Is it a bad time to be entering the EV market?
Rivian Automotive. The Michigan based EV company has been seen as one of many potential rivals to the Tesla’s of the world as people begin trading in their traditional combustion engine vehicles for their new, all-electric counterparts. After IPO’ing November 10, 2021, Rivian saw an immediate influx of investors which pushed the stock up to $172 before selling off to a current price of around $60 amidst growing inflation and geopolitical issues. With impending rate hikes by the Fed in order to curb the incredible demand we are seeing in our post-COVID world, some analysts and investors are growing weary of management’s approach as it tries to scale operations.
The company recently communicated a 20% increase in the price of their vehicles to keep up with inflationary pressures in order to maintain profit margins. This poses a very interesting question for a company who has released only a small number of vehicles onto the roads thus far. How loyal are the Rivian reservation holders going to be as opposed to looking elsewhere in the automotive market where prices may be cheaper? As of last December, Rivian had approximately 71,000 reservations for its 2022 R1T and R1S vehicles. A recent poll on Reddit has indicated reservation cancellations may be the preferred choice for its future vehicle buyers (Root). According to the survey, only 10% of reservation holders say they will keep their reservation "as is" while approximately 35% say they are "still unsure" of their decision. It is important to note that there is no guarantee everyone who answered the poll was a Rivian reservation holder. In fact, it is highly unlikely this is completely accurate. However, the poll results are still concerning as it illustrates consumer sentiment (or lack thereof) for the company and the ability to look elsewhere for a vehicle purchase. Rivian has not yet responded to requests for comment about the poll (Root).
Like many stocks, Rivian has been very volatile and has witnessed a considerable sell-off over the recent weeks; the company is down approximately 14% over the past month. It will be very interesting to see how management reacts to the macro-environment challenges and consumer demand elasticity as it is set to mass-release its first models in the coming months.
Root, Al. “Rivian Steps Back from Price Increases. but Inflation Isn't Going Away.” Rivian Stock Shows Pressure From Inflation on EV Companies, Barrons, 3 Mar. 2022, https://www.barrons.com/articles/rivian-rivn-stock-tesla-51646296215?mod=hp_INTERESTS_manufacturing&refsec=hp_INTERESTS_manufacturing.