Jivian
Well-Known Member
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- #1
Hey Everyone,
I've seen lots of discussions comparing leasing to buying but I haven't seen many examples with specific math comparing the options considering the lease is the only way to get the $7500 EV credit. To decide between leasing and buying my Storm Blue R1S Trimax in California, I compared the Net Present Value (NPV) of a few situations:
*there are a bunch of assumptions
First, an aside about NPV. You can obviously look up NPV on Google, but here's how I think about it in the context of buying a Rivian. NPV is the amount of money you need now to be able to payoff an amount in the future. So, for example, how much money would you need today to pay $1000 each year for 10 years? Isn't it just $10,000 you might ask? Sure, if you're keeping the money under your mattress. If you're earning 4% in a high yield savings account, how much would you need to put in today in order to pay the $1000 payments for 10 years?
Formula:
NPV = ÎŁ(t=1 to n) [Cash Flow / (1 + r)^t]
NPVâ‚„% = ÎŁ(t=1 to 10) [-1000 / (1.04)^t]
What about 6%? Would you need less or more money? Less, if you're earning more interest. The NPV for a 6% discount rate is only $7360 in order to pay $1000 per year for 10 years.
Ok, if you're still with me I compared the the NPV of each scenario to find the lowest NPV (cheapest way).
Here it is:
So, since I can't format the table exactly how I want, the relevant lines to look at are the Total (NPV) and the Difference from Cash purchase
Scenarios:
For the most part, these are accurate numbers. The lease numbers are from my actual lease terms for our vehicle. Unfortunately, after I initiated the lease, the cash payment terms option in my Rivian account disappeared (which I hadn't saved) so I had to make some assumptions on the fees but I don't think it affects the overall math very much as it should be close. The far and away biggest assumption is the residual at the end of the early buyout. I calculated that by taking the MSRP and subtracting the cash I put down plus 1 month worth of depreciation. I haven't actually bought the lease out yet as I just took delivery this weekend (so far, the Tri is awesome btw but don't want to dilute this post with a review). Once I actually get the the buyout quote from Chase, I'll be able to plug in exact numbers.
Some discussion points:
I've seen lots of discussions comparing leasing to buying but I haven't seen many examples with specific math comparing the options considering the lease is the only way to get the $7500 EV credit. To decide between leasing and buying my Storm Blue R1S Trimax in California, I compared the Net Present Value (NPV) of a few situations:
- Buying the car outright in cash
- Leasing the car with a 36 month, 12000 mile lease using a 4% NPV discount rate and buying after the lease term
- Leasing the car with a 36 month, 12000 mile lease using a 6% NPV discount rate and buying after the lease term
- Leasing the car with a 36 month, 12000 mile lease using a 4% NPV discount rate and buying it out after 1 month
*there are a bunch of assumptions
First, an aside about NPV. You can obviously look up NPV on Google, but here's how I think about it in the context of buying a Rivian. NPV is the amount of money you need now to be able to payoff an amount in the future. So, for example, how much money would you need today to pay $1000 each year for 10 years? Isn't it just $10,000 you might ask? Sure, if you're keeping the money under your mattress. If you're earning 4% in a high yield savings account, how much would you need to put in today in order to pay the $1000 payments for 10 years?
Formula:
NPV = ÎŁ(t=1 to n) [Cash Flow / (1 + r)^t]
- Cash Flow: 1000 (annual expense)
- r: Discount rate (4%)
- t: Year (1 to 10)
- n: Number of years (10)
NPVâ‚„% = ÎŁ(t=1 to 10) [-1000 / (1.04)^t]
- Year 1: -1000 / 1.04Âą = -961.54
- Year 2: -1000 / 1.04² = -924.56
- Year 3: -1000 / 1.04Âł = -889.00
- ...
- Total NPVâ‚„%: 8110.90
What about 6%? Would you need less or more money? Less, if you're earning more interest. The NPV for a 6% discount rate is only $7360 in order to pay $1000 per year for 10 years.
Ok, if you're still with me I compared the the NPV of each scenario to find the lowest NPV (cheapest way).
Here it is:
Item | Scenario 1: Cash Purchase | Scenario 2: Lease Full Term @4% | Scenario 3: Lease Full Term 6% | Scenario 4: Lease w/ immediate buyout 4% | Time (months) | Cash Flow Lease Full Term |
Trade In | $5,320 | $5,320 | $5,320 | $5,320 | 1 | $10,571.81 |
Vehicle Price | $108,400 | $108,400 | $108,400 | $108,400 | 2 | $1,391.62 |
Acquisition Fee | $0 | $895 | $895 | $895 | 3 | $1,391.62 |
Destination Fee | $1,800 | $1,800 | $1,800 | $1,800 | 4 | $1,391.62 |
Documentation Fee | $85 | $85 | $85 | $85 | 5 | $1,391.62 |
License Fee | $997 | $997 | $997 | $997 | 6 | $1,391.62 |
Sub Total | $111,282 | $112,177 | $112,177 | $112,177 | 7 | $1,391.62 |
Sales Tax | $10,294 | $1,305 | $1,305 | $1,305 | 8 | $1,391.62 |
Residual w/tax | $0 | $0 | $0 | $0 | 9 | $1,391.62 |
EV Credit | $0 | $7,500 | $7,500 | $7,500 | 10 | $1,391.62 |
Monthly Payment | $0 | $1,392 | $1,392 | $1,392 | 11 | $1,391.62 |
Deposit | $500 | $500 | $500 | $500 | 12 | $1,391.62 |
Initial Registration fee | $71 | $71 | $71 | $71 | 13 | $1,391.62 |
Tire Fee | $7 | $7 | $7 | $7 | 14 | $1,391.62 |
Cash Outlay | $121,654 | $10,572 | $10,572 | $10,572 | 15 | $1,391.62 |
Montly Depreciation+ Taxes | $0 | $682 | $682 | $682 | 16 | $1,391.62 |
Residual at Buyout (incl Tax + equity) | N/A | N/A | N/A | $97,939 | 17 | $1,391.62 |
Total (NPV) | $121,654 | $125,171 | $119,662 | $107,826 | 18 | $1,391.62 |
Difference from Cash purchase | N/A | $3,518 | -$1,992 | -$13,828 | 19 | $1,391.62 |
20 | $1,391.62 | |||||
21 | $1,391.62 | |||||
22 | $1,391.62 | |||||
23 | $1,391.62 | |||||
24 | $1,391.62 | |||||
25 | $1,391.62 | |||||
26 | $1,391.62 | |||||
27 | $1,391.62 | |||||
28 | $1,391.62 | |||||
29 | $1,391.62 | |||||
30 | $1,391.62 | |||||
31 | $1,391.62 | |||||
32 | $1,391.62 | |||||
33 | $1,391.62 | |||||
34 | $1,391.62 | |||||
35 | $1,391.62 | |||||
36 | $1,391.62 | |||||
37 | $77,912.73 | |||||
Total Cash | $137,191.24 |
So, since I can't format the table exactly how I want, the relevant lines to look at are the Total (NPV) and the Difference from Cash purchase
Scenarios:
- NPV = $121,654 and there is no difference from cash because this is the cash purchase
- NPV = $125,171 and this is $3518 more expensive than cash purchase
- NPV = $119,662 and this is $1992 cheaper than a cash purchase
- NPV = $107,826 and this is $13,282 cheaper than a cash purchase
For the most part, these are accurate numbers. The lease numbers are from my actual lease terms for our vehicle. Unfortunately, after I initiated the lease, the cash payment terms option in my Rivian account disappeared (which I hadn't saved) so I had to make some assumptions on the fees but I don't think it affects the overall math very much as it should be close. The far and away biggest assumption is the residual at the end of the early buyout. I calculated that by taking the MSRP and subtracting the cash I put down plus 1 month worth of depreciation. I haven't actually bought the lease out yet as I just took delivery this weekend (so far, the Tri is awesome btw but don't want to dilute this post with a review). Once I actually get the the buyout quote from Chase, I'll be able to plug in exact numbers.
Some discussion points:
- Worst case, the lease is slightly more expensive than cash (Scenario 2) given the assumptions
- I'm not in a rush to buyout the lease super early so I can make sure we really like the vehicle (it's our first EV) and a couple of months won't make a huge math difference
- The $7500 helps equalize scenarios but something else is going on too (and it could be an error on my part) In my math, it seems you also save on sales tax as the trade in reduces the capitalized cost and taxes but I might be wrong on that once I see the residual quote from Chase.
- But what if I buy the lease early and then want to get rid of the vehicle in 3 years? Doesn't really make a difference unless I can't sell the vehicle for at least $13k less than the residual. In other words, as long as I can sell the vehicle for $58K at 3 years (71K residual) I'll break even with the lease. Before you ask, the residual was about $71K but the spreadsheet shows the residual plus CA sales tax, hence the higher value in the sheet.
- What about buying out the lease early and then financing? You do the math! But, in general, I would only come out ahead if I then invested the cash in something that is likely earning significantly more than the financing interesting rate. I might do the math when I cross that bridge and get real numbers and fees to compare.
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