How to Lease a $50,000 BMW for Less Than a Subway Pass
May 14, 2018  Gabrielle Coppola

The BMW i3, seen here on the streets of Seattle, can be leased at shockingly
low prices because of the challenging economics of electric vehicles.
Photographer: David Ryder
A vehicle charger for the BMW i3. Photographer: Simon Dawson

The unusual economics of electric vehicles create dirt-cheap deals.

[image]  Inside a BMW dealership. Photographer: Patrick T. Fallon

Mike Piccolo got a call from a friend about a deal on a new BMW with a price
so cheap he thought it was a joke.

The 45-year-old financial advisor from Ramsey, New Jersey, thinks of himself
as a car nut, and his buddy is the kind of guy who likes to trawl the
internet for car deals. This one appeared on a website, Leasehackr,
frequented by fellow bargain hunters: a two-year lease on a 2017 BMW i3, the
luxury automaker’s bug-like electric car, for just $54 a month.

“The car’s $50,000,” Piccolo said. “How are you getting it for $50? IPhones
aren’t even $50 a month!”

Someone on the website posted the details of the $54 lease, and the prospect
of an impossibly cheap luxury car became almost like a dare to Piccolo. He
had to figure out a way to put some of Germany’s finest electric engineering
into his driveway for less than an eighth of what it would cost to lease one
of Bayerische Motoren Werke AG's cheapest models, the BMW 3 Series.

The eye-popping discount wasn’t a fluke. It’s a sign of the daunting
economics facing carmakers during the slow shift to electric vehicles.

Even when selling to enthusiastic early adopters, automakers pile some of
the highest incentive offers onto electric models. Additional state and
federal tax credits available to buyers of new electric vehicles combine to
create deep discounts. That still hasn’t been enough to stimulate demand. As
automakers sink billions into electrification efforts, the reality is that
drivers don’t yet want to buy enough EVs to create the sales volume needed
for them to make a buck.

The number of battery electric models in the U.S. is set to grow fivefold by
2022, but electric cars accounted for 0.6 percent of total U.S. sales last
year. Right now there are only 18 options to tempt U.S. buyers.

“There’s an issue of EVs being able to stand on their own in the marketplace
without a credit,” said Jeff Schuster, an analyst at LMC Automotive. “To get
the mass market into them, it’s got to be more cost competitive, and it’s
not at this stage.”

Expensive battery technology has turned the electric future into a
money-losing present. The profitable sport utility vehicles and pickup
trucks sold by General Motors Co. help cover the loss of about $9,000 every
time someone drives an electric Chevrolet Bolt off a dealer lot. The
electric version of the Fiat 500 subcompact sells at a staggering $20,000
loss in the U.S. The top-selling electric car company in the U.S., Tesla
Inc., is notoriously unprofitable and managed to go $2 billion into the red
on $8.5 billion in sales last year.

“It comes down to the economics of the tech: Is it profitable or not?” said
Kevin Tynan, a Bloomberg Intelligence analyst. “As long as it’s not, you’re
going to get a half-hearted effort to sell the things.” ...

That dynamic has played out with BMW’s i3, which has struggled to lure
American buyers since its 2013 debut. Part of the problem was timing: BMW
brought out the compact city car just as gas prices tumbled, luring
Americans back to the gas-guzzling SUVs they know and love. The limited
driving range—originally 80 miles per charge—and unusual design only
narrowed its appeal. The latest version, with a $44,450 price tag, can go up
to 114 miles on a single charge, still less than half the 275-mile range of
Tesla’s Model S.

The German carmaker sold 6,276 i3s in the U.S. last year, a 17 percent drop
from 2016, according to Autodata Corp. Global sales rose 23 percent, to
31,482 units, buoyed by a redesign over the summer. Next up: BMW’s Mini
brand will introduce an electric version next year, followed by a
battery-powered BMW X3 sport utility vehicle in 2020.

BMW’s i brand is meant to be an incubator for technologies that will
ultimately be incorporated into full model lineups. But sluggish sales
prompted a pause before adding more electric-only models to the lineup.
“It’s slow—and, in terms of over-hyped, we need time,” said Joachim Kolling,
the head of energy services at BMW, in response to a question as to when he
expects to see an uptick in industry-wide sales of EVs.  “It’s a long-term
race,” Kolling said at a conference in New York last month.

Piccolo is the rare electric vehicle enthusiast who went out to buy the
original BMW i3 back in 2014, and then he added a Tesla to his garage. He
now feels he took a bath on the first i3, paying about $500 a month for
inferior battery technology. This time around, he vowed to be more frugal. 

The auto stars seemed to align in his favor. Americans are abandoning
compact cars at a stunning pace, and that's contributed to the i3's lagging
U.S. performance, said Michelle Krebs, a senior analyst with Autotrader. EVs
also don’t fare as well as conventional cars in the used market, since heavy
discounts have eroded their value. Plus, used-car buyers don’t benefit from
state and federal tax credits.

As a result, most EV drivers in the U.S. don’t buy. Lease rates hover at 80
percent for battery-electric cars in the U.S., compared with a 30 percent
industry average, according to Bloomberg New Energy Finance. And good deals
abound: The 2018 Honda Clarity can be leased for just $199 a month after a
$1,499 down payment.

When you lease a car, you're essentially paying the car company for the
amount the car's value will depreciate over the life of the lease contract,
broken up into monthly payments. Automakers will often low-ball the
depreciation estimate to lower your payments and close the deal, but they do
so at their own peril, since they'll be stuck trying to sell the car at true
market value after you're done.

That's a particularly risky game with electric cars, since they depreciate
so steeply. Of six different 2018 EV and plug-in hybrid models sold in
March, the i3 had the lowest forecast residual value, at 27 percent of its
original price after three years, according to researcher ALG.

The $54 lease deal reported on the [ ] website, which was
confirmed by documents viewed by Bloomberg News, is an extreme example of
this game. For Piccolo, finding a dealership willing to match wasn’t easy.
His bargain-hunter friend, Dan Kim, called about 15 before he found BMW of
Oyster Bay, out on New York’s Long Island. Even then, when they showed up to
lease the cars, Kim said the dealer balked at the final price.

Still, the negotiation ended with a monthly lease priced of $112, less than
a monthly pass for the New York subway. Not bad for a car with a fully
optioned sticker price of $51,695.

Piccolo and Kim provided an outline of their negotiating tactics.

To start, they asked for a 14 percent discount from the sticker price and
ended up with 13 percent. A bunch of special perks helped pull down the
price. Since Piccolo owned a BMW already, he received a $2,000 loyalty
credit, and he applied a $500 discount with BMW that was available through
his job. Added to that mix were a $7,500 federal EV tax credit, which BMW
subtracted from the price; New Jersey's EV tax breaks (eligible even when
residents purchase a car elsewhere); $2,000 in cash incentives; and a $1,000
discount for attending a BMW promotional event.

Piccolo, who covered his lease in a single upfront payment of about $2,700
after he added bigger tires, now owns exclusively electric cars. He said
he's certain the technology will catch on in the U.S., once battery range
improves, because they’re fun to drive. His wife still teases him about his
“goofy” looking i3, but he feels he’s setting an example for the next

“I have three little daughters, and all their friends ask, ‘What is that?
How does that work?’” he said. “It’s an education for them.”

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