Finance vs. Lease the R2 -- the math

[Coskigirl]

Definitely not liking the residual for the R2 at $38070. Was thinking of leasing the R2 while I wait for the R3X but not sure it makes financial sense.

But if the car is actually valued higher when it's time for the lease to expire you just buy it out for the residual then sell it for higher. Or trade it in and get the higher value toward your next vehicle (which I've done.)

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[ribuck97]

Definitely not liking the residual for the R2 at $38070. Was thinking of leasing the R2 while I wait for the R3X but not sure it makes financial sense.

In your case, the high residual is good... the main issue is the high APR. An APR that falls in line with the R1 line puts the pre-tax monthly ~$650 for 3/30k

 

[ribuck97]

But if the car is actually valued higher when it's time for the lease to expire you just buy it out for the residual then sell it for higher. Or trade it in and get the higher value toward your next vehicle (which I've done.)

Do you firmly believe the R2 will maintain greater than 65% residual? That is, in my opinion, pretty high, especially in the EV realm. R1 line is in the 46.5-59.5%.

Is it possible with current inflation and/or world politics? sure. Search says avg 3 year actual depreciation for EVs sits at between 38-42%.

 

[R2D2TOO]

the only way

I’m kinda debating whether to buy outright or lease.
I usually buy my cars.
I can afford to pay cash.
But I am thinking I can do better if I invest that money over three years even while paying as admittedly pricey lease cost. Maybe.
And leasing does offer a bit of protection if the residual vs market price becomes problematic. Hmmm.

 

[Coskigirl]

Do you firmly believe the R2 will maintain greater than 65% residual? That is, in my opinion, pretty high, especially in the EV realm. R1 line is in the 46.5-59.5%.

Is it possible with current inflation and/or world politics? sure. Search says avg 3 year actual depreciation for EVs sits at between 38-42%.

Not at all. I was responding to the person who seemed to think the residual was low so pointing out that if it is low they have options at lease end.

 

[DuoRivian]

I’m kinda debating whether to buy outright or lease.
I usually buy my cars.
I can afford to pay cash.
But I am thinking I can do better if I invest that money over three years even while paying as admittedly pricey lease cost. Maybe.
And leasing does offer a bit of protection if the residual vs market price becomes problematic. Hmmm.

Investing has its own issues if the market is flat or drops then that blows a hole in assumptions too

 

[R2D2TOO]

Investing has its own issues if the market is flat or drops then that blows a hole in assumptions too

Very true. Welcome to the internal debate I am having...

 

[mkg3]

I’m kinda debating whether to buy outright or lease.
I usually buy my cars.
I can afford to pay cash.
But I am thinking I can do better if I invest that money over three years even while paying as admittedly pricey lease cost. Maybe.
And leasing does offer a bit of protection if the residual vs market price becomes problematic. Hmmm.

This sounds good on the surface but need to really look at what that means in the context of your after tax implications.

I have done exactly as what you've suggested but with 0% interest auto loan. No brainer on this one.

With higher auto loan rate or money factor, the investment side need to look at not just the market gains but impact to your taxes, year-by-year. If you just absorb the payment and not touch the invested amount, then its a moot point.

For your tax, there is a capital gains and depending on your income level, that could impact your marginal tax rate for all other income. Further, if you make enough, there is Net Investment Income Tax (NIIT, or Obamacare tax) of additional 3.8% on the top of the 15% (or 20%, depending on income). Often this is on the top of the jump on the marginal tax rate from 24% to 32% as the result of investment income. Last, don't forget your state income tax, if there is one in your state (looks like you in TX so I'm jealous about that).

The last thing is if you take out a loan to buy the vehicle, depending on your income, you can deduct up to $10k for US MADE vehicle auto loan.

So, to break even on the 8% auto loan, you probably have to make close to 16~20% to actualize the benefit of "investing the money" instead of out right buy.

From my perspective, vehicle is a capital expense and not an investment.

 

[MaskedRacerX]

And that the battery technology is on the cusp of huge energy density change. There are at least two solid state battery companies scaling up for high volume production (QuantumScape - backed by VWG, and Factorial - backed by MB). Chinese CATL is pretty much there.

If I were interested in R2, leasing is th only logical thing from my perspective. Not only the statement above, it is a first generation of R2 (don't care if Rivian call it gen 3 vehicle). This would mean that there will be plenty of first of its kind types of issues and problems.

I would do a 2 year lease and treat the payment same as a utility, albeit very high utility.

Same. I'm kind of digging on the 2 year options too. Our current leases are 36 and 24 months, and the latter is nice for being able to quickly (in the context of vehicle ownership) change rides as the (EV) industry changes, or as your needs might suddenly change, or even - and hopefully not - bail on a ride that's just problematic for whatever reasons.

But if the car is actually valued higher when it's time for the lease to expire you just buy it out for the residual then sell it for higher. Or trade it in and get the higher value toward your next vehicle (which I've done.)

It's rarely happened for us, but back during that peak 3rd party purchase frenzy around Covid, we bought out a car cash at the end of lease, turned around and sold it to Carvana. Zero hassles, picked up from our driveway, like maybe 10-15 minutes of total time investment - and made $12K

 

[runwithscissors]

Torn. On one hand saving $8K with financing is great. On the other, you are taking a risk with LiDar coming out, uncertain EV markets, etc. even after 3 years EV technology would be outdated yet again.

Crazy to think that I leased my 2024 Gen R1S Quad 2 years ago for $929/mo pre-tax, 36 mo/10K yr, and $0 down (plus first months payment + fees). The R2 performance lease will be more than that.

How did they ever do f&f leases for sub $500? Crazy pricing

 

[R2D2TOO]

This sounds good on the surface but need to really look at what that means in the context of your after tax implications.

I have done exactly as what you've suggested but with 0% interest auto loan. No brainer on this one.

With higher auto loan rate or money factor, the investment side need to look at not just the market gains but impact to your taxes, year-by-year. If you just absorb the payment and not touch the invested amount, then its a moot point.

For your tax, there is a capital gains and depending on your income level, that could impact your marginal tax rate for all other income. Further, if you make enough, there is Net Investment Income Tax (NIIT, or Obamacare tax) of additional 3.8% on the top of the 15% (or 20%, depending on income). Often this is on the top of the jump on the marginal tax rate from 24% to 32% as the result of investment income. Last, don't forget your state income tax, if there is one in your state (looks like you in TX so I'm jealous about that).

The last thing is if you take out a loan to buy the vehicle, depending on your income, you can deduct up to $10k for US MADE vehicle auto loan.

So, to break even on the 8% auto loan, you probably have to make close to 16~20% to actualize the benefit of "investing the money" instead of out right buy.

From my perspective, vehicle is a capital expense and not an investment.

You make good points for consideration, but I have looked at all those. No state income tax, and my income prevents any deduction on the auto loan. It is certainly better- considering financials only - for me to purchase. But I am still weighing the benefits of leasing…arg.

 

[SolidTHX1138]

Cash, thanks Elon.

 

[Blitzjb]

This sounds good on the surface but need to really look at what that means in the context of your after tax implications.

I have done exactly as what you've suggested but with 0% interest auto loan. No brainer on this one.

With higher auto loan rate or money factor, the investment side need to look at not just the market gains but impact to your taxes, year-by-year. If you just absorb the payment and not touch the invested amount, then its a moot point.

For your tax, there is a capital gains and depending on your income level, that could impact your marginal tax rate for all other income. Further, if you make enough, there is Net Investment Income Tax (NIIT, or Obamacare tax) of additional 3.8% on the top of the 15% (or 20%, depending on income). Often this is on the top of the jump on the marginal tax rate from 24% to 32% as the result of investment income. Last, don't forget your state income tax, if there is one in your state (looks like you in TX so I'm jealous about that).

The last thing is if you take out a loan to buy the vehicle, depending on your income, you can deduct up to $10k for US MADE vehicle auto loan.

So, to break even on the 8% auto loan, you probably have to make close to 16~20% to actualize the benefit of "investing the money" instead of out right buy.

From my perspective, vehicle is a capital expense and not an investment.

Eligibility Requirements
To claim the deduction, your purchase must meet the following conditions:

• Vehicle Type: Must be a brand new passenger vehicle, SUV, or light truck under 14,000 lbs used primarily for personal use (leased vehicles and used cars do not qualify). [1, 2]
• U.S. Assembly: The car must have undergone final assembly in the United States. You can verify your vehicle's assembly status by entering its VIN on the NHTSA VIN Decoder. [1, 2]
• • Loan Terms: The auto loan must have originated after December 31, 2024, and be secured by a lien on the vehicle. [1]

Income Phase-Outs
The maximum $10,000 deduction decreases if your modified adjusted gross income (MAGI) exceeds the following limits: [1]

• Single Filers: Begins to phase out at $100,000 and drops to $0 at $150,000.
• Married Couples (Joint): Begins to phase out at $200,000 and drops to $0 at $250,000. [1]

How to Claim

 

[Rizzian]

Lease an EV unless you plan on heavy modding or business use.
For R2, we don't know what the true residual value will be in 3 years, but the trends aren't good.
Why eat all that depreciation and be left with 2-3 years of "premium" sized payments on a vehicle that has what will be considered "old" Gen 2 hardware. The residual (buyout) on my current R1S lease is about $75k - conversely, Rivian is offering Gen2 R1S owners something like $53k for trade-ins with low miles (and then listing for $73K and up on their website).
EV Technology is advancing quickly, similar to mobile phone tech. If you're the type that gets a new phone every 1-2 years, you're going to want to lease your EV. If you currently use an iPhone 11, Galaxy 10, or a flip phone and you're totally loving it, buy your R2 outright.

 

[Jeremy3292]

Do you firmly believe the R2 will maintain greater than 65% residual? That is, in my opinion, pretty high, especially in the EV realm. R1 line is in the 46.5-59.5%.

Is it possible with current inflation and/or world politics? sure. Search says avg 3 year actual depreciation for EVs sits at between 38-42%.

R1 is a bad example to use IMO. The higher the cost of the car the more there is to depreciate. $100k cars have a lot of room to go down in value. An R2 is only $50-$60k...can only drop so much.

Also with EV depreciation historical trends you must take out COVID pricing in the 2022-2023 time frame to get realistic future depreciation. The media loves writing articles about how badly EV's depreciate but ignored the crazy market factors at that time that applied to all cars really. People were paying $70k+ for new Model Y's at that time. RAV4's at the Toyota dealership near me were going for $50k! A foreseeable massive drop in value once the COVID spike ended.

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