We want to get an electric vehicle, but we’re wondering whether it might make more sense to lease one instead of buying. My husband thinks EV range and charging speed will keep getting better, so it doesn’t make sense to get stuck with old technology five years from now. We’ve never leased before, so we’re both unsure. Leasing feels like throwing money away. – Jon, Ottawa
When it comes to electric vehicles, leasing might be a better idea than buying – but not for everyone, experts said.
“Electric vehicles make sense to lease because they depreciate rapidly,” said Shari Prymak, a senior consultant with Car Help Canada, a Toronto-based not-for-profit that helps drivers find cars and negotiate purchase and lease agreements. “Electric cars today are kind of like computers in the 90s, where the newest model is so much better than the one that came before it. You don’t want to get stuck with yesterday’s tech with an EV.”
But while EVs do lose their value faster than gas-powered cars, on average, when you drive them off the lot, the difference isn’t as big as it used to be, said Daniel Ross, senior manager of industry Insights at Canadian Black Book (CBB), a Markham, Ont.-based company that tracks and forecasts used-vehicle prices.
For the 2025 model year, gas-powered cars will lose, on average, about 27 per cent of their value right off the bat. EVs lose about 33 per cent, Ross said.
When looking at a $55,000 car, for instance, a gas car would be worth $40,150 (a $14,650 drop) after the first year and an EV would be worth $36,850 (a $18,150 drop). The actual numbers will vary by make and model.
“The initial depreciation hits EVs harder,” he said. “But over the next, say 48 to 60 months after that first initial 12 months of depreciation hit, it’s actually about even with every other fuel type on the market.”
For example, all vehicles – whether gas, EVs, plug-in hybrids (PHEVs) or conventional hybrids –lose around 6 to 8 per cent, on average, in the second year, he said.
Why do EVs lose their value faster, at least at first?
“It’s obviously evolved over the history of EVs, but earlier on, it was worries about the reliability of the battery,” Ross said. “I’d say that isn’t as big a concern today. I think the industry average is [for batteries to lose] 1 to 2 per cent of range per year, which is better than what the market was forecasting early on.”
But depreciation is still fuelled by worries that technology could advance. If it does change dramatically later on, you could see even bigger depreciation.
The lease of your worries?
If you think you might want to replace your EV in, say, four or five years, leasing might make more sense.
When you lease the EV, you can move onto a new lease on a brand new EV when your lease is finished. That means you won’t be underwater (owing more than your car is worth, especially if you chose to finance for seven or eight years), Ross said.
“You are more susceptible to depreciation if you buy the vehicle… you could lose your shirt on it [if technology advances suddenly],” Ross said. “By leasing it, you’re promised a value at the end, and that doesn’t change.”
Leasing isn’t the same as renting, Prymak said. With a lease, you’re still making payments on the car, but only for the length of your lease. If you lease a $40,000 car for two years, you’ll make payments only on the first $10,000-$15,000.
At the end of the lease, you would owe the rest if you choose to buy it out or you can just return the car to the dealership. Monthly lease payments are usually lower than financing, but you’re never in a situation where you own the car outright during the lease term.
“With leasing, you’re switching into a new vehicle every three years, every four years, and you’re in an endless cycle of payments,” Prymak said. “In most situations, it makes more financial sense to finance the vehicle, especially if you choose a shorter financing term, because the longer you keep it, the more value you’re getting out if it."
A lease may also make sense for luxury vehicles, which can also depreciate faster than other cars and can cost more to repair, or if you own a business and can claim lease payments on your tax return, he said. Up until three or four years ago, most car companies didn’t offer leases on EVs, CBB’s Ross said.
But if you find an EV now that fits your needs, you might not want to swap it out in five years for one with better technology. Most new EVs now have at least 400 kilometres of range and can charge to 80 per cent in half an hour or less on a DC fast charger.
“If the tech on the EV you are buying today is adequate for your needs, it will likely continue to be so for the next seven or eight years [or longer],” said George Iny, president of the Automobile Protection Association, a national pro-consumer advocacy group with offices in Toronto and Montreal.
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