, though, which explains why 93% of Mercedes customers lease, per J.D. Power. BMW leases 89% of its EVs out, the lowest of the pack but still a gargantuan portion of its sales.
Of course, this is only an acceleration of a pre-existing trend. Luxury buyers have long favored leases. For the last decade, a majority of BMW, Mercedes and Audi buyers have leased. Since these brands position themselves as providing the latest in technology and generally sell partially on the perception of wealth, it’s no surprise that most of their customers want to swap into new models frequently. These cars are also notoriously expensive to own out of warranty. But even for a more conservative, reliability-driven brand like Lexus, leasing rates are extremely high. Luxury buyers like to have the latest and greatest. And now, thanks to Uncle Sam, it’s the best decision for their wallets. Even if they do end up buying out the lease, imported EV buyers who initially opt for a lease will save money compared to any outright purchase. I can’t say that getting a new car every three years is great for combating consumerism or environmental waste, but if it gets them into EVs it’s at least a win for the climate.
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