EEVblog #1337 - I Bought An Electric Car

[EEVblog]

Confirms what I see anecdotally on the street. Tesla Model 3s seem like the most common EV I see around and it was only getting stronger.

That's because EV's in Australia are practically a luxury car price, and there has been incredibly limited choice and numbers compared to other countries. Those that have bought EV until now are usually well heeled people who want a status symbol, and the Tesla is the status symbol car. Until very recently you could not buy an EV in this country for under $50,000, which is around twice the price a good ICE car. So if you can afford a $50k+ EV then you can probably afford to shell out for the trendier Tesla 3 which until recently was coser to $80k.
Joe Average isn't buying a Tesla.
So I expect the dynamics of the EV market share to change once there are more lower cost options here. But I guess there is never any shortage of people will money, and people with money like status symbols.

The first EVs I saw a lot of over here were Nissan Leafs, it seemed like they were everywhere. Lately it's Teslas, it's really rare that I go anywhere without seeing several of them on the road. They're not cheap but ICE cars have gotten really expensive too, you don't see many cars of any type that are under about $40k anymore at which point $50k for a Tesla isn't all that much of a stretch. This area is admittedly quite affluent though, we have Microsoft, Amazon, Google, and numerous other tech companies so people with money aren't rare. When I went for a walk the other night there was a Ferrari F355 parked on my street, I saw a Lotus the other day, lots of other upper middle class type luxury cars around too so my experience may not be typical.

And that's the thing, people are buying expensive Tesla's because they can, and they are cool status symbol.
I see quite a few Tesla's around my area, and the further you go to the more affluent areas the more you see.
If I drive out to the less affulent areas in Sydney, you almost never see an EV, let alone a Tesla.

Not many ICE cars under $40k US? 
Australia has heaps of cars under AU$25k (US$19k), here is the top 5 rated:
https://www.carsguide.com.au/sedan/sedans-starting-under-25k
https://www.carsguide.com.au/sedan/best
And there is  class of small under AU$20k with I think half dozen options.

[james_s]

Not many ICE cars under $40k US? 
Australia has heaps of cars under AU$25k (US$19k), here is the top 5 rated:
https://www.carsguide.com.au/sedan/sedans-starting-under-25k
https://www.carsguide.com.au/sedan/best
And there is  class of small under AU$20k with I think half dozen options.

They may be available, I haven't looked since I have no plans to ever buy a new car, but there are not many of them around. The VAST majority of cars I see around here are those stupid crossover SUVs followed by fullsized SUVs and pickup trucks. I absolutely hate crossovers but everybody else in the country seems to love the damn things. Since that's what everyone buys, that's what all the dealers sell. I see quite a few Toyota Prius's too, I don't know what they cost but they aren't cheap. As I mentioned though, this is an affluent area, there's no way I could even afford to live here anymore if I didn't buy my place back when things were somewhat reasonable. With a median house price north of $600k I suppose I shouldn't be surprised that there aren't a lot of people buying new budget cars. People expect a lot of options today that would have formerly been considered luxuries too. I don't remember when I last saw a car with manual windows, steel wheels, or without AC, cruise control, climate control or other expensive gadgets.

[nctnico]

What makes the VW EVs popular in EU and the US is artificially reduced price to comply with regulations/fines and local production.

Also, smaller cars are much more popular in Europe due to congested city streets and parking issues - that is a significant reason the likes of the Zoe, i3 and ID3 are more popular than Tesla in many countries

Ever increasing sales numbers of SUVs in the EU disagree with this statement. Besides that the Tesla model 3 is not a particulary big car. What the VW ID.3 lacks in length it makes up in height compared to Tesla's model 3. All in all the volume of both cars is pretty close.

[timelessbeing]

exactly! Spend other people's money as much as you can allow. Put it to use.
Successful business people use debt extensively.
https://en.wikipedia.org/wiki/Time_value_of_money

You'd have to be dumb to take out a car loan.

With the financing rates they typically offer on new cars, like < 1%pa over 7 years, you'd have to be dumb not to. It's better-than-free money.

[mikeselectricstuff]

What makes the VW EVs popular in EU and the US is artificially reduced price to comply with regulations/fines and local production.

Also, smaller cars are much more popular in Europe due to congested city streets and parking issues - that is a significant reason the likes of the Zoe, i3 and ID3 are more popular than Tesla in many countries

Ever increasing sales numbers of SUVs in the EU disagree with this statement. Besides that the Tesla model 3 is not a particulary big car.

Just because SUVs are popular with some people doesn't mean that small cars aren't also very popular, much more so than in the US. Here in the UK, you see Fiat 500s, Smarts, i10s etc. absolutely everywhere, maybe 1 in 2 cars is a small hatchback.

What the VW ID.3 lacks in length it makes up in height compared to Tesla's model 3. All in all the volume of both cars is pretty close.

Height isn't an issue for narrow streets and limited parking.

[EEVblog]

exactly! Spend other people's money as much as you can allow. Put it to use.
Successful business people use debt extensively.
https://en.wikipedia.org/wiki/Time_value_of_money

You'd have to be dumb to take out a car loan.

With the financing rates they typically offer on new cars, like < 1%pa over 7 years, you'd have to be dumb not to. It's better-than-free money.

Not in Australia.
And this doesn't include any fine print.
Not to mention that taking out a loan sucks a lot of people into getting a much more expensive care than they can afford. Joe Average is much better off paying cash for sensible used car.
You also get better cash deals then with financing.

[sandalcandal]

exactly! Spend other people's money as much as you can allow. Put it to use.
Successful business people use debt extensively.
https://en.wikipedia.org/wiki/Time_value_of_money

You'd have to be dumb to take out a car loan.

With the financing rates they typically offer on new cars, like < 1%pa over 7 years, you'd have to be dumb not to. It's better-than-free money.

Not in Australia.
And this doesn't include any fine print.
Not to mention that taking out a loan sucks a lot of people into getting a much more expensive care than they can afford. Joe Average is much better off paying cash for sensible used car.
You also get better cash deals then with financing.

I think he's talking about dealership loans, not 3rd party car loans which are typically extremely scummy as you say. Example offer from Hyundai:

https://www.hyundai.com/au/en/offers/kona-electric/offer-detail?variantId=314

Edit: without special offers, 2.9% or 3.9% seems to be the common comparison rate for direct from OEM financing.

https://www.nissan.com.au/offers.html#category=Offer&model=LEAFZE1A

https://www.tesla.com/en_au/model3/design#payment

https://www.toyota.com.au/current-offers

[nctnico]

What the VW ID.3 lacks in length it makes up in height compared to Tesla's model 3. All in all the volume of both cars is pretty close.

Height isn't an issue for narrow streets and limited parking.

The VW ID.3 is as wide as the Tesla model 3. IIRC 30% of the cars sold in the EU are SUVs and that number has been steadily rising over the past few years.

[nctnico]

exactly! Spend other people's money as much as you can allow. Put it to use.
Successful business people use debt extensively.
https://en.wikipedia.org/wiki/Time_value_of_money

You'd have to be dumb to take out a car loan.

With the financing rates they typically offer on new cars, like < 1%pa over 7 years, you'd have to be dumb not to. It's better-than-free money.

Not in Australia.
And this doesn't include any fine print.
Not to mention that taking out a loan sucks a lot of people into getting a much more expensive care than they can afford. Joe Average is much better off paying cash for sensible used car.
You also get better cash deals then with financing.

I think he's talking about dealership loans, not 3rd party car loans which are typically extremely scummy as you say. Example offer from Hyundai:

https://www.hyundai.com/au/en/offers/kona-electric/offer-detail?variantId=314

Edit: without special offers, 2.9% or 3.9% seems to be the common comparison rate for direct from OEM financing.

As Dave already noted: you can likely get a better deal (=more discount) if you pay cash. What you don't pay in interest, you pay extra to the dealer using borrowed money. All in all getting a third party loan or one from the OEM is likely costing you the same if you add it all up.

[EEVblog]

As Dave already noted: you can likely get a better deal (=more discount) if you pay cash. What you don't pay in interest, you pay extra to the dealer using borrowed money. All in all getting a third party loan or one from the OEM is likely costing you the same if you add it all up.

Yep.
You usually won't get any discount if getting dealer financing, they will convince you it's cheap based on repayments.
You can easily save 5-10% off the price by paying cash, right off the bat, and likely a better offer on your trade-in if you have one.
And it's a 4 year term, so repayments are pretty steep anyway, might as well pay cash and get a hefty discount.
The only argument is of course that you can use the money to better effect someone else, and that can be true of course, but as I said, cheap dealer financing often tricks people into paying more for a car they otherwise can't afford. And of course, if your financial situation changes, or that other investment you put that cash toward instead comes-a-gutsa, then you could be screwed.
Safer, always cheaper, and less pressure to pay cash for a car.
The current affairs programs are litteed with stories of people who have taken out car financing and regretted it.

[sandalcandal]

As Dave already noted: you can likely get a better deal (=more discount) if you pay cash. What you don't pay in interest, you pay extra to the dealer using borrowed money. All in all getting a third party loan or one from the OEM is likely costing you the same if you add it all up.

Yep.
You usually won't get any discount if getting dealer financing, they will convince you it's cheap based on repayments.
You can easily save 5-10% off the price by paying cash, right off the bat, and likely a better offer on your trade-in if you have one.
And it's a 4 year term, so repayments are pretty steep anyway, might as well pay cash and get a hefty discount.
The only argument is of course that you can use the money to better effect someone else, and that can be true of course, but as I said, cheap dealer financing often tricks people into paying more for a car they otherwise can't afford. And of course, if your financial situation changes, or that other investment you put that cash toward instead comes-a-gutsa, then you could be screwed.
Safer, always cheaper, and less pressure to pay cash for a car.
The current affairs programs are litteed with stories of people who have taken out car financing and regretted it.

I'm not quite convinced that cash up front has quite such a significant discount. Maybe if you are personally negotiating it with the dealership. Anyway I just wanted to point out better value financing can be had direct from OEMs/dealerships. After all, they make money from the car sale itself and don't have to make money from charging interest and fees as dedicated loan providers do.

Managing monthly repayments to actually get a benefit requires stricter financial planning, less you end up putting yourself in a bad position. However as has also been acknowledged, there is potential benefit to the cheap/free credit on offer.

[nctnico]

I'm not quite convinced that cash up front has quite such a significant discount. Maybe if you are personally negotiating it with the dealership. Anyway I just wanted to point out better value financing can be had direct from OEMs/dealerships. After all, they make money from the car sale itself and don't have to make money from charging interest and fees as dedicated loan providers do.

That is where you are severely wrong! Car dealers aren't banks; the loans are outsourced to banks and they won't settle for a low interest rate. So the dealer has to make the profit from the car. Probably the dealer gets a kickback fee from the bank as well but guess who pays that... you!

And of course, if your financial situation changes, or that other investment you put that cash toward instead comes-a-gutsa, then you could be screwed.
Safer, always cheaper, and less pressure to pay cash for a car.

Not just that. Owning a car means having a way to go where you need to go no matter what happens. At a former employer I used to have a company car. When the company went bust I had to turn the car in and was left with no means of transportation when I needed it the most to get to job interviews. Since then I have respectfully declined a company car and made sure I owned a car 100%.

[sandalcandal]

I'm not quite convinced that cash up front has quite such a significant discount. Maybe if you are personally negotiating it with the dealership. Anyway I just wanted to point out better value financing can be had direct from OEMs/dealerships. After all, they make money from the car sale itself and don't have to make money from charging interest and fees as dedicated loan providers do.

That is where you are severely wrong! Car dealers aren't banks; the loans are outsourced to banks and they won't settle for a low interest rate. So the dealer has to make the profit from the car. Probably the dealer gets a kickback fee from the bank as well but guess who pays that... you!

You know these large OEMs are their own banks right?
https://en.wikipedia.org/wiki/Hyundai_Capital
Retracted. see below

[EEVblog]

I'm not quite convinced that cash up front has quite such a significant discount. Maybe if you are personally negotiating it with the dealership.

Of course you are personally negotiating with the dealership, how else would you do it?
Try buying a new car sometime and see how much you can get of the ticket price, particually at the end of the month when their sales quota is due, 5% is trivial to get.

[EEVblog]

I'm not quite convinced that cash up front has quite such a significant discount. Maybe if you are personally negotiating it with the dealership. Anyway I just wanted to point out better value financing can be had direct from OEMs/dealerships. After all, they make money from the car sale itself and don't have to make money from charging interest and fees as dedicated loan providers do.

That is where you are severely wrong! Car dealers aren't banks; the loans are outsourced to banks and they won't settle for a low interest rate. So the dealer has to make the profit from the car. Probably the dealer gets a kickback fee from the bank as well but guess who pays that... you!

You know these large OEMs are their own banks right?
https://en.wikipedia.org/wiki/Hyundai_Capital

Nope, it's StGeorge bank:

nctnico is right, you will pay for that, usually by not getting as good a discount as you can with cash. And doesn't include fees and changes.
So take a $50,000 ticket price car.
For cash you can pay say $46k and you are done.
For credit you'll pay maybe $49k (so you feel good you are getting some discount) and you pay at least a 1.5% comparison rate on $40k, so $500/year interest at least, that's $2k, plus fees and changes let's assume another $1k. So you've paid say $52k vs $46k, or $6k more than cash.

And if you have financial problems then you can't just sell the car because you don't own it, and you are still on the hook for the repayments.
But if you paid cash for the car, not only do you save a big chunk of cash, you can sell the car because you own it and can immediately recoup some cash.

[sandalcandal]

I'm not quite convinced that cash up front has quite such a significant discount. Maybe if you are personally negotiating it with the dealership. Anyway I just wanted to point out better value financing can be had direct from OEMs/dealerships. After all, they make money from the car sale itself and don't have to make money from charging interest and fees as dedicated loan providers do.

That is where you are severely wrong! Car dealers aren't banks; the loans are outsourced to banks and they won't settle for a low interest rate. So the dealer has to make the profit from the car. Probably the dealer gets a kickback fee from the bank as well but guess who pays that... you!

You know these large OEMs are their own banks right?
https://en.wikipedia.org/wiki/Hyundai_Capital

Nope, it's StGeorge bank:

nctnico is right, you will pay for that, usually by not getting as good a discount as you can with cash. And doesn't include fees and changes.
So take a $50,000 ticket price car.
For cash you can pay say $46k and you are done.
For credit you'll pay maybe $49k (so you feel good you are getting some discount) and you pay at least a 1.5% comparison rate on $40k, so $500/year interest at least, that's $2k, plus fees and changes let's assume another $1k. So you've paid say $52k vs $46k, or $6k more than cash.

And if you have financial problems then you can't just sell the car because you don't own it, and you are still on the hook for the repayments.
But if you paid cash for the car, not only do you save a big chunk of cash, you can sell the car because you own it and can immediately recoup some cash.

Thanks Dave, great response. Retracting my previous statement.

[Fungus]

I don't like having debt and bills hanging over my head, even if the interest is ridiculously low like that. I don't buy new cars though, and of the people I know who do buy new cars, it's only the really wealthy ones who pay cash for new cars, the vast majority of people take out a loan.

OK, do it this way: Save up for a car then take out a loan and put the spare money into an investment fund. The money will grow a couple of thousand per year and you'll make a profit over the repayment period without having a single thing "hanging over your head" - you know you'll always have the money to meet the payments.

That ^ is the reason people say "you'd be crazy not to!".

Most people don't do that of course they just take out the loans and cross their fingers. The advantage is they'll get their car today while you're still saving up for yours.

PS: You can usually get a better deal on your car if you don't pay cash. Dealers hate cash, they make no profit on cash-paid cars. They make more profit on the loans. If you go into a car dealership saying you want to pay in cash then you're screwed in terms of negotiation on the price.

https://www.google.com/search?q=don't+pay+cash+for+cars&&tbm=vid

[Fungus]

For cash you can pay say $46k and you are done.
For credit you'll pay maybe $49k (so you feel good you are getting some discount) and you pay at least a 1.5% comparison rate on $40k, so $500/year interest at least, that's $2k, plus fees and changes let's assume another $1k. So you've paid say $52k vs $46k, or $6k more than cash.

How much interest can you earn on a $40k investment fund over five years? At 12% growth per year it makes 75%* which would be $30k interest. It completely dwarfs the $6k interest you'd pay on the car loan and your car would cost you half as much.

[sandalcandal]

For cash you can pay say $46k and you are done.
For credit you'll pay maybe $49k (so you feel good you are getting some discount) and you pay at least a 1.5% comparison rate on $40k, so $500/year interest at least, that's $2k, plus fees and changes let's assume another $1k. So you've paid say $52k vs $46k, or $6k more than cash.

How much interest can you earn on a $40k investment fund over five years? At 12% growth per year it makes 75%* which would be $30k interest. It completely dwarfs the $6k interest you'd pay on the car loan and your car would cost you half as much.

Where are you getting a 12% YoY?!

[nctnico]

PS: You can usually get a better deal on your car if you don't pay cash. Dealers hate cash, they make no profit on cash-paid cars. They make more profit on the loans. If you go into a car dealership saying you want to pay in cash then you're screwed in terms of negotiation on the price.

Which inherently means you get the best deal if you pay directly (either through physical money or a bank transfer). 

[james_s]

I've been told you never want to tell a dealer that you plan to pay cash until you've negotiated a final price and have it in writing. They make money off the loans so if they know ahead of time that you're paying cash they're less likely to negotiate as low a price. I don't know if this applies elsewhere though, I can only offer the American perspective. I'm also not somebody who buys new cars so I've always paid cash and bought from a private seller but *somebody* has to buy new cars from dealers or there wouldn't be any used cars for people like me.

[ve7xen]

I'm not quite convinced that cash up front has quite such a significant discount. Maybe if you are personally negotiating it with the dealership. Anyway I just wanted to point out better value financing can be had direct from OEMs/dealerships. After all, they make money from the car sale itself and don't have to make money from charging interest and fees as dedicated loan providers do.

That is where you are severely wrong! Car dealers aren't banks; the loans are outsourced to banks and they won't settle for a low interest rate. So the dealer has to make the profit from the car. Probably the dealer gets a kickback fee from the bank as well but guess who pays that... you!

You know these large OEMs are their own banks right?
https://en.wikipedia.org/wiki/Hyundai_Capital

Nope, it's StGeorge bank:

nctnico is right, you will pay for that, usually by not getting as good a discount as you can with cash. And doesn't include fees and changes.
So take a $50,000 ticket price car.
For cash you can pay say $46k and you are done.
For credit you'll pay maybe $49k (so you feel good you are getting some discount) and you pay at least a 1.5% comparison rate on $40k, so $500/year interest at least, that's $2k, plus fees and changes let's assume another $1k. So you've paid say $52k vs $46k, or $6k more than cash.

And if you have financial problems then you can't just sell the car because you don't own it, and you are still on the hook for the repayments.
But if you paid cash for the car, not only do you save a big chunk of cash, you can sell the car because you own it and can immediately recoup some cash.

Maybe the situation is different in Australia, or with different makes (I have only bought new Japanese makes that are known for not really negotiating much on price) but that has not been the case in my experience in Canada. Most dealers aren't really willing to give anything meaningful in the way of discounts whether you are paying cash or using financing. If there's a difference, it's small. There's a complicated relationship between the car maker and the dealership that I don't fully understand, but I believe the cheap credit is financed by the make, *not* the dealer, while any cash discounts they give you come directly out of the dealer's profit margin.

And your math ignores the time value of the money you don't have tied up in the car. Let's say you have $50k in cash on hand, and you draw from it to pay off the loan, so this is a self contained system.

If you pay cash, it's simple, the car costs you the $46k you claim you can negotiate it down to, you invest the remaining $4k for the 7 years at an achievable 5%, and end up with $4749.

If you finance and instead put the $50k in investments, 49k @ 1.5% over 7 years results in a monthly payment of $647.45. If you plug this into a 'savings calculator with regular withdrawals', and a compound interest of 5%, simulating investing this money at 5% and then drawing it down to pay the loan, we find a future value of $5673. This is considerably more than the $4749 you would be left with paying cash, despite the lower cash price.

Of course lots of people are irresponsible and buy cars they can't afford on credit, and buying a new car is not always going to be a prudent choice, but the point is that all else being equal, taking the financing is usually a better financial decision. It also gives you considerably more flexibility, since you have less tied up in an asset that has depreciated considerably and isn't all that liquid.

[EEVblog]

And your math ignores the time value of the money you don't have tied up in the car.

Yes, I know, and I mentioned that. I was never saying there is no place for credit.
But the fact is if things go finally pear shaped and/or you are unable to invest that money better in the following years, then you are almost certainly going to be worse off with a loan than buying outright.

[EEVblog]

Of course lots of people are irresponsible and buy cars they can't afford on credit, and buying a new car is not always going to be a prudent choice, but the point is that all else being equal, taking the financing is usually a better financial decision. It also gives you considerably more flexibility, since you have less tied up in an asset that has depreciated considerably and isn't all that liquid.

Depends on how you define "flexibility".
Capital flexibility, yes, but when you don't own the car and you are locked into a legal debt arrangement, that's certainly not my definition of "flexibility". As always, YMMV.

[EEVblog]

For cash you can pay say $46k and you are done.
For credit you'll pay maybe $49k (so you feel good you are getting some discount) and you pay at least a 1.5% comparison rate on $40k, so $500/year interest at least, that's $2k, plus fees and changes let's assume another $1k. So you've paid say $52k vs $46k, or $6k more than cash.

How much interest can you earn on a $40k investment fund over five years?

Potentially negative if your investment goes pear shaped.

Look, there is no hard and fast right answer here. If you want lessen your capital outlay and think you can invest the money better, then go for it. But for Joe Average, it's most likely going to cost them more and offers greater downwide and less flexibility if you take out a loan for car. As a general rule I would recomment that no one take out a loan for a car. Only buy the car that you can afford to pay cash for.
In the example above, buy a reliable 10k car and keep the extra $40k.