How would you feel if you ordered a meal out and the menu had one price, but the cheque had another that was 20% higher? Worse yet, what if it was an $85,000 purchase you were making, and the extra charge rounded the bill off to $100,000?
Well, that’s exactly what Rivian [RIVN] decided to do last Tuesday, and as you can imagine, customers weren’t too happy about it.
This article was originally written by MyWallSt. Read more insights from the MyWallSt team here.
Why did Rivian hike prices?
Surprise, surprise: chip shortages. Many businesses have begun raising prices for products and services in line with inflation, along with touting what’s become common say in earnings calls as supply chain issues, shipping delays and, as mentioned, chip shortages.
Not that it’s an excuse by any means. It’s one thing to pass on costs to existing customers that you make aware of the change, or incrementally increase the price in line with these macro events. It’s another story when an order was made prior and the agreement had more or less been settled between the buyer and seller.
Why did Rivian reverse the price changes?
As you can imagine, customers were outraged. A slew of Redditors along with Twitter users took to the social media platforms to announce they would be cancelling their orders. Of course, soon after, Rivian realised the error in its decision just two days later. What’s yet to be seen is if it’s too little too late.
How will this affect Rivian sales?
There will likely be more than a few customers who turn their back on the company and stand firm in their decision to cancel orders. Despite the phrase ‘there’s no such thing as bad publicity’, this occurrence shines a very poor light on the company and its management — it could cause irreparable damage to the company’s image and reputation, so I wouldn’t be surprised to see buyers look toward other automakers like Ford [F] or Tesla [TSLA], which both plan to debut their own EV models to compete with Rivian later this year.
What does it mean for Rivian shareholders?
One of the key advantages Rivian has held over competitors has been having the first-mover advantage in the EV pickup space. However, while the company commands a steep valuation— even following a monumental market correction —it has only made roughly 1,000 deliveries. Even with orders skyrocketing towards 71,000 at the end of 2021, that’s still less than half of the orders Ford has taken for its F-150 Lightning, and it’s estimated that Tesla’s Cybertruck orders are also in the hundreds of thousands, so Rivian was already well behind the competition.
This incident likely won’t help the automaker’s desire to catch up on the big players, rather, it’ll wreak havoc. So, investors might be best advised to steer clear of Rivian until we see a more positive development both in its business model and its management team.