The decision to purchase or lease electric vehicles (EVs) for your commercial fleet depends on several factors, such as whether you want to own your capital assets versus maintaining a more flexible cash flow. In this blog, we will explore the advantages of both owning and leasing a commercial electric fleet.
Advantages to buying EVs for your fleet
There are three main benefits to buying EV fleet vehicles: tax incentives, asset control, and no restrictions on mileage.
Tax incentives are easier
There are federal tax incentives for new, used, and commercial electric vehicles. In addition to those, there are also hundreds of state and local EV purchasing incentives across the United States. When you purchase a qualifying EV, the rules for these tax incentives are much more clear: you simply purchase your EV and then you claim the incentive on your taxes for that year.
In addition, beginning on Jan. 1, 2024, you will also be able to use the vehicle tax incentives immediately when purchasing an EV by having them transferred directly to a vehicle dealership. However, when using one of the tax incentives for a leased EV, things get a bit more complicated. (More on that below.)
Purchased EVs offer more asset control
Some fleet vehicle leases require businesses to stick to a strict repair and maintenance schedule as part of the lease agreement. And while you obviously want your vehicles to stay repaired and maintained, that strict schedule may be difficult during a busy season. Owning your fleet vehicles means you get to choose your preferred service schedule.
No mileage restrictions
Leasing can come with restrictions on mileage. Go over these restrictions and you can face penalties or additional fees. Owning your own EV fleet avoids these imposed limitations.
Advantages to leasing EVs for your fleet
For this section, we’ll begin with the two types of leases that typically occur with fleet leasing: finance leases and operating leases.
What is a finance lease?
A finance lease (sometimes called a capital lease) is a financial product where a finance company purchases a capital asset (like a fleet vehicle) and then leases the asset to a company that takes operational control of it for a given period of time. The company providing the lease is the lessor and the company being leased to is the lessee. At the end of that contracted period, the lessee takes ownership of the asset. Both the lessor and the lessee share some of the financial risks and rewards during the leasing period.
For example, a finance company might purchase an EV and lease it to a delivery company over the course of five years. The delivery company will pay monthly payments for five years. When that term ends, the delivery company takes ownership of the EV. In a way, the capital lease is similar to a rent-to-own scenario.
What is an operating lease?
With operating leases, the lessor retains ownership of the asset and leases it to the lessee to operate. When the lease term ends, the asset is still owned by the lessor. In this way, an operating lease is more akin to strictly renting a piece of equipment.
Returning to our example, in an operating lease scenario, the lessor would own the EV and the delivery company would lease the vehicle and be allowed to operate it for a given term. At the end of the five year term, the EV would still be owned by the lessor company and not by the delivery company.
Operating leases generally come with higher monthly fees than a finance lease, and they may include limitations on mileage.
Four benefits of leasing your EV fleet
You can still use tax incentives
If you are leasing an EV, you may still be able to take advantage of the tax incentives available. However, they are not as straightforward as they are when you purchase an EV.
As Consumer Reports explains, the various federal tax incentives have restrictions including the income of the vehicle purchaser, and where the vehicle and its battery components were assembled. However, leasing companies are not subject to these same restrictions, which means that they may be able to receive the tax credit from the government and pass the savings to the consumer.
Some automakers are using the federal tax credit to discount the overall price of an EV, and others are using it to reduce the interest rate of a lease. Unfortunately, because different automakers do not always factor the tax credit into their leases in the same way, it can be confusing for consumers to know how (or even if) the tax incentive is included in the lease.
Lease payments are also tax deductible, which can help when your business is filing taxes.
You can pay for the vehicle over time
One of the major benefits of a lease is that, rather than paying the full price for the vehicle upfront, a vehicle lease allows the lessee to pay a smaller down payment and relatively small ongoing monthly payments. Similar to charging station leases or Charging as a Service programs, a vehicle lease allows the business to move the vehicle acquisition from the capital expense to operating expense budget.
You can “try before you buy” the fleet vehicle
There are many options for electric vehicle replacements for gas and diesel fleet vehicles. With an operating lease, you can try an EV for an allotted term, then switch to a different vehicle if you realize your current lease does not meet your actual needs.
You can receive additional support and maintenance
With a vehicle lease, your staff generally will not be required to perform maintenance and repair work on your fleet vehicles. Lessors may also have pre-existing relationships with auto manufacturers and EV charging companies and may be able to help lessee companies find the charging equipment that best suits their needs.
Whether you choose to purchase or lease EVs will depend on your business’ current situation and priorities. Ready to make the transition to an all EV fleet? Contact the Blink team to get started with planning your charging stations.