What happened
Rivian Automotive (RIVN 9.11%) stock is skidding off the road even before it's started its journey. The once hot electric vehicle stock has plummeted 23.8% so far this week as of 9:50 a.m. ET Friday, according to data provided by S&P Global Market Intelligence. With today's weak opening, the EV stock has now plunged a staggering 53% year to date as of this writing.
In an intensely competitive industry like EVs, where multiple start-ups are trying to prove their worth, poor peer performance can hit a stock hard. That was just one of the factors that hit Rivian stock before the electric truck manufacturer itself dropped a bomb on its customers, and shareholders this week.
So what
Earlier in the week, electric car maker Lucid Group slashed its 2022 production estimate drastically to 12,000 to 14,000 vehicles from its previous projection of 20,000 units. Lucid cited supply chain and logistics constraints as primary reasons behind the expected production shortfall, and that spooked Rivian investors.
Barely days ago in late February at a conference, Rivian's CEO RJ Scaringe mentioned how semiconductor chips and labor are still in short supply, and how these headwinds could last through 2022.
Lucid's production cut corroborated Rivian's concerns, but investors in Rivian now feared even worse and started to expect the company to again fall short of its production target heavily in 2022 like last year.
While investors may not get a glimpse into Rivian's production plans before March 10 when it releases its quarterly earnings report, they got a rude shock nonetheless on March 1 when the company hiked prices of its vehicles unexpectedly, citing inflationary pressure, rising costs, and supply concerns. Rivian's website revealed a steep 17% to 20% increase in the prices of its R1T truck and R1S SUV, and it even sent out emails to customers who had preordered vehicles.
In doing so, Rivian made a blunder.
Image source: Rivian Automotive.
So far, the company had advertised EVs based on the promise of offering top performance features and range at a competitive price point, and that's what reservation holders bought into. They waited a long time -- some several years -- but instead of getting their hands on their first Rivian EV, reservation holders were now being asked to shell out more for vehicles they'd already booked at a certain price or wait a longer time to get vehicles with downgraded specifications.
The move stunned Rivian customers and triggered a public backlash; many customers canceled their preorders and took to social media to vent their anger. Rivian stock plunged as the shocking move raised various theories about Rivian's potential struggles in the absence of clear reasons behind the EV price increases.
Now what
Two days after it made a mistake that could still cost it heavily, Rivian has at least gone back on its decision to slap higher prices on preorders received before March 1, with Scaringe admitting it was mistake.
Here's how I see things now: While the rollback could encourage many who canceled preorders to rebook, Rivian may have damaged its reputation even before building it. It will now take a lot more than just an apology to salvage customer and investor faith and secure fresh orders.
Rivian might try to pacify investors on March 10, but I'd keep my expectations low from a company that's apparently facing such tremendous cost pressure that it didn't think twice before putting whatever little reputation it had built so far at stake.
