Electric Car 101: Lease or Buy?

If you’re sold on the idea of a plug-in car, one of the next questions to answer is whether to lease or buy your chosen model. It’s an issue that any car shopper would have to consider, but with electric cars, in addition to the standard considerations, some new factors come into play.

Here are five things to consider as you hunt for a plug-in car deal that fits your budget, driving habits and preferences:

Permanence of your living (and parking) situation. “The only thing that’s really different here,” Chevy Volt marketing chief Tony DiSalle said in an interview, “is, do you have a place to plug in?” That’s where you capture the value of a car like the Volt he said, whether it’s leased or financed for purchase. “Beyond that it becomes very similar to other vehicles that people would purchase,” he said.

If there’s a strong chance your access to a charge point at work and/or at home may change in the next few years, going for the lease option might seem like it offers an out. Remember, however, that leaving a lease before it’s set to expire often comes with penalties and hefty early termination fees, as Consumer Reports warns in this handy guide. With electric cars, as with their old gas-chugging counterparts, purchasing the vehicle gives you the autonomy to sell or trade it in when you want.

Local, state and federal incentives. Government incentive programs for plug-in hybrid and electric vehicles at the local, state and federal level have produced a labyrinth of rebates, credits and other perks for green cars that meet certain criteria.

At the federal level, plug-in vehicles can qualify for a tax credit of $2,500-$7,500, depending on battery capacity (the Chevy Volt, Nissan LEAF and Tesla (s TSLA) Roadster can all qualify for the full $7,500). Purchasing a plug-in could allow you (as an individual or business) to claim up to $7,500 on your income tax return for that year. When you lease a plug-in car, the federal tax credit goes to the lease provider, DiSalle noted. So you effectively give up the lump sum, as GM-Volt has explained, in return for lower monthly payments.

At the state level, rebates can help knock thousands of dollars off the cost of an all-electric vehicle. In California, for example, purchasing or leasing a car like the Nissan LEAF, Tesla Roadster or plug-in Prius can qualify you for a rebate of up to $5,000 (the Volt, for now, doesn’t meet California’s criteria for AT-PZEV designation and therefore, doesn’t qualify for the rebate).

Keep in mind, these incentives won’t necessarily be available beyond the very early adopter phase. The $7,500 federal tax credit is slated to phase out after the first 200,000 qualifying vehicles sold by a given manufacturer. California’s Clean Vehicle Rebate Project is set to offer rebates on a first-come, first-served basis until the appropriated funds ($9.1 million) are all spoken for.

To find out what’s available in your area, check out your state’s energy office website, the Department of Energy’s guide to tax breaks and the Union of Concerned Scientists’ frequently updated Hybrid Center project.

Mileage allowance. DiSalle emphasized that, as a plug-in vehicle with a gas-powered range extender, the Volt “can be your only car, which has huge financial implications.” All-electric models from some of GM’s competitors, he argued, will often be a “niche addition to the household fleet.” That will depend on your driving habits, of course (some consumers could manage just fine with an electric commuter car and membership to a car-sharing program). However, pay close attention to the suggestion of uninhibited range if you’re considering a lease.

Lease agreements typically include a mileage allowance. Exceed it, and you can get hit with extra charges. The Chevy Volt lease will reportedly restrict mileage to 12,000 miles per year, or about 32.8 miles per day.

Future Value. One of the big uncertainties about electric vehicles is how quickly they’ll lose value over time. If you purchase a car, this depreciation rate will affect how much you can sell it for later on (although as Consumer Reports notes, the upside is that when buying a car, “its cash value is yours to use as you like”).

In a typical closed-end lease, the amount you pay for depreciation is fixed. Assumptions about the vehicle’s residual value (how much the car will be worth at the end of your lease) will affect what kind of deals you can get on the monthly payment. Generally, a higher residual value means you’ll pay less for depreciation over the lease term.

Ability to Upgrade. The earliest available plug-in car models will feature new technology that’s likely to improve with future generations. If you ultimately want to have an original to show your grandkids, then an outright purchase may be the way to go.

DiSalle, who said GM hasn’t made decisions about long-term lease plans, expects a majority of Chevy Volt customers to buy the model outright, especially in the first year. “A lot of people have been waiting and quite honestly want to own it,” he said.

A lease may be a better fit, however, for gadgetheads who want the ability to upgrade every few years as battery technology improves and our cars become more and more like oversized electronic devices.

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