Investors don't expect electric vehicle (EV) start-ups to be profitable for several years after commercial production begins. One key to profitability is manufacturing at volumes that will cover fixed costs. So when EV maker Rivian Automotive (RIVN -0.78%) told investors in its March report for fourth-quarter 2021 results that it was reducing production guidance, investors fled. Over the full month of March, Rivian stock dropped 25.6%, according to data provided by S&P Global Market Intelligence.
That plunge has continued so far in April, with Rivian shares now down more than 40% since the beginning of March.
Though the company said it has capacity to produce as many as 50,000 of its electric vehicles this year, it said in its shareholder letter on March 10 that it only expects to make 25,000 due mainly to supply chain issues.
More recently, in a Securities and Exchange Commission (SEC) filing dated March 31, 2022, the company added additional risks, including the conflict in Ukraine as well as fuel and energy prices, as potentially impacting its progress. The company specifically noted it has experienced impacts in "facility construction to equipment installation to vehicle component supply."
Investors already were aware that Rivian was trying to navigate how inflation was affecting its raw material costs. On March 1 the company said it was raising prices on both its pickup trucks and SUVs, including for those that had already been ordered. After facing immediate backlash from customers who had made those reservations at a lower price, the company reversed its decision.
Rivian CEO RJ Scaringe acknowledged the mistake, stating in a letter to shareholders, "We didn't give you enough insight into what was driving these decisions...In speaking with many of you over the last two days, I fully realize and acknowledge how upset many of you felt."
The takeaway for investors is that the company will have to shoulder those rising costs internally for the more than 80,000 vehicles that were ordered prior to March 1. Rising costs combined with Rivian's lower pace of production pushed many investors to sell the stock in March.
In the first week of April, Rivian announced it produced 2,553 vehicles in the first quarter. It added that it believes it remains "well positioned" to achieve the lowered guidance of 25,000 vehicles it provided just a month prior. That didn't give investors any additional incentive to buy the stock, however. But with the share price down more than 60% so far in 2022, it may be close to a level that long-term investors find makes for a good time to buy.