Investors in the auto industry, especially the electric vehicle (EV) industry, are happy to soak up any positive news amid a spate of price cuts, supply disruptions and slowing growth. If they were focused on bad news; Rivian Automotive (NASDAQ:RIVN) Investors may have overlooked the company's recent addition of R1S to its leasing program, but this may be a bigger deal than they thought.
Here's why leasing is important for Rivian right now, and why adding an SUV in particular is good news.
Rivian rules
There are some rules of thumb in the auto industry. Some are well known, such as the fact that trucks and SUVs are much more profitable than cars. Another rule from the past is that while luxury car sales account for 10 to 20 percent of the market, they typically generate more than a third of profits. This varies by brand and manufacturer.
Yet another rule of thumb: Leasing is important for expensive vehicles. It's this combination of rules that makes Rivian's newly launched leasing program so important to the company. The company's R1 vehicles have a starting price of about $78,000, nearly $30,000 more than the average transaction price in the U.S. market, which is near an all-time high.
The fact that Rivian was largely unaffected by the slowdown in demand without a leasing program to remedy its high prices is impressive. The recent slowdown in the fourth quarter was primarily due to Amazon There aren't that many electric van deliveries during the holiday season, so that's not a problem.
Expansion of lease program
Rivian has previously said that the R1S SUV is more profitable than the R1T truck, and that it was only in the third quarter that the majority of production favored the R1S over the R1T. But when Rivian started his Reese his program two months ago, it was only for his R1T.
Rivian has now added leasing options for its flagship R1S and has added Illinois as a state where leasing is available. This brings the number of states in which leases are offered to 15 (Arizona, California, Colorado, Florida, Georgia, Illinois, Massachusetts, Michigan, Missouri, New Jersey, New York, Nevada, Pennsylvania, Texas, and Washington).
Why is it important?
While leases only make up about 20% of all new cars, they can be closer to 80% of luxury cars, which is essentially the price range of Rivian's large R1S and R1T cars.
Rivian's lease program opens the door to consumers who have been waiting for an option to offset those high prices, potentially sparking increased demand at a time when sales growth in the EV industry is slowing.
The R1S being sold to more car buyers should be good news for Rivian as it is a more profitable car and one that has been produced more rapidly since Q3. is.
This latest leasing move is further good news for EV companies, which have so far avoided price wars and largely avoided production and delivery slowdowns. The company is expected to continue its fairly strong momentum in the second half of 2023, so this could be the perfect time to unlock further demand.
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“A Little Good News for Rivian Investors” was originally published by The Motley Fool
