Rivian stock shows inflation pressures on electric car companies

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economic inflation It is starting to cause problems that investors can identify. Takes

Rivian Cars

: Price hikes put the electric car company and potential customers between a rock and a hard place this week.

For the company, inflation has forced it to choose to raise prices to offset rising costs or keep auto prices steady and watch gross profit margins decline dramatically. On Tuesday, Rivian (stock ticker: RIVN) chose to raise prices by nearly 20% for all customers — including those who had already booked cars before the price increase. The company, however, has taken StreetThe People’s Army returns from this decision On Thursday, after a backlash from customers, the stock price fell.

Rivian stock fell 13.5% on Wednesday, after reports emerged of price increases on a strong day for markets. The S&P 500 rose 1.9%, while the

Dow Jones Industrial Average

Added 1.8%.

This initial decision to increase all-inclusive rates has put Rivian reservations holders in a difficult position. They had to decide whether to keep or cancel their existing reservations. An unofficial Reddit poll on Wednesday showed, if this is to be believed, that more than half of the respondents – nearly 2,000 people – would have preferred to cancel Rivian’s existing reservation due to the new price increases. Of course, it was not confirmed that they were actual reservation holders.

On Thursday, Rivian CEO RJ Scaringe offered an apology for how he communicated the price increase in a letter to customers. “Earlier this week, we announced price increases that shattered the trust we have worked to build with you,” the message begins. He also promised to honor rates on reservations made before the price increase was announced.

“For anyone who has pre-ordered Rivian as of the March 1 pricing announcement, the original configured price will be respected,” the CEO added. “If you cancel your pre-order on or after March 1 and want to return it, we will restore the original configuration, pricing and delivery timing. Our team will send an email in the next few days with more details.”

However, Rivian’s stock didn’t get a boost from Thursday’s announcement. Shares fell 3.2% at midday, sharper than their 0.4% decline in the Middle East Standard & Poor’s 500. Investors seem to be still understanding the impact of pricing decisions on orders and the Rivian brand.

In the letter, Scaringe cited rising costs of components and materials – eg semiconductors, sheet metal and seats – as the reason for the higher prices, noting that the company had to plan for future production costs.

Rivian isn’t alone: ​​The average deal price for a new vehicle reached record levels in 2021, exceeding $47,000 and over $6,000 as of 2020.

Parts and labor are becoming more expensive for automakers. The global shortage of semiconductors has restricted vehicle production, which has reduced dealers’ stocks. With chips in short supply, automakers chose to make their most expensive products and highest profit margins.

The end result has been lower sales – compared to the pre-pandemic years – combined with strong earnings for automakers and higher stock prices.

Ford Motor

(F), for example, (F) stock rose 136% in 2021 as the company increased its operating profit year-over-year even as auto shipments declined about 6%.

Rivian wasn’t the only EV startup stock to drop on Wednesday. Inflation can be a problem for any startup that needs to turn early bookings into sales.

Fisker

(FSR) shares fell 0.5% Wednesday, and

Lucid

LCID stock fell 1.6%.

Tesla

However, TSLA shares rose 1.8% on Wednesday. Tesla buyers don’t really “keep” a Model 3 or Model Y; They just buy it. Tesla is facing inflationary pressures, too, but the time from order to delivery for a Tesla car is much shorter than for Rivian and other startups that began delivering cars that were priced years ago.

But Tesla does have some reservation risks. The company is scheduled to introduce the Cybertruck in early 2023. This product was launched in 2019. Tesla has collected hundreds of thousands of reservations for the truck. a deposit To book a Cybertruck costs $100.

Write to Al Root at [email protected]