June 22, 2024

A Little Good News for Rivian Investors

Investors in the automotive industry, especially the electric vehicle (EV) industry, are happy to soak up any positive news amid a flurry of price cuts, supply disruptions, and slowing growth. If they’ve been focusing on the bad news, Rivian Automotive (NASDAQ: RIVN) investors might have missed that the company recently added the R1S to its leasing program, and it might be a bigger deal than they think.

Here’s why leasing will be important for Rivian right now, and why adding the  SUV specifically is good news.

Rules Rivian plays by

There are some rules of thumb within the automotive industry. Some are well known, such as that trucks and SUVs are much more profitable than passenger cars. Another rule from the past is that while luxury vehicle sales accounted for between 10% and 20% of the market, they typically generate over one-third of profits — it varies among brands and manufacturers.

Yet another rule of thumb: Leasing is critical for high-priced vehicles. That combination of rules is what makes Rivian’s newly launched leasing program so important for the company. Its R1 vehicles’ starting price is roughly $78,000, which is nearly $30,000 higher than near-record-high average transaction prices in the U.S. market.

The fact that Rivian has been mostly immune to a slowdown in demand without a leasing program to help ameliorate its high prices is impressive. Much of its recent fourth-quarter slowdown was due to Amazon not accepting as many electric van deliveries during its holiday season, so that doesn’t count.

Expanding the lease program

Rivian had said previously that the R1S SUV is more profitable than the R1T truck, and only in the third quarter did the majority of production favor the R1S over the R1T. Yet when Rivian launched its leasing program two months ago, it was only for the R1T.

Now Rivian has added its flagship R1S vehicle to its leasing options and also added another state its leasing is available in, Illinois. That brings the number of states where the leasing is offered to 15 (Arizona, California, Colorado, Florida, Georgia, Illinois, Massachusetts, Michigan, Missouri, New Jersey, New York, Nevada, Pennsylvania, Texas, and Washington)

Why does it matter?

Leasing accounts for only about 20% of new vehicles overall, but can account for nearly 80% of luxury vehicles, which is essentially the price range of Rivian’s larger R1S and R1T vehicles.

Rivian’s leasing program opens the doors for consumers who were waiting on an option that would help offset those high price tags, and potentially unlocks incremental demand at a time when the EV industry is seeing slower sales growth.

Putting the R1S on the table for more auto buyers should be good news for Rivian as it is its more profitable vehicle and the vehicle that has been produced at a more rapid rate since the third quarter.

This latest leasing step is just a little more good news for the EV company that has so far avoided price wars and largely sidestepped a slowdown in production and deliveries. It could come at the perfect time to unlock more demand as the company looks to carry momentum from a fairly strong back half of 2023.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.

A Little Good News for Rivian Investors was originally published by The Motley Fool

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