Lease Gravity

[Blue Lectroid]

How would it build momentum? They're going to sell every Gravity they can make for the foreseeable future (because of how few they can make)
Once they ramp they'll start subsidizing leases. The problem they face is that ICE manufacturers are selling EVs at a loss...

They have a factory that can produce MANY times the number of vehicles they can currently produce. They are not selling anywhere near the number of Gravities that they could sell If they provided reasonable lease rates. The idea would be to sell out production well in advance, report to the world these astounding order numbers and start to dispel the naysayers that insist that Lucid does not have what it takes to play in the "real" market. Instead many prospective new buyers who come to the Lucid website and run the lease calculator cringe and look for other options. I have several friends who were totally "sold" on Lucid only to see the Gravity lease numbers and say things like, "I would definitely pay a premium for a Gravity but not at well over twice the lease payment." They ended up with BMWs, Mercedes, Audis, etc...

 

[Blue Lectroid]

New model, with amazing reviews, no need to sell/lease at rock botoom prices. It's not like they are starving for cash, PIF has them covered.

There's rock bottom and there is reasonable. IMHO the existing rates are not reasonable in light of current market perceptions, competitive offerings and the overall economic environment. They can price WELL over their competitors' lease rates and still be reasonable given the excellence of the product but right now the rates look high to me given the other options out there. My wife and I are definitely going to get a Gravity but we will wait until the lease rates are better. Either that or we will buy in cash...which many buyers do not have as an option. All of this is to say that I believe Lucid is limiting demand by their current lease rates. Perhaps that's exactly what they want to do?

 

[Elfin]

They have a factory that can produce MANY times the number of vehicles they can currently produce. They are not selling anywhere near the number of Gravities that they could sell If they provided reasonable lease rates. The idea would be to sell out production well in advance, report to the world these astounding order numbers and start to dispel the naysayers that insist that Lucid does not have what it takes to play in the "real" market. Instead many prospective new buyers who come to the Lucid website and run the lease calculator cringe and look for other options. I have several friends who were totally "sold" on Lucid only to see the Gravity lease numbers and say things like, "I would definitely pay a premium for a Gravity but not at well over twice the lease payment." They ended up with BMWs, Mercedes, Audis, etc...

But then they'd make a lot less money while they're ramping up production. Sure they might get some people to hold off their purchase and wait for a Gravity but people would be mad they have to wait years to get their car.
Every car maker charges more for new models.

 

[Bdr100]

First off, understand that I have never leased a car, so I am not going to pretend that anything I say is authoritative. I always thought leases were for the buyer who liked to trade out their car every 3 years or so. I typically buy a car, pay it off and keep for 10 years, rinse and repeat. I started looking into leasing only because I learned that for higher price EVs and/or higher income earners, that is only way to take advantage of the $7500 EV tax credit.

First off, everyone needs to understand that leasing rates are not much different than car interest rates. They can be used as a sales incentive without having to lower car prices. Most all dealers have sweet low interest deals on cars that are not moving fast, but then offer no such deal on the new hot model that is selling very good. So to expect Lucid to offer the same leasing deal on a Gravity that they are offering on an Air is “Dreaming” (pun intended.) That being said, it does appear that Lucid is pricing the Gravity lease to be a high profit center for the company.

My son used to work for a car dealership and said that the finance guys made a lot more money than the car salesmen. Don’t make a big deal about getting the best deal on the sales floor because the finance guy will make up for it on his end. So I do expect Lucid to make some profit on these leases. But if they price them too high, they will drive buyers to either pay cash or finance (quite often using their own financing.) In those cases, Lucid makes no money from financing and nobody takes advantage of the $7500 tax credit.

My target for an acceptable lease deal would be to use something closer to current Tier 1 financing rates of about 6%, then discount the $7500 tax credit off price, which would net an effective interest rate of closer to 4% over a 3 year lease. Not as worried about residual value since I plan to buy out at end of lease.

Once again, I am not a lease expert, so I welcome any critique on my thinking.

 

[WeighingGravity]

My target for an acceptable lease deal would be to use something closer to current Tier 1 financing rates of about 6%, then discount the $7500 tax credit off price, which would net an effective interest rate of closer to 4% over a 3 year lease. Not as worried about residual value since I plan to buy out at end of lease.

I'm not sure how you're arriving at your 6% = 4% when $7500 is reduced from the price. But you're paying the 6% on a lot of money - on a mid-range-equipped GT you're talking about a $110K price tag. Let's pretend a 60%ish residual so your terminal value is $66K. Average balance on an undiscounted car is (110+66)/2 = $88K, or an average of $5,280/year in interest payments. Discounting the car takes the average balance down only by $3,750 - that's a very minimal interest savings. To achieve an interest rate equivalent to only 2/3 of the original would mean the 7500 would need to reduce the average financed amount by 1/3. There's no way to achieve that, unless the un-discounted vehicle price is in the $50K neighborhood (I could do the math but it's not close).

Remember too that if you need to finance the car at the end of the lease, you will not encounter a dealer-incentivized interest rate - you will be in the used car loan rate environment and probably going to a credit union to find a decent rate, and they could be 7% or greater, and you may struggle with a used EV value for the loan.

 

[Bdr100]

I'm not sure how you're arriving at your 6% = 4% when $7500 is reduced from the price. But you're paying the 6% on a lot of money - on a mid-range-equipped GT you're talking about a $110K price tag. Let's pretend a 60%ish residual so your terminal value is $66K. Average balance on an undiscounted car is (110+66)/2 = $88K, or an average of $5,280/year in interest payments. Discounting the car takes the average balance down only by $3,750 - that's a very minimal interest savings. To achieve an interest rate equivalent to only 2/3 of the original would mean the 7500 would need to reduce the average financed amount by 1/3. There's no way to achieve that, unless the un-discounted vehicle price is in the $50K neighborhood (I could do the math but it's not close).

Remember too that if you need to finance the car at the end of the lease, you will not encounter a dealer-incentivized interest rate - you will be in the used car loan rate environment and probably going to a credit union to find a decent rate, and they could be 7% or greater, and you may struggle with a used EV value for the loan.

Sorry, as I said, I am not a leasing expert. I’m an engineer and not an accountant. I was just guessing. I would probably do a large initial down payment and then at the end pay off the balance with cash. I have ability to pay cash but was looking for way to take advantage of $7500 tax credit. Also, are you saying that when leasing, you only get credited half the tax credit? (You mentioned discounted car price by $3750.)

Anyway, thanks for the leasing lesson. But do you still agree with my first assertion that current Gravity lease terms are a little high but that we should not expect similar low rates as Air’s and that a reasonable “hopeful” target would be somewhere halfway between current Gravity rates and Air rates.

 

[WeighingGravity]

I'm saying that reducing the credit by the full 7500 reduces the average balance to which interest is applied by only 3750. There's an extended discussion on leases and the various pros and cons of exactly the strategy you're pursuing in this thread. I'd recommend reading up there as a primer. I too thought about leasing to get the credit, but at the high interest rates and for other reasons (risk of a totaled vehicle) it probably isn't a great strategy.

With that said, I don't disagree that we can't really ask for discounted lease rates on a supply-constrained vehicle.

That said, it's probably a matter of when the rates will need to be reduced to more competitive levels than if. And given other inabilities on Lucid's part to deliver the vehicles people want (in a full suite of colors, with HUDs equipped), I think the switch to it becoming a demand-constrained proposition could be sooner than Lucid would have wanted.

 

[JoshG]

I would probably do a large initial down payment...

Be very careful doing a big downpayment on a lease. Something very few people know (and leasing providers and insurance companies love keeping this secret) is that there's a huge downside risk to putting any money down at lease initiation: if the car is totaled or stolen, any money you put down at the start of a lease is gone forever. HUGE financial risk to you. The insurance company pays the lease company the amount of the money remaining on the lease, and that's all. You get no credit for the money you put down initially. So if you put down $20,000 in order to get your monthly payments down, and you total the car at any point during the lease, you're immediately out $20,000 (plus your deductible of course plus all the other fees and headaches with getting a new car).

I learned this recently and validated it with several sources. (go ask ChatGTP about this it explains it very well)

This decision is easy to make when the money factor (interest rate) is low... then DEFINITELY don't put money down on a lease. When money factor is high, as it is with the Gravity right now, the decision is tougher... as you'll be raising the amount of total interest you're paying to the lease company if you put no money down. But just keep in mind that huge potential downside. Many people have found this out the hard way.

Rule of thumb:

• if interest rate (money factor x 2400) is under maybe 3-4%, put zero down. You're not paying much in interest and can make that money back with a good CD during the time of your lease and never risk losing your downpayment money.
• If it's higher than 4%, and if it's a SHORT lease (18-30 mo.) then consider if you can handle that risk of totaling the car and being out that money for the short period of time. Might be worth the risk.
• If you're doing a 36-month lease or longer... personally, I'd never take that chance. Put $0 down. The risk of a total loss over 3-5 years is high enough that I'd not want to gamble losing the downpayment money... so i'd say never put any money down on a longish lease regardless of money factor.

 

[Bdr100]

Be very careful doing a big downpayment on a lease. Something very few people know (and leasing providers and insurance companies love keeping this secret) is that there's a huge downside risk to putting any money down at lease initiation: if the car is totaled or stolen, any money you put down at the start of a lease is gone forever. HUGE financial risk to you. The insurance company pays the lease company the amount of the money remaining on the lease, and that's all. You get no credit for the money you put down initially. So if you put down $20,000 in order to get your monthly payments down, and you total the car at any point during the lease, you're immediately out $20,000 (plus your deductible of course plus all the other fees and headaches with getting a new car).

I learned this recently and validated it with several sources. (go ask ChatGTP about this it explains it very well)

This decision is easy to make when the money factor (interest rate) is low... then DEFINITELY don't put money down on a lease. When money factor is high, as it is with the Gravity right now, the decision is tougher... as you'll be raising the amount of total interest you're paying to the lease company if you put no money down. But just keep in mind that huge potential downside. Many people have found this out the hard way.

Rule of thumb:

• if interest rate (money factor x 2400) is under maybe 3-4%, put zero down. You're not paying much in interest and can make that money back with a good CD during the time of your lease and never risk losing your downpayment money.
• If it's higher than 4%, and if it's a SHORT lease (18-30 mo.) then consider if you can handle that risk of totaling the car and being out that money for the short period of time. Might be worth the risk.
• If you're doing a 36-month lease or longer... personally, I'd never take that chance. Put $0 down. The risk of a total loss over 3-5 years is high enough that I'd not want to gamble losing the downpayment money... so i'd say never put any money down on a longish lease regardless of money factor.

Thanks, good information.

 

[WeighingGravity]

Everyone keeps talking about this totaled car hypothetical but honestly I'm not 100% convinced. I acknowledge some risk but I don't know if it's as horrible as advertised.

Just for giggles, let's assume a $100K car with a 60% residual, so I pay down $40K at the beginning of the lease to avoid some of the interest (remember I am still paying interest on the $60K residual). How long is it before the car's "totaled" value reduces to $60K? I think a general rule of thumb is 20% is depreciated in year 1, and it probably slows a little after that. EVs probably depreciate faster. So let's say I total the car after 1 year, and the payout is $80K. Do I really have NO recourse to recoup $20K from the leasing company? I don't actually know exactly what leases say, and I acknowledge this is a risk, and there's probably not a ton of room to negotiate this if it's not in the leasing company's boilerplate language, but I imagine a reasonable leasing company would give you the difference back. I know that's no guarantee.....

At 2 years, I may only have $5K at risk if depreciation slows down and I'm at a 65% assessement after 2 years of usage. ($65K insurance totaled car payout of which the insurance company, if they're dicks about it, keeps $5K) $40K financed at 6% over 2 years is $4800 in interest payments, so basically by then I'm at breakeven.

Remember that in the alternative case where you put no money down, you need to carry GAP insurance anyways (at a cost) to cover the additional lease payments you will owe if you total the car and it is worth less than the residual plus remaining payments.

And all of this is predicated on the leasing company not giving you the extra money, which I am not convinced anyone has shown me will definitely be the case.

 

[borski]

I'm saying that reducing the credit by the full 7500 reduces the average balance to which interest is applied by only 3750. There's an extended discussion on leases and the various pros and cons of exactly the strategy you're pursuing in this thread. I'd recommend reading up there as a primer. I too thought about leasing to get the credit, but at the high interest rates and for other reasons (risk of a totaled vehicle) it probably isn't a great strategy.

With that said, I don't disagree that we can't really ask for discounted lease rates on a supply-constrained vehicle.

That said, it's probably a matter of when the rates will need to be reduced to more competitive levels than if. And given other inabilities on Lucid's part to deliver the vehicles people want (in a full suite of colors, with HUDs equipped), I think the switch to it becoming a demand-constrained proposition could be sooner than Lucid would have wanted.

Leasing is so complicated.

 

[borski]

Everyone keeps talking about this totaled car hypothetical but honestly I'm not 100% convinced. I acknowledge some risk but I don't know if it's as horrible as advertised.

Just for giggles, let's assume a $100K car with a 60% residual, so I pay down $40K at the beginning of the lease to avoid some of the interest (remember I am still paying interest on the $60K residual). How long is it before the car's "totaled" value reduces to $60K? I think a general rule of thumb is 20% is depreciated in year 1, and it probably slows a little after that. EVs probably depreciate faster. So let's say I total the car after 1 year, and the payout is $80K. Do I really have NO recourse to recoup $20K from the leasing company? I don't actually know exactly what leases say, and I acknowledge this is a risk, and there's probably not a ton of room to negotiate this if it's not in the leasing company's boilerplate language, but I imagine a reasonable leasing company would give you the difference back. I know that's no guarantee.....

At 2 years, I may only have $5K at risk if depreciation slows down and I'm at a 65% assessement after 2 years of usage. ($65K insurance totaled car payout of which the insurance company, if they're dicks about it, keeps $5K) $40K financed at 6% over 2 years is $4800 in interest payments, so basically by then I'm at breakeven.

Remember that in the alternative case where you put no money down, you need to carry GAP insurance anyways (at a cost) to cover the additional lease payments you will owe if you total the car and it is worth less than the residual plus remaining payments.

And all of this is predicated on the leasing company not giving you the extra money, which I am not convinced anyone has shown me will definitely be the case.

I have never, ever heard of a lessee recovering the down payment in a total loss (which doesn’t mean it hasn’t happened). Unlike a deposit, which is refundable at the end of a lease (which is used sometimes), a down payment is not, and the insurer’s responsibility is to pay the owner the market value of the car and the remainder of the lease (if you have gap insurance, otherwise you’re responsible for the difference, but Lucid’s leases include gap coverage).

But this is the important part: you are not the owner. You have no interest in the property. You are renting it from the leasing company. Once they are paid back the dues on the lease and/or any difference from the market value, insurance has done their job.

Your down payment is gone.

 

[Bdr100]

Leasing is so complicated.

Agreed. I’ve been schooled.

 

[gmoney]

I don’t mean to contradict anyone but I am going to step in. I have leased several cars for about 20 years. Usually I have out nothing down because it doesn’t make sense if the car is used for business. I have made a one pay lease for personal car business I didn’t want to bother with payments that had a rate that was too high.

Currently I have car insurance that states the value of the car I am insuring so if the car was totaled I am covered up to that amount and I would get that from insurance company.

If the insurance company only pays the leasing company off (which would be residual value)….then your insurance rate for collision or comprehensive should reflect that amount.

I do agree in order to take advantage of $7500 credit would be to make the largest down payment and then pay it off in a month to save a whole lot of the money factor charge (interest). I assume that would be the logical choice if wanting to own car for 10 years.

In my opinion EV’s are improving so fast that I can’t that I want to own one for 10 years. It would be surprising that solid state batteries in cars won’t be more readily available in next 5-10 years. These batteries will allow cars to be lighter, charge faster and go further.