Rivian Automotive (RIVN -2.78%) just reported mixed third-quarter results featuring a wider-than-expected loss, a production and supplier snag, but reaffirmed full-year guidance for production, deliveries, and its target to achieve positive gross profits in the fourth quarter.
The third quarter also brought evidence Rivian is taking the next step to evolve as an automaker, and the leasing program is not only thriving, but also giving birth to a pre-owned vehicle program -- both developments can help move the needle for investors.
Why does leasing matter?
Leasing is important for a couple of reasons. One thing leasing does is bring down the price of vehicle ownership for more price-conscious consumers. In a way, offering to lease the vehicle is an opportunity to rope in more potential customers who are on the fence about purchasing a Rivian. For an example of the price difference, Rivian offered a pre-owned R1T with 16,581 miles for $62,370, which originally had a sticker price of $87,000.
A second reason leasing is very important to automakers is that it offers a loophole for the automaker to pass the federal $7,500 EV tax credit to the consumer when the vehicle purchase might otherwise not be eligible for the credit. Some Rivian vehicles are simply too expensive to qualify for the electric vehicle (EV) purchase tax credit, but all leased vehicles can receive the credit.
The good news is that even though Rivian's leasing program is still in the early stages -- remember that it only began roughly a year ago -- it's having serious impact. Consider that during the third quarter about 42% of Rivian sales were leased.
This also partially explains why Rivian stock dropped more than 8% on Wednesday following President-elect Donald Trump's win over Vice President Kamala Harris, as Trump is widely thought to be considering altering or ending EV tax credits. Losing those tax credits would be a significant blow to the EV industry as a whole, but especially Rivian with its limited vehicle lineup and young leasing program.
Pre-owned program
The intriguing thing about automakers for investors is how the development of one program can drive another separate program. In this case, it's warranties.
Once the lease ends and these vehicles are back in Rivian's hands, it performs an inspection and can attach a warranty back to the vehicle for consumers' peace of mind. This peace of mind, purchasing an inspected vehicle from the original equipment manufacturer (OEM), enables Rivian to charge more for its pre-owned vehicles than they're worth on the open market.
"It's almost mandatory if you want to be taken seriously," said Ivan Drury, a senior analyst at Edmunds, according to Automotive News. "For consumers testing the waters on brands they've never had experience with, you want as many things as possible that inspire confidence, and these programs speak to that."
Essentially, Rivian's leasing and pre-owned program is a way to open new revenue streams, and when the company's leasing generates 42% of sales during the third quarter, it's having a significant impact on the company's financials and future. It's a simple reminder to investors that even the smallest developments can have serious impact, and to fully understand the investments and businesses you own is the best investing advice you can receive.
