Prices for new electric vehicles from electric truck maker Rivian Automotive are rising to help the startup offset higher costs. The direction of all car prices has been up in recent months, so a hike from another auto maker doesn’t seem like a surprise. Investors are reacting with nervousness anyway.
Rivian (ticker: RIVN) shares fell 3.4% in premarket trading Wednesday. S&P 500 and Dow Jones Industrial Average futures rose about 0.4% and 0.5%, respectively.
Prices for some vehicles and trim levels are rising up to 20%, according to reports. What’s more, price increases appear to be impacting Rivian buyers with existing reservations. Rivian didn’t immediately respond to a request for comment about pricing actions.
Reported price hikes even drew a comment from Tesla (TSLA) CEO Elon Musk. He responded to a tweet about price increases saying that Rivian’s “negative gross [profit] margin will be staggering.”
Most startups lose money early in their existence. Negative gross profit margins aren’t a surprise, but Musk added in a separate tweet that building expensive trucks is relatively easy, achieving affordability is hard.
Tesla also increased prices several times in 2021. Tesla stock didn’t really react to price increase revelations and Tesla’s automotive gross profit margins improved along with Tesla’s growing delivery numbers in 2021.
Price increases haven’t been confined to the EV space. The average transaction price for any new car in the U.S. topped $47,000 in 2021, up more than $6,000 from 2020. Inflation is part of the story, but so is low vehicle inventory and vehicle mix.
A global shortage of semiconductors constrained auto production, leading to low new vehicle inventories. The chip shortage also led car makers to build their most profitable products, which in America tend to be large trucks and SUVs, according to Benchmark analyst Mike Ward. Those vehicles carry higher sticker prices.
Rising prices will be a topic for investors and analysts when Rivian reports fourth-quarter numbers on March 10.
Coming into Wednesday trading, Rivian stock has fallen about 40% year to date. Inflation, rising interest rates and the Russian-Ukraine conflict has sapped some investors’ willingness to hold richly valued growth stocks.
Rivian stock qualifies as one of those. Rivian’s market capitalization is about $56 billion, about 19 times estimated 2022 sales of roughly $3 billion.
Write to Al Root at [email protected]
