When investors are eyeballing the electric vehicle (EV) market for the next Tesla-like stock, one thing people look for is a potential catalyst for the stock price to soar higher. Recently, Rivian (RIVN 6.10%) made a substantial move, but will it be enough to move the needle?
Why leasing matters
Believe it or not, some potential Rivian owners have been long awaiting a lease program. When many investors think of leasing, they think of luxury vehicles. That's because, in general, leasing accounts for only about 20% of new cars sold, but that increases significantly when you get into luxury or high-priced vehicles.
For instance, BMW has a lease rate of 77%, while finance and cash contribute only 10% and 13%, respectively, to sales. Audi has a similar 70%/12%/18% split for the same options.
And while investors may not consider Rivian vehicles in the luxury segment, their price point does reach that territory when the starting price for R1 vehicles is roughly $78,000. Further, Chevrolet is the eighth-most-leased brand according to CarTelligent, with over 56% of sales leased. Chevrolet is similar to Rivian in that it doesn't sell luxury vehicles per se, but its Chevrolet Silverado is expensive and sells at an incredibly high volume.
Will it move the needle?
It's not at all a stretch to say Rivian's introduction of a leasing program could open the door to new customers. How much this could boost Rivian sales initially is yet to be seen, but there's definitely reason for investors to remain optimistic it could move the needle as the EV maker raised its total annual production forecast to roughly 54,000 units -- it won't take many incremental sales to make a noticeable boost.
One reason leasing is a more intriguing option in the EV market is that it makes it easier for customers to pocket the savings of the federal tax incentives. The manufacturer can often wrap the savings into the lease.
That said, it's also important to keep expectations tempered, as the lease program covers only the R1T truck for now, and customers wanting a lease on an R1S SUV will have to wait. Further, Rivian's lease program will start in only 14 states initially: Arizona, California, Colorado, Florida, Georgia, Massachusetts, Michigan, Missouri, New Jersey, New York, Nevada, Pennsylvania, Texas and Washington. Rivian did note that additional states, lease configurations, and R1S lease options will be introduced soon.
Is it a good signal?
Investors can interpret the newly launched leasing development in different ways. On one hand, you can see it as a positive signal that management is confident enough in accelerated production, and confident enough that the bottlenecks and slowdowns are completely in the rearview mirror, to pull this lever to bring in incremental customers.
On the other hand, you could argue it's a necessary move to spur demand due to weakness. While there doesn't appear to be a weakness in Rivian's production and deliveries as of the third quarter, it's fair to note that according to Experian, the R1T had 8,679 registrations from January through September, down 0.7% from the same period in 2022. Accelerating production is nice, but if demand isn't there, it's pointless.
Should investors follow?
However you choose to view the leasing program, as a positive development to boost sales or as a signal of weakening demand, there's little doubt it's a solid and smart move from the young EV maker. It could absolutely spur demand for its R1T initially, and then the R1S soon after.
At a time when the company has momentum going into 2024, and is hitting annual run rates of 65,000 units produced, unleashing more demand could set the company up for a strong first half of 2024.
