What happened
For the second day in a row, shares of Rivian Automotive (RIVN +3.20%) tumbled on Friday -- falling 6.5% through 11:15 a.m. ET in its second day after wowing investors with its first-quarter earnings report.
And it's Rivian's own business strategy that's to blame.
NASDAQ: RIVN
Key Data Points
So what
Two days ago, Rivian reported beats on both its top and bottom lines. Sales for the first quarter of the year reached $661 million, which was better than analysts' expected $652 million -- and a sevenfold increase over Q1 2022. The electric truck maker also reported a smaller loss than expected -- $1.43 per share instead of $1.59.
Rounding out the good news, Rivian stuck with its forecast that it will produce 50,000 EVs this year -- 43% more electric trucks, SUVs, and vans than it has produced so far in its entire history.
So what's wrong with any of that? Well, as Reuters reported yesterday (just before Rivian stock started falling, in fact), Rivian has concluded that demand for its R1S electric SUV and R1T electric pickup is so strong that it doesn't need to cut prices in order to compete with its key rivals Tesla and Ford Motor Company -- which are cutting prices.
In fact, "given the data that we have on customer behavior, the aggregate result we see is a continued upward shift in ASPs," said Rivian CEO R.J. Scaringe (emphasis added). And that means that Rivian believes it can successfully compete against Ford's F-150 Lighting electric pickup (MSRP $60,000) even though its own R1T electric truck costs $73,000. And it means Rivian will stick to trying to sell R1S electric SUVs at $78,000 and up, while Tesla undercuts its price by selling Model Y electric SUVs for $47,000.
Now what
This seems a bold bet on the popularity of Rivian's products -- and it may work out. Investors, however, appear to be nervous that Rivian is driving in the wrong direction at a time when Tesla is waging a price war that its rivals (other than Rivian) are starting to respond to. Although Rivian does have a low price strategy as well -- specifically, a planned R2 line of vehicles that will be smaller and perhaps less luxurious than its R1s -- those aren't expected to be ready to market before 2026.
For investors in Rivian, therefore, it could be a nerve-wracking next two and a half years as they trust -- and hope -- that Scaringe and Rivian are making the right bet on high prices, and high profit margins, today.
