Tesla Launched an Unbeatable Leasing Offer for Model 3 and Model Y, but There's a Catch

Update: I updated the article with more details about the conditions of Tesla's lease program in the fifth paragraph.

Tesla is in a hurry to sell as many cars as it can, especially considering that the third-quarter sales stalled. During the quarter, three factories responsible for the bulk of Tesla production were idled to upgrade the production lines, an operation announced in July. The factories affected were Fremont, Giga Shanghai, and Giga Austin. The fact that the production halts were announced in advance didn't matter to investors, who expressed frustration with the lackluster sales results in the third quarter.

To add insult to injury, Tesla announced another significant price cut for the two models in October. For many, this was a sign that Tesla had a demand problem, fueling the discussions about the benefits of advertising instead of price cuts. As far as I'm concerned, the price cuts are not that significant to begin with. Yes, the Model 3 RWD is now only $38,990, but you could buy one from inventory for $37,530 just a month ago. There's no discount for inventory vehicles now, so the price actually went up, not down.

Price debate aside, Tesla appears to be indeed concerned about its yearly results, and the fourth quarter sales are crucial. With the disappointing deliveries reported in the third quarter, it must deliver 480K vehicles in the fourth quarter to meet the 2023 volume guidance of 1.8 million cars. Considering that it delivered 466K vehicles in the second quarter and 435K in the third quarter, it will be a tight race, especially as production is not fully restored.

That's why Tesla is committed to convincing as many customers as possible to take delivery of one of its cars by the end of the year. To do that, it resorts to the classic carrot and stick principle. The carrot is a leasing offer few can refuse. The stick is the changes in the IRA tax credit rules from January 2024, which will likely cut the incentives in half.

On the leasing front, Tesla is basically letting you drive one of their cars for free. The Model 3 RWD leasing starts from $250 a month on a two-year contract, and surprisingly, it's more expensive at $329 on a three-year contract. The Model Y RWD starts at $363 per month for a 24-month plan or $399 for a 36-month plan. In each case, these rates involve a $4,500 downpayment and are calculated for 10,000 annual miles. Although there are limitations, Tesla's finance calculator lets you play with these values.

Either way, the new rates are significantly lower than before, when a 36-month lease would start from $429. This is the lowest a Tesla has been offered on a lease contract. There's a catch, though, as you cannot keep the car at the end of the contract. This explains why the two-year plans have lower payments: Tesla will be able to sell the vehicle for more and is willing to pass this surplus to the lessee.

Tesla also warns its potential customers to act swiftly because the IRA tax credit will halve after December 31. This is almost guaranteed for the Model 3, although some versions of the Model Y might also lose half the tax credit. Tesla is waiting for federal guidance regarding the new conditions entering into effect from January 1, 2024. The tax credit reduction from $7,500 to $3,750 is most probably connected to tightening the rules of origin for battery components and raw materials.