Yesterday Rivian hit the skids, losing $117 billion in market value. It lost almost $5 billion alone in 2021, which is the estimated cost of its Atlanta, Georgia factory being constructed now. It said that it expects it will produce far fewer trucks this year than it estimated. While it has the capacity to produce 50,000 trucks a year, it might hit 25,000. Are we seeing the slow death of Rivian?
With its stock continuing to decline, hitting its lowest point ever today, investors are taking their money and running. When it hit the stock market in November, the EV truck maker was valued at $100 billion according to Yahoo Finance. This has been its financial story in a nutshell, but more bad news came just before this when customers revolted.
Rivian’s bad news this week bookends its bad news last week
Last week the bad news was Rivian would be forced to raise the prices of its trucks, with some seeing a $20,000 increase. Buyers on a reservation list, some on it for years, were told this would apply to them. Many reservation holders answered by tearing up their reservations and demanding their deposits back.
The angry buyers combined with the horrible optics caused Rivian to take back increasing prices for those on the waitlist. But the damage was done. What has been considered an exceptionally loyal group of customers, began taking up angry screeds on Facebook and in Rivian forums.
The turmoil and financial outlook parts of Rivian’s story are getting media attention, but there is something worse that tends to get overlooked. Rivian said it needs to raise prices because of price increases for materials, rising labor costs, general inflation, and the potential for production being halted from supply chain issues. But this means that the suggested retail prices for its trucks did not factor in some of these expected increases.
Rivian is poised to lose money making trucks for years
Worse, it means that every truck it manufactures at the current prices will lose money for them. That could mean years of production in the red. So what seemed like a sure bet for the electric vehicle startups vying for recognition, is now starting to unravel. And unless it can produce 70,000 trucks real quick, it will lose money on every product it makes for years.
Yes, these times are unprecedented for all manufacturers, not just Rivian. And no one could have forecasted the roadblocks that began to pop up just after COVID hit. But not factoring into your prices inevitable inflation, labor, and materials cost increases, is not a good sign. There should have been some cushion built into the MSRP, such that some reservation holders wouldn’t see a $20,000 increase in their truck’s price.
That’s why investors are running, and why the stock price is tanking. In a conference call yesterday, Rivian CEO RJ Scaringe said it would only make 25,000 trucks and SUVs in 2022. At that rate, it will have to produce vehicles for three years to fill the reservations it has on the books right now. Of course, if it can ramp up production in 2023, that time could be shortened.
Many canceled reservations are being reinstated, meaning more trucks to lose money on
“Our production lines are sitting idle far more often than we’d like because we’re waiting on components,” Scaringe said. He also stated that the good news/bad news is that about half of those who canceled their reservations last week have come back. So Rivian will have to honor the previous prices it agreed to build those trucks for. That means more losses.
The incredible story of Tesla, and the appearance that Rivian could be next, have buoyed investor participation. That has given Rivian a nice cushion to help weather some of its pricing problems. But as the bad news mounts, investors might be looking for sure bets rather than another EV startup that is beginning to sink. If that is beginning now, that nice cushion will be gone, and so will Rivian.