R1S Lease vs. Buy - I did the math

Jivian · Dec 9, 2024

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:

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

Spoiler Alert: I went with Scenario 4 because it could* save me over $13K compared to Scenario 1.
*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 = Σ(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)

4% Discount Rate:

NPV₄% = Σ(t=1 to 10) [-1000 / (1.04)^t]

Year 1: -1000 / 1.04¹ = -961.54
Year 2: -1000 / 1.04² = -924.56
Year 3: -1000 / 1.04³ = -889.00
...
Total NPV₄%: 8110.90

So, you would only need about $8111 to pay what adds up to $10,000 if you had a savings account earning 4% (ignoring taxes and some other timing complexities). In other words, the present value of $1000 per year for 10 years is a $8111 at a 4% discount rate. With me?

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.

So, long story short, I'm leasing my Trimax and then planning to buy it out early. See flaws in my logic or math? Point them out before I buy out the lease.

MasterofWilford · Dec 9, 2024

I considered option 4 as well but my side gig generated enough income so Iconverted my R1S into my business vehicle and will opt for option 3. I have two other vehicles that are for solely personal use and have used the R1S for business 75% of the time.

Spaceball1 · Dec 9, 2024

I’m not quite following your scenario #4, the buyout of $97k. Seems you may be missing the sales tax in there, as Uncle Newsom will want his cut of the buyout too ? At least I assume that’s how sales tax will work in CA like other states.

I do enjoy some good mathing, though! I always chuckle at friends who “always pay cash for every car.” ?

Riviot · Dec 9, 2024

Jivian said:
Leasing the car with a 36 month, 12000 mile lease using a 4% NPV discount rate and buying it out after 1 month

So long as the $7500 credit exists and Rivians don't qualify for the full amount, this will always be the way to save money.

Jivian said:
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.

Depending on the state, trade-in can reduce the value used to compute sales tax. But you'll still have to pay sales tax when you buy it out. You're either paying it as part of your lease, or part of the buy out.

If it isn't in your buy out, you'll have to pay the state directly.

tjrivian · Dec 10, 2024

I know what NPV is. But I have no idea what you're trying to show here. It seems like you've accounted for the sales tax on scenario #1 where you buy the car with cash, but haven't fully accounted for it in scenarios #2, #3, #4 where you'll owe the remainder of the sales tax at buyout time. This makes the rest of your numbers invalid for purposes of comparison.

The other thing about leases, is they give you the OPTION(but not the obligation) to walk away from the vehicle at the end of the lease term OR buy the vehicle at the residual price. If the car depreciated way below the residual value then you hand it back to the bank, if the car is worth way more than the residual then you can buy it(or sell it to a 3rd party for profit). That option has value. It's worth paying some amount of money for that option.

malditofman · Dec 10, 2024

Jivian said:
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:

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

Spoiler Alert: I went with Scenario 4 because it could* save me over $13K compared to Scenario 1.
*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 = Σ(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)

4% Discount Rate:

NPV₄% = Σ(t=1 to 10) [-1000 / (1.04)^t]

Year 1: -1000 / 1.04¹ = -961.54

Year 2: -1000 / 1.04² = -924.56

Year 3: -1000 / 1.04³ = -889.00

...

Total NPV₄%: 8110.90

So, you would only need about $8111 to pay what adds up to $10,000 if you had a savings account earning 4% (ignoring taxes and some other timing complexities). In other words, the present value of $1000 per year for 10 years is a $8111 at a 4% discount rate. With me?

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.

So, long story short, I'm leasing my Trimax and then planning to buy it out early. See flaws in my logic or math? Point them out before I buy out the lease.

Buy out the lease exactly as you suggest and report back. BTW, the assumed 4% on an investment is ludicrously lowball. Dollar cost averaging money regularly into mutual funds will easily double that lowball return over time. Leasing can be cost effective for businesses because of IRS rules that businesses can exploit, but for individuals a stretch and selective assumptions are typically necessary to justify a renting narrative. If there is a genuine immediate lease buy out action that than can be exploited, go for the experiment and report back how it actually worked out. Drive well.

greyboundary · Dec 10, 2024

FWIW this math is more exhaustive than what I did, but also went with scenario 4. I made the second lease payment after the initial due-at-signing (which bundled in the first) and will be purchasing mine shortly, as planned.

The purchase price showing in Chase is about right where I expected it. Now I’m just debating whether it’s worth paying cash or not, given todays rates.

DayTripping · Dec 10, 2024

If you can run it through a business, a new Rivian will qualify for the commercial clean vehicle credit so you can get the $7500 off. I did a similar calculation and for me buying (with a low interest loan 4%) made more sense since I could write off the purchase price this year.

I ended up buying a used one as I didn't think the new ones were worth 50k more than a slightly used one without having significant upgrades that would matter to me. For me it works out even better as the massive depreciation hit was absorbed by someone else. My loan rate was far better than the money factor would have been on a lease. No point paying cash as my investments are earning far better than my loan rate.

Always good to run the numbers regardless. At this point, I'll likely never buy another expensive EV new. I got burnt on my Plaid, but not as bad as some. Buy a new Rivian, and you are in an instant negative equity situation the minute you roll it off the lot unless you put a huge amount of money down. Even the tax credit doesn't even remotely help with that.

Rigel2601 · Dec 10, 2024

What was your money factor and residual % in the lease? I was told by the Sales Advisor that the MF would be .003 for credit above 750 (.003x2400=7.2%APR) and the Residual was 60% of MSRP. Yours residual looks to be 66% which is better. I should be receiving my lease to review any day now, so I’m interested what others are seeing right now.

I thought about option 4, but then decided I am willing to pay a little extra for the flexibility to turn it in after 3 years if there are a lot of ongoing service issues, or turn it in for an R1S Gen3.

TexasBob · Dec 10, 2024

malditofman said:
BTW, the assumed 4% on an investment is ludicrously lowball. Dollar cost averaging money regularly into mutual funds will easily double that lowball return over time.

In defense of OP, I think 4% is a very fair (or even a bit generous) number to use as a retail "risk free rate" (i.e. FDIC insured deposits) which is a fair comparison vs a lease obligation. Higher volatility investments like mutual funds will deliver higher average returns over time, but with greater risk along the way.

greyboundary · Dec 10, 2024

DayTripping said:
If you can run it through a business, a new Rivian will qualify for the commercial clean vehicle credit so you can get the $7500 off. I did a similar calculation and for me buying (with a low interest loan 4%) made more sense since I could write off the purchase price this year.

I ended up buying a used one as I didn't think the new ones were worth 50k more than a slightly used one without having significant upgrades that would matter to me. For me it works out even better as the massive depreciation hit was absorbed by someone else. My loan rate was far better than the money factor would have been on a lease. No point paying cash as my investments are earning far better than my loan rate.

Always good to run the numbers regardless. At this point, I'll likely never buy another expensive EV new. I got burnt on my Plaid, but not as bad as some. Buy a new Rivian, and you are in an instant negative equity situation the minute you roll it off the lot unless you put a huge amount of money down. Even the tax credit doesn't even remotely help with that.

Definitely true. Initially my math was “don’t take the deprecation hit.” Used savings is worth a lot more than a tax credit.

I made the likely fleeting decision that “I’ll drive this one to the grave” and wanted the model with the lessons-learned rolled into it– particularly having a fraction of the computers/wiring, redesigned subframe, suspension, plus a heat pump. Not every day benefits that would at all justify a gen 1->2 “upgrade” though.

phaduman · Dec 10, 2024

@Jivian , first of all, thank you so much for sharing your thoughts and math. Wow - I couldn't have ask for a better helpful thread with where I am. I have a delivery of a Gen2 R1T Dual Max Blue next week, and need to close on the options. I am also considering option#4, and was looking for any lease insights (never done a lease before but the 7500 credit is making me think about it - compared to #1). I am also in Bay Area, and picking up from San Jose service center next week.

Some Qs on #4:
* Shouldn't #1 and #4 actual difference be $7500 (EV credit benefit with #4)?
* for early buyout, are you sure Chase will not ask us to pay the "rent" for the remaining term months?
* Does more or less downpayment change the "monthly rent"? i.e., if I don't want to pay any additional cash vs paying $20K cash downpayment, is there any benefit?
* This is likely obvious - early buy/payout still gets to enjoy the $7500 EV credit advantage. Correct?

I might DM you with some newbie questions. Congrats on your TriMax!

DayTripping · Dec 10, 2024

greyboundary said:
Definitely true. Initially my math was “don’t take the deprecation hit.” Used savings is worth a lot more than a tax credit.

I made the likely fleeting decision that “I’ll drive this one to the grave” and wanted the model with the lessons-learned rolled into it– particularly having a fraction of the computers/wiring, redesigned subframe, suspension, plus a heat pump. Not every day benefits that would at all justify a gen 1->2 “upgrade” though.

I went through the same analysis. The jury is still out on how much of these are actually upgrades in Gen 2. For an R1S, I would have gone with Gen 2 as the ride and drive was significantly better.

I live in Texas, and at high temps, heat pumps aren't as efficient as normal AC systems. Basically anytime over about 85F which is a lot of my year here. Given that it will be a 1st gen heatpump for Rivian, I figured there could be issues there.

While overall there were a lot of changes, a lot were to reduce costs for Rivian. I had looked at the list before driving a Gen 2 after driving Gen 1 Rivians and none of them really made a difference in my driving experience other than the R1S ride improvements.

My 2023 has the new cast subframe so that was a plus. I always try to avoid first year cars in general, including the first year of a new generation. All those changes take a while to get baked through. I may byy a first year of a new gen, but typically later in the production run when they might have incorporated updates to the updates.

After by my R1T, I'll likely drive it into the ground or if by then Gen 3 is out and big enough upgrade go with it or maybe something is better in the market by then.

Hereforthesnacks · Dec 10, 2024

Spaceball1 said:
I’m not quite following your scenario #4, the buyout of $97k. Seems you may be missing the sales tax in there, as Uncle Newsom will want his cut of the buyout too ? At least I assume that’s how sales tax will work in CA like other states.

I do enjoy some good mathing, though! I always chuckle at friends who “always pay cash for every car.” ?

Same here. If you buyout your lease, you still need to pay taxes on the sales price. Why are the sales tax amounts so much less in the leasing scenarios?

bigsky · Dec 10, 2024

Spaceball1 said:
I’m not quite following your scenario #4, the buyout of $97k. Seems you may be missing the sales tax in there, as Uncle Newsom will want his cut of the buyout too ? At least I assume that’s how sales tax will work in CA like other states.

I do enjoy some good mathing, though! I always chuckle at friends who “always pay cash for every car.” ?

I myself don't smile, or chuckle, or have anything to say at all for how people go about dealing with their financial decisions. It is their decision alone to make based on their circumstances. I respect that.

IN my case, I have no interest whatsoever in ever reselling either of my Teslas or my R1S. I could not care less either about how much my EVs might be worth one, two, three years down the road or right now. Heck, each might as well be worth $0 today for all I care. It matters not to me.

(Edited to cut to the chase).
My principle on financial matters like this is simple: if I cannot afford something (pay cash), I neither buy it nor need it.