It has been a bad week for truck startup Rivian, and it could be just the start. Yesterday it announced across-the-board price hikes, including those of reservation holders. Some of the increases come to $20,000 or more. Now, reports show it allegedly planned to increase prices after its IPO launched. That would warrant an SEC investigation. But there’s more.
The pre-order cancellations were not expected by Rivian
Based on Rivian forums, a large number of reservation holders are bailing on their orders. They want their deposits back and will go elsewhere for their EV truck. Besides the obvious, that is another problem for the truck maker; there are many more choices for buyers. The price increase puts the pickup in GMC Hummer territory, which it could have trouble competing with. One reason being Hummer has many more features not available from Rivian.
This morning, a letter from Rivian CEO RJ Scaringe revised the price increase to those orders taken after March 1, when the announcement went out. Reservation holders can rest easy they won’t be paying more than agreed to. But this has further repercussions for Rivian.
Rivian says it has 71,000 pre-orders. If you multiply that by the average increase of $12,000, that amounts to over $850 million. That is $850 million the company can no longer plan on. The whole point of increasing prices is because, basically, it is spending more than it takes in.
Now Rivian will lose money on every truck
Said another way, trucks selling at the pre-March 1 price will lose money for the company. It will lose money on 71,000 trucks it sells over the next couple of years. How do you stay in business losing money on everything you make? It simply isn’t sustainable.
The company is laying the money loss on inflation and rising costs. But according to a lawsuit brought against the company by ex-vice president Laura Schwab, it is alleged Rivian planned on raising prices soon after going public. In her lawsuit, she says she warned executives that the trucks were underpriced.
Projections she showed them last spring pointed to a loss on everything it sold. “Shockingly, (Rivian’s Chief Growth Officer Jiten) Behl dismissed her concerns and explicitly asked Ms. Schwab not to raise these issues in front of (Rivian CEO) Scaringe.” So the misstep over price hikes isn’t going away after today.
Now, what do reservation holders have to say?
But this might also have a silver lining for pre-order buyers. They will all be owning a new Rivian at a 20 percent discount. If there is a large market for the truck, they could sell it under the retail price and pocket $10,000-15,000-plus for their loyalty. That could hurt Rivian orders moving forward, as potential buyers start holding out for lightly used Rivians well under the price of a new one.
So now the pressure is on the truck maker to rise above this mess. Investors don’t like what this reveals. Is Rivian now just a house of cards waiting to tumble? With the apparent loss projections made public, will investors ignore it? Or will they also bail before a possible collapse?