Thriving Section within Rivian Experiences Success
Thriving Section within Rivian Experiences Success
Rivian Automotive (decrease of 4.17% in RIVN's stock) revealed mixed third-quarter results, showing a bigger-than-expected loss and production/supplier issues, but they maintain their full-year forecast regarding production, deliveries, and their goal to achieve positive gross profits in the last quarter.
The third quarter also marked an advancement for Rivian as an automaker, with their leasing program not only surviving but even growing, leading to the creation of a pre-owned vehicle program, which could spark investor interest.
Why is leasing vital?
Leasing plays a significant role for a couple of reasons. For one, it lowers the vehicle ownership price for price-sensitive consumers, potentially attracting potential buyers who may have second thoughts about investing in a Rivian. For example, a pre-owned R1T with 16,581 miles sold for $62,370 – a significant reduction from its initial $87,000 price tag.
Another reason leasing is advantageous for automakers is that it serves as a loophole to pass the $7,500 federal EV tax credit to the customer, even if the vehicle purchase doesn't qualify for it. Some Rivian vehicles are ineligible for the electric vehicle (EV) purchase tax credit due to their high price tag, but all leased vehicles can receive this credit.
It's worth noting that despite its early stage – Rivian's leasing program started around a year ago – it's already having a substantial impact. Approximately 42% of Rivian's sales during the third quarter were leased, reflecting the effectiveness of their leasing program.
This fact partly explains why Rivian's stock dropped more than 8% after President-elect Donald Trump's election, as Trump may consider altering or completely abolishing EV tax credits. Losing these benefits would be a severe setback for the entire EV industry, but particularly for Rivian, with its limited vehicle lineup and young leasing program.
Pre-owned program
The fascinating thing about automakers from an investment perspective is how the development of one program can foster the existence of another, like warranties in this case.
When the lease expires, and these vehicles return to Rivian, they perform an inspection and attach a warranty to the vehicle again, providing consumers with peace of mind. Purchasing a pre-owned vehicle from the original equipment manufacturer (OEM) allows them to charge more for their used vehicles, as they are worth less on the open market.
"It's almost mandatory if you want to be taken seriously," said Ivan Drury, a senior analyst at Edmunds, in an interview with Automotive News. "For consumers venturing into new brands, you want as many things as possible that inspire confidence, and these programs help build that confidence."
In conclusion, Rivian's leasing and pre-owned program are a means to create new income streams. Given that Rivian's leasing generated 42% of sales during the third quarter, it's having a substantial impact on the company's financials and future. It serves as a valuable reminder to investors that even the smallest advancements can generate significant results, and understanding your investments thoroughly is the best investing advice you can receive.
The leasing program's success, with 42% of Rivian's third-quarter sales being leased vehicles, is positively impacting the company's financials. This revenue stream could attract more investors, as they see the potential for financial growth through innovative programs like leasing and pre-owned vehicle sales.
Investors interested in Rivian Automotive may also be drawn to the benefits of leasing, such as lowering the vehicle ownership price for price-sensitive consumers and providing a loophole to pass the federal EV tax credit to the customer. These strategies can increase demand for Rivian vehicles, potentially leading to higher stock prices.