EVs are doing their part to help leasing recovery

After years of production shortages that saw the leasing pool virtually dry up, it continues to resurge as a top choice for flexible short-term use and affordable financing.

Driving the news: According to Experian’s State of the Automotive Finance Market Report: Q2 2024, leasing’s market penetration reached 25.35%, increasing 4.21% year-over-year and up 6.05% against 2022.

Why it matters: Access to new car loans is tightening, and despite the Fed slashing interest rates this week, banks likely won’t be able to match the 0% – 3% APR lease deals captive finance companies are leveraging. This makes leasing vital for budget-strapped customers to lower their monthly payments and get behind the wheel. 

What they’re saying: “As the influx of new-vehicle inventory persists, a wider range of models are becoming available and dealers and manufacturers are leaning back into leasing as a way to move metal,” said Melinda Zabritski, Experian’s head of automotive financial insights. 

The catch: A customer’s FICO score has to be pretty strong to qualify for this subsidized financing. Borrowers on the lower end of the credit score spectrum may not score those rates — that’s where EVs step in:

• EVs reached 8.35% of new purchases and are leased nearly half the time.

• TransUnion reports that from Q2 2021 to Q2 2024, the percentage of EVs leased went from 20.9% to 48.7%.

The reason? Government tax credits. 

How it works: Unlike new EV loans, EV leases skirt some of the stricter requirements for being eligible for the $7,500 tax credit. 

• EV leases are not susceptible to the household income rules limiting access to the credit.

• New EV loans require non-China battery contents. Not a concern for EV leases.

• There are also restrictions on vehicle prices in order to qualify, but every EV lease is eligible.

Here are the EVs you can lease for under $300 a month this September

The best part? The whole $7,500 credit can be applied immediately to bring down the total monthly cost. 

Digging deeper: Consumers are going a step further to bring down monthly payments — they’re more frequently opting for compact cars, according to Edmunds.

• From Aug. 8, 2023, through Aug. 31, 2024, EV leasing for compact cars has risen roughly 90% — way faster than traditional compact car leasing (+26%).

• The spread between traditional compact car leasing and compact EV Leasing has been relatively wide in the last few years, likely due to the velocity of EV depreciation (something leasees are less concerned about).

Bottom line: While auto leasing penetration is not quite back up to pre-pandemic levels, it’s getting closer and closer. On top of that, as 2025 models roll onto dealer lots, incentives will likely keep growing. And Whether or not you agree with the $7,500 tax credit, there’s no denying that it’s helping to get consumers into cars they can actually afford right now.

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