BMW i3 Bottom Line: $494/mo With No Money Down

I wrote this post a few days ago for BMWBLOG. There has been so much speculation and incorrect information circulating in regards to the OwnersChoice with Flex option that BMW FS is offering on the i3 that I wanted to get some info out there on it. It's a new product, so it's certainly understandable why there are questions. However I've read where people have gone as far to call it a "convoluted scam" as if it's just a way to charge the customer more money and in fact it's the opposite. Using OwnersChoice with Flex you can drive off in a base i3 BEV with no money out of pocket for as little as $494/month depending on where you live.  Now that BMWBLOG has had it for a couple days and InsideEVs has run it also, I figured I'd put it up here also. If you have any questions, please fell free to ask in the comments and I'll answer whatever I can.

 BMW i3 Bottom Line:  $494/mo With No Money Down

There has been a lot of speculation with regards to financing rates and residual values for the BMW i3. A few months ago we ran this story where we posted preliminary i3 residual values that were lower than the residual values of other electric cars.

BMW Financial Services evidently took a closer look and now that the official financing figures are out we see they increased the residual values by 4% across the board.  

Original Reported Residuals       Actual Residuals 

• 24 month residual – 49%                       53%        
• 30 month residual – 44%                       48%
• 36 month residual – 39%                       43%
• 42 month residual – 34%                       38%
• 48 month residual – 28%                       33%
• 54 month residual – 25%                       29%
• 60 month residual – 21%                       25%

(These figures are based on 15,000 miles per year. Add 2%for 12,000 mile/year leases, 3% for 10,000 mile/year leases.  Extra mileage is charged at 20 cents per mile.)

  

Additionally, the online “Build your Own” BMW i3 site now features monthly payment calculations for OwnersChoice with Flex. Up until now, only the MSRP was listed. OwnersChoice with Flex is a new product created by BMW Financial Services specifically for the i3. It allows the customer to take up to $7,500 off the price of the car as a capitol cost reduction, thus allowing lower monthly payments. The customer does not have to pay the money up front and basically owes that to BMW FS. The reason $7,500 is the cap is because that is the maximum amount of the federal tax credit that the i3 qualifies for. BMW FS is basically lending the customer the money so they can have lower monthly payments. 

The customer can repay the Flex capitol cost reduction anytime (like when they get the money back on their taxes) or wait until the end of the term. At the end of the specified term, the customer has the choice of returning the car and paying the amount they took as the capitol cost reduction (if they didn’t repay it already), or keeping the car and paying the residual value, plus the unpaid capitol cost reduction. It’s really a purchase, that offers the benefits of a lease and lets the customer decide whether they want to keep the car or return it at the end of the term. 

So what’s the bottom line on a 36 month OwnersChoice with Flex work out to? With no money out of pocket, depending on where you live you can drive off in a base i3 BEV and your payments will be $494 per month for 36 months. That’s with taking the full $7,500.00 capitol cost reduction (which you then owe BMW FS) and with only 10,000 miles per year allowed. If you load the BEV i3 up with every available option the monthly payment raises up to $661 per month. It’s worth noting that these figures do not include sales tax. There are states where electric vehicles are sales tax exempt (like New Jersey where I live) and it appears the i3 site does not add the sales tax regardless of whether you use a zip code where sales tax is collected or not. Perhaps that will be corrected though, as they only updated the site to show the monthly payments within the past day or so. 

The OwnersChoice with Flex was developed by BMW Financial Services specifically so i3 customers can realize the full $7,500 electric vehicle federal tax credit. When leasing an i3, BMW FS will only pass $4,875.00 of the $7,500 federal tax credit along to the customer. They are standing by their statement that they do not get the full $7,500 credit, and are passing along every dollar that they do get to the customer. This likely makes leasing a poor option on the i3 when compared to OwnersChoice with Flex.

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BMW i3: Tax Credits and Leases and Residuals, Oh My!

Will BMW's financing options put the i3 out of reach for many of its enthusiasts?

There have been many discussions on various websites since an internal BMW document surfaced that led to people to believe the BMW i3 lease terms in the US would be very high. One potential i3 buyer even has his local dealer (Stevens Creek BMW) work up a lease quote using the information on the document. The i3 he built had a total price of $55,978.52. With very little money down the lease payment came out to be $930 per month. There were a couple things that led to this very high lease estimation and I thought it would be worth while to discuss them here.

The proposed i3 lease was posted by insideevs.com

First, the residual values on the document were very low, around 40%. Unfortunately this is basically in line with residual values of other electric cars and there are basically two reasons for it. First, electric cars are new to most people and there is a lot of uncertainty regarding what the secondary market will be. What will a 3 years old i3 with 40,000 miles be worth? How much will the battery have degraded? What will its practical range be at at that point? Until we have years of EV use behind us with tens of thousands of examples to draw data from, finance companies will likely err on the side of caution and offer low residuals on EV's. Then there are the tax credits and rebates. California is the largest market for EV's in the country and basically paves the way for everywhere else. EV's buyers in California not only get the $7,500 federal tax credit, but they also get up to a $2,500 State rebate. Therefore a used EV is instantly worth $10,000 less than a new one as soon as it rolls out of the lot.  So to be fair, you really should include the tax incentives and rebates in the equation when you discuss electric vehicle residual values, because that is the actual effective cost of the car to the buyer.. If you do that, the i3 residuals jump up to nearly 50%. That is still a bit low, but not really far off of what a typical car would be worth after a three year lease. 

The tax credit is now a center of debate

The document also showed that BMW is only going to apply $4,875 of the expected $7,500 federal tax credit as a capitol cost reduction to leases. This led some people to assume BMW is simply pocketing the $2,625. I raised this question to Timm Bock, Product Development & Pricing Manager for BMW Financial Services and he told me that BMW will only realize $4,875 for the federal tax credit and that they will pass every cent of what they get along to the customer. I still don't know exactly why they don't get the full $7,500 because it seems the other EV manufacturers do since they pass it along to the customer as a capitol cost reduction in their lease offerings. So either they get more than BMW does which would be surprising, or they are eating the $2,625 in an effort to push their electric vehicle offerings. This to me would be equally surprising, so I really don't know what the truth is at this point, but I will continue to investigate this. 

Timm was kind enough to also include an overview of the financing options BMW Financial Services will be offering for the i3, and this is what he sent me:

Tom,

Please see my response below regarding the Lease and OwnerChoice products you had asked about, as well as how each product relates to the Federal EV Tax Credit when purchasing a BMW i3.

Traditional Lease - Our tax team has advised us that each leased BMW i3 qualifies us for a Federal EV Tax Credit of $4,875 - all of which is passed on to the consumer.  This $4,875 Lease Credit can be directly applied as a Capitalized Cost Reduction, or to other costs, at the time of lease-signing.  Regardless of your tax situation, by choosing a BMW FS lease with the $4,875 Lease Credit, you'll know exactly how much you will benefit, it’s applied at the time of purchase and there is no subsequent filing, administration or personal tax implications.
(As a reminder, only EVs purchased for personal use are eligible for the maximum $7,500 tax credit.  However, the benefit is reduced to $4,875 for 100% business use.  Regarding Nissan and Chevy, we can’t speak to why they are choosing to offer $7,500 or more; this may be part of the their incentive or discount strategy.)

But for customers who want to claim the maximum tax credits, we have made attractive alternatives to leasing available:  OwnersChoice and OwnersChoice with Flex.

· OwnersChoice – OwnersChoice provides:  low lease-like monthly payments, the lease-like option to return the car at the end of the term AND the eligibility for you to claim the maximum income tax credits.  

· OwnersChoice with Flex - In addition to the OwnersChoice benefits above, OwnersChoice with Flex allows you to increase your final balloon payment due at the end of the contract term by up to $7,500. Increasing the final balloon payment due further reduces your monthly payments, and in this way provides you with the opportunity to benefit from the $7,500 immediately.  OwnersChoice with Flex bridges the time-gap between the vehicle’s purchase date and your tax filing date.  We are proud to say that BMW FS is the first in the industry to develop an enhanced balloon finance solution like this for EVs. 

BMW Financial Services will also offer our traditional loan product.  Like both of the OwnersChoice products above, a BMW FS loan provides you the eligibility to claim the maximum $7,500 Federal EV Income Tax Credit.  

In general, due to the uncertainty and complexity of tax credit rules, we encourage anyone considering an EV to consult with a tax professional.

While this doesn't really clear up the tax credit questions, it does give some clarity on the OwnersChoice with Flex product that they developed specifically for the i3. This will allow a buyer to get the full $7,500 tax credit, yet still return the car like a lease at the end of a predetermined period. It's a purchase, but allows the buyer to have a capitol cost reduction up to $7,500 (the customer decides how much they want BMW FS to deduct as a cap cost reduction) to lower their monthly payments. That money is then owed to BMW FS and the owner can pay it off anytime they want. The owner will then have the option of making a balloon payment equal to the residual value plus the additional $7,500 and buying the car outright, refinancing the balance and keeping the car, or simply paying back the $7,500 and returning the car as if it were leased. 

There is interest charged on the $7,500 cap cost reduction they applied that is baked into your monthly payment, but BMW will allow you to pay it back early and save on the interest expense. The best way to utilize the OwersChoice with Flex may be to pay the $7,500 up front when you take delivery of the car, therefore you'll never have paid a penny of interest on it. Of course you'll need to have the finances to do this, but since you'll be recovering the $7,500 a few months later when you do your taxes, you will only be a short time without the funds. (provided you qualify for the full tax credit)

I hope that provides a little insight into the OwnersChoice with Flex. However, admittedly it doesn't get us any closer to really knowing what leasing deals BMW will be offering. Until we get the official residual values, interest rates and terms, we're all just guessing. I just hope people don't expect the i3 to have leasing deals that are comparable to some other much less expensive EV's like the LEAF or Volt, let alone the great deals on some of the other manufacturers compliance EV's. These cars are subsidized by tens of thousands of dollars per vehicle just so the manufacturer can lease the minimum required be California, in order to continue to sell their gas cars there. BMW has been consistent with saying the i3 is going to be profitable from day 1, and BMW will not subsidize it. This will likely make the i3 more expensive to lease in California than a Honda Fit EV, a Fiat 500e or a Toyota RAV4 EV. However for the rest of the country this comparison really doesn't matter because those cars aren't available nationally like the i3 will be.

Personally I expect to BMW to announce the financing details pretty soon, like within the next couple weeks and I will certainly post them here. There is hope that BMW may surprise up with a good leasing deal after all though. This week at the NADA convention in New Orleans BMW's North American CEO Ludwig Willisch said "It will be an attractive lease offer" and "It will be in the ballpark of a normally equipped 3 Series". A friend of mine recently leased a pretty well equipped 328i and with $3,000 down and he's paying $415/month. I find it hard to believe the i3 will lease for that low, but I suppose it's possible on a base BEV i3 without any options. I'll pick this back up here once the details are revealed. 

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