What will Lucid do with the lease returns?

[marsarbu]

I am curious, what will Lucid do with the '22 - '24 lease returns? My '24 AGT has a residual value of $93k, due Jan 2026. No sane person will buy it used for that amount. So what gives? How will they absorb the loss?

 

[Andretex]

I am sure they are already reserving for that loss. GAAP would require accruals to be booked to capture that loss as it is incurred.

I am also not sure how LUCID negotiated with Bank of America. They are the actual lease holders. So maybe they share the loss or maybe Lucid agreed to cover all such depreciation losses.

 

[hydbob]

Add them to the robotaxi fleet...oh wait

 

[Amster]

Maybe they'll use them as loaner cars for people getting repairs.

 

[Pragmatic]

Maybe they'll use them as loaner cars for people getting repairs.

I would hope they won't need that many loaner cars.

 

[Sid432]

May be monthly leases for the people who are scared to try EVs but charging the vehicle would be another challenge

 

[Ughwhy]

I thought that the owner of the car after a lease would be the leasing company, Bank of America for Lucid?. Wouldn't the bank have paid Lucid for the car at the start of the lease (so the income to Lucid was all at the start) and then at the end the lease, if the customer does not exercise the option to purchase, then the bank would dispose of the car the same way it does with other brands (auction? selling to used car dealerships?)? If that is correct (a big "if") then Lucid has no role in this process.

 

[sdlucid]

I thought that the owner of the car after a lease would be the leasing company, Bank of America for Lucid?. Wouldn't the bank have paid Lucid for the car at the start of the lease (so the income to Lucid was all at the start) and then at the end the lease, if the customer does not exercise the option to purchase, then the bank would dispose of the car the same way it does with other brands (auction? selling to used car dealerships?)? If that is correct (a big "if") then Lucid has no role in this process.

Unlike typical leases from other makes, I think there is more involvement from Lucid with the BofA lease programs. I don't think the bank would jump into offering lease programs with so much risk involved with used EV resale prices. A main reason for BofA involvement is to grab federal tax credit which they can pass as lease incentive. At the same time, I see that the leases go through strict approval process unlike others. I saw some stories of folks getting rejected even though they had great credit score and had leasing history too. I am not sure whether that's done by Lucid or the Bank. It seems the lease approvals are easier for a mature customer base, compared to younger folks. May be, they are taking into account the financial ability of a customer to purchase it at the end of the lease, and the likelihood of such buyout. I believe there is some understanding between Lucid and BofA to deal with the losses.

 

[Steveinarizona]

I thought that the owner of the car after a lease would be the leasing company, Bank of America for Lucid?. Wouldn't the bank have paid Lucid for the car at the start of the lease (so the income to Lucid was all at the start) and then at the end the lease, if the customer does not exercise the option to purchase, then the bank would dispose of the car the same way it does with other brands (auction? selling to used car dealerships?)? If that is correct (a big "if") then Lucid has no role in this process.

This is the normal process. We don't know if Lucid negotiated some sharing of liability with B of A.

 

[Steveinarizona]

I would hope they won't need that many loaner cars.

Spread out all the returns over all the service centers and I suspect it won't be too many.

 

[joec]

Spread out all the returns over all the service centers and I suspect it won't be too many.

Correct. Given Lucid's sales numbers with Air, we're not talking about that many cars. Making them loaners / company cars and writing them off at a loss is not a huge deal in the scheme of things.

 

[MJAir23TheGoat]

Just so nobody’s in shock. 2 year old low mile 2022’s GT’s are bringing about 68K on resales. The luxury EV resale market for all makes is…….

 

[Jester1868]

Just so nobody’s in shock. 2 year old low mile 2022’s GT’s are bringing about 68K on resales. The luxury EV resale market for all makes is…….

It's for all luxury resales, not just EVs.

 

[MJAir23TheGoat]

It's for all luxury resales, not just EVs.

My nephew GM at luxury hiline store reports
It’s significantly worse for luxury EV’s
Some Highline dealerships are not even taking some of them on trade or buying because volatility monthly.
It is what it is……

 

[Pragmatic]

I'm sure, like other luxury makes, the OEM is subsidizing the lease by having an overly generous residual values. These subsidies have little impact on new car prices and costs are swept under the rug upon lease turn-ins. The number of cars is relatively small.

 

[Scotlings8]

I too wondered how that is going to work. My 24 GT residual is about $87k. As others have stated, the true market value of these cars are not nearly that much. I was wondering if the Bank of America would cut me a killer deal at the end of the lease. There’s no way I’m paying $87k for it though. Time will tell I suppose…

 

[Bobby]

I too wondered how that is going to work. My 24 GT residual is about $87k. As others have stated, the true market value of these cars are not nearly that much. I was wondering if the Bank of America would cut me a killer deal at the end of the lease. There’s no way I’m paying $87k for it though. Time will tell I suppose…

I had this issue with a car once. I wanted to keep it but the residual was significantly higher than the actual value. I offered to pay them cash for the value of the car and they refused. When I asked why, they said that the loss is the bank’s, not theirs, and the bank is insured for the gap. Not sure if that’s true but they seemed pretty sure of it.

 

[mk07]

This is the normal process. We don't know if Lucid negotiated some sharing of liability with B of A.

Lucid is sharing the expected loss with BoA. Here's what I found in their 2023 10K

Vehicle Sales with Residual Value Guarantee
We provide a residual value guarantee (“RVG”) to our commercial banking partner in connection with its vehicle leasing program. Under the vehicle
leasing program, we generally receive full payment for the vehicle sales price at the time of delivery or shortly after delivery, do not bear casualty and
credit risks during the lease term, and are contractually obligated (or entitled) to share a portion of the shortfall (or excess) between the resale value realized
by the commercial banking partner and a predetermined resale value. At the lease inception, we are required to deposit cash collateral equal to a contractual
percentage of the residual value of the leased vehicles with the commercial banking partner. The cash collateral is held in a restricted bank account owned
by the commercial banking partner until it is used, as applicable, in settlement of the RVG at the end of the lease term. Cash collateral is recorded in other
noncurrent assets, subject to asset impairment review at each reporting period.

I am sure they are already reserving for that loss. GAAP would require accruals to be booked to capture that loss as it is incurred.

I am also not sure how LUCID negotiated with Bank of America. They are the actual lease holders. So maybe they share the loss or maybe Lucid agreed to cover all such depreciation losses.

Looks like the finance lease liabilities they're reserving were "only" roughly $86m at the end of 2023.

 

[coma24]

I asked one of the dealers (Da Vinci) how come they had so many Lucids for sale (it was 8 or 9 at the time), they said they were buying them wholesale through Meecham Auctions where the bank or Lucid (don't recall which) was selling their lease turn-ins. It wasn't a regular auction, though, it was some sort of side show from what they described, but it was still through Meecham.

 

[Tqlucid]

So may not be any lease end deals to have. If the value is less than residual (seems likely), and BofA owns the cars and got half the delta from lucid, they only lose half the delta. This gives them far greater chance to sell at auction since lucid paid for half the delta (and be able to get more at auction). Example: residual is 85k. Car is worth 70k. Delta is 15k. BofAs cost is the 77.5k. Better chances at auction to sell perhaps than offer lease buyout deals. I think this is how it work. Not sure