What happened
One day after electric truck company Rivian Automotive (RIVN 0.34%) voluntarily blew up its stock price by announcing it would raise the price of its R1T pickup truck by 17%, and its R1S SUV by 20%, Rivian stock is tumbling once again on Thursday.
As of 10:25 a.m. ET, Rivian is down another 5% -- a total of an 18% drop since this debacle began.
Image source: Getty Images.
So what
Rivian tried to mitigate the PR damage this morning. After announcing yesterday that "inflationary pressure, increasing component costs, and unprecedented supply chain shortages and delays for parts (including semiconductor chips)" necessitated the price hikes just yesterday, today Rivian CEO RJ Scaringe promised that Rivian would eat some of those costs itself.
In a letter to customers, he wrote, "Earlier this week, we announced pricing increases that broke the trust we have worked to build with you. ... [W]e wrongly decided to make these changes apply to all future deliveries, including pre-existing configured preorders."
In an attempt to rectify this mistake, Scaringe said, "For anyone with a Rivian preorder as of the March 1 pricing announcement, your original configured price will be honored. If you canceled your preorder on or after March 1 and would like to reinstate it, we will restore your original configuration, pricing and delivery timing."
Now what
This should go a ways toward repairing customer trust in the company, but ... once burned, twice shy. Rivian is still going to suffer a reputational hit from this debacle.
It will also take a financial hit. In explaining the company's original move to raise prices, Scaringe reiterated that "everything from semiconductors to sheet metal to seats has become more expensive," pointing out that other automakers have raised their average prices "more than 30%" to cover their own added costs of production. Rivian will now have to eat those higher costs on the more than 70,000 preorders it racked up in past months.
If you figure that the average price increase that the company attempted to pass along was about $13,000 per vehicle, you have to assume that Rivian is now looking at something like $910 million in unanticipated costs -- and losses -- from keeping its word on all those preorders.
Final point: Rivian will want to make up those losses down the road. Expect even higher prices on new preorders and sales going forward and a consequent decrease in customer willingness to pay those high prices -- depressing future sales.
