![\"Retail](\"https:\/\/cdn.ihsmarkit.com\/www\/images\/0824\/ev-leasing-figure-1-retail-registration-by-finance-type-2_090820241304483.png\")
<\/p>\nOver the last 18 months, there has been a significant shift
\ntoward leasing for electric vehicles in the United States \u2014
\ndriven both by market dynamics and federal legislation.<\/p>\n
Looking first at industry dynamics, vehicle inventories have
\ngrown as the pandemic and microchip shortage have receded. These
\nchanges have also shifted the market from a seller's market to a
\nbuyer's market. As buyers have gained more leverage, downward
\npressure on pricing has intensified.<\/p>\n
One major tool used to lower prices, particularly for luxury
\nvehicles, is leasing. We have seen a growing percentage of leased
\nnew vehicles since the second half of 2022, as shown in Figure 1.
\nFrom its low point of 17.1% in Q3 2022, lease mix has climbed more
\nthan 8 percentage points to 25.6% this past April and May. Note
\nthat most of leasing gains have come at the expense of loans, while
\ncash mix has remained relatively stable since the end of 2022.<\/p>\n
<\/p>\n
But federal legislation, and specifically the Inflation
\nReduction Act (IRA) signed into law by President Biden in August of
\n2022, has also contributed to this shift. Specifically, the IRA
\nallows most EV leases to qualify for a $7,500 tax credit, in
\ncontrast to loans, which have numerous qualifications. These
\nadditional funds provided by the IRA have also enabled dealers to
\noffer attractive EV lease monthly payments, relative to loan
\npayments.<\/p>\n
As Figure 2 demonstrates, lease payments for luxury EVs rose
\nsubstantially at the start of 2020 when the pandemic arrived and
\nstayed elevated through much of 2022. But, starting at the end of
\n2022 soon after the IRA went into effect, lease payments began to
\ndecline both in absolute numbers and relative to loan payments.
\nAnd, in the first five months of this year, luxury EV lease
\npayments have fallen below loan payments (a more normal relative
\nposition for them based on history).<\/p>\n
![\"Average](\"https:\/\/cdn.ihsmarkit.com\/www\/images\/0824\/ev-leasing-figure-2-average-monthly-payment-for-lease-vs-loan_090820241304483.png\")
<\/p>\n
The same trends have occurred in the mainstream EV market, as
\nillustrated by Figure 3. In the mainstream space, EV lease payments
\nhave been below loan payments throughout the displayed time period,
\nbut the gap began to widen shortly after the IRA adoption date, and
\nsince Q3 2023 the difference between the two metrics has increased
\ndramatically.<\/p>\n
![\"Average](\"https:\/\/cdn.ihsmarkit.com\/www\/images\/0824\/ev-leasing-figure-3-avg-monthly-payment-for-mainstream-evs_090820241304483.png\")
<\/p>\n
This increased value proposition of leasing EVs, relative to
\npurchasing them, understandably has driven lease levels to
\nexceptionally high levels. While industry-wide lease mix has only
\nrisen slightly in the last several months, the EV lease mix among
\nmainstream products has climbed from 4.9% in Q4 2022 to 63.6% this
\npast April and May; similarly, lease penetration in the luxury EV
\nsector has jumped from 8.6% in Q3 2022 to 42.7% in April and
\nMay.<\/p>\n
![\"Lease](\"https:\/\/cdn.ihsmarkit.com\/www\/images\/0824\/ev-leasing-figure-4-lease-penetration-by-vehicle-type_090820241304483.png\")
<\/p>\n
At the model level, these financing dynamics have brought some
\nextraordinary results. In the first five months of this year, 22
\nmodels, including 17 luxury models, had a lease penetration greater
\nthan 80%, and 14 of these models enjoyed a lease mix above 90%.
\nWhile the luxury space traditionally has a higher lease mix than
\nthe mainstream market, such a high number of models with
\nexceptionally high leasing business is rare.<\/p>\n
![\"Electric](\"https:\/\/cdn.ihsmarkit.com\/www\/images\/0824\/ev-leasing-figure-5-top-ev-models-lease-penetration_090820241304483.png\")
<\/p>\n
These data point to at least three conclusions. An obvious one
\nis that if a brand wants to compete in the EV space, it needs to be
\nan aggressive player in the leasing business. Succeeding in this
\nendeavor requires an active, established, and competitive captive
\nfinance source.<\/p>\n
A second takeaway is that governmental regulations, whether at
\nthe state or national level, can still be used to shift the market
\nin a direction favored by those in power.<\/p>\n
And lastly, these data suggest that the EV market continues to
\nbe in its early stages and therefore subject to rapid fluctuations
\ndepending on regulations, incentives, new models, discontinued
\nmodels, other fuel type availability, and the final value
\nproposition for the consumer.<\/p>\n