A Theory On RIVIANS Long Term Strategy

[SASSquatch]

OK, so after a few hours of reflection, here is my theory on the price increase and maybe a hopeful take on the future:

1. RIVIAN new that a price increase was going to be inevitable but they held back on announcing the increase until they had a better sense of what their costs were going to be and they wanted to have the highest pre-order numbers possible before the IPO.
2. They are further behind schedule than where they expected to be, both with ramp up and total vehicles produced.
3. They anticipated that a significant percentage of pre-order holders would cancel their reservations after a substantial price increase.
4. Cancelling reservations and raising prices helps them recover lost sales AND reduce the total number of reservations that they need to fulfill to get to their target, or communicated, delivery deadlines.
5. Price increases are temporary, and after ramping up and stabilizing the supply chain, they will pull back to increase sales and compete with the likes of Ford and Tesla who will likely have their products in full production by 2023.

Thoughts?

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[Craigins]

Looks good. Except 5). I think the price of the current R1T and R1S models will stay high. The lower spec models may have their price adjusted as as they get closer to production.

 

[SASSquatch]

Looks good. Except 5). I think the price of the current R1T and R1S models will stay high. The lower spec models may have their price adjusted as as they get closer to production.

Agreed. I don't see the original prices ever going back to where they initially were advertised. I am guessing (maybe just being too hopeful) that they will have to pull prices back somewhat to compete with Tesla, Ford, etc.

 

[COdogman]

I think you pretty much summed it up. Rivian is not surprised in any way by the reaction to this.

 

[bd5400]

I also don't see them dropping prices any significant amount in the future. They may add things back in to increase value (such as the dimming glass roof that was on the concept), but since the R1 vehicles are not their volume sellers, they will likely keep them high and gain volume with the lower tier models.

 

[moosehead]

I honestly don’t think Rivian had a strategy. This was completely fungued.

Whatever credit RJ deserves for creating a great vehicle and culture, and for morphing their first rigs into EV trucks and suv’s - they totally botched the rest of it.

It’s as if MIT did not have any classes in consumer marketing, economics, executive leadership, ethics or english classes. Depositors and shareholders just paid for RJ’s B-School experience.

Sorry, I’m pissed, and have reason to be.

 

[Zoidz]

I agree. It's hard to believe that they did not think this through, including damage vs. benefits. Not sure about future price decreases, though.

 

[ironpig]

They priced the cars too low to begin with, that's clear. But.... the percentage increase is twice what would have been acceptable to most people and it's just as people thought they might get their cars in the next few months. That's pretty indefensible.

They should have:

1. Frozen prices for orders prior to March 2020.
2. Increased overall prices less than 10% for 2020-Present and reiterated "no price guarantees" for new reservations.
3. Announcement via a video presentation hyping the dual motor cars and explaining the need for the big pivot in production. They could have compared the Quad motor trucks to other comparable EVs in the 100k range like Audi, Porsche and Tesla. It might have made it more palatable when people saw the comparisons.

 

[ActionDH]

OK, so after a few hours of reflection, here is my theory on the price increase and maybe a hopeful take on the future:

1. RIVIAN new that a price increase was going to be inevitable but they held back on announcing the increase until they had a better sense of what their costs were going to be and they wanted to have the highest pre-order numbers possible before the IPO.
2. They are further behind schedule than where they expected to be, both with ramp up and total vehicles produced.
3. They anticipated that a significant percentage of pre-order holders would cancel their reservations after a substantial price increase.
4. Cancelling reservations and raising prices helps them recover lost sales AND reduce the total number of reservations that they need to fulfill to get to their target, or communicated, delivery deadlines.
5. Price increases are temporary, and after ramping up and stabilizing the supply chain, they will pull back to increase sales and compete with the likes of Ford and Tesla who will likely have their products in full production by 2023.

Thoughts?

Seems like fraud for the underwriters and execs to withhold known price hikes and production issues to boost reservation numbers under the guise of inflation and supply constraints

 

[SANZC02]

The price increase was not a surprise in itself. There are a couple of things that did surprise me.

They did it all at once without factoring in preorders. They could have bought a lot of good will locking existing orders with a price increase of half that they did. They then could have set any order changes or new orders at the complete increase.

The biggest surprise to me was how the announcement was made. It came from “The Rivian Team”. This absolutely was a message that should have come from RJ, there is no way the backlash they are seeing was not anticipated and to have the announcement delivered in that manner is pretty insulting to early preorder holders. It will be a struggle to recover their image as a customer focused company from this.

 

[SASSquatch]

Great comments from everyone. I couldn't agree more with the sentiment that RIVIAN should have handled this better in terms of brand image and customer loyalty, ESPECIALLY this early in the game.

I am not a pre-order holder from 2020 or even earlier, and I would have not been happy with a price increase of this magnitude but I would have felt differently about the company had they chose to protect their most loyal customers who have been waiting for years.

It is inconceivable to me that a company that knows what it is doing would behave this way. Either, this was an act of desperation (which is not a good sign in and of itself) or they have no idea what they are doing - which also doesn't bode well.

It is spot on that this should have been communicated directly from RJ - maybe even with a video to go with it. I would have also communicated everything that RIVIAN was doing to avoid price increases for as long as they could but that they had no control over market forces.

I would have also not raised prices for any reservation holders prior to 2020 and no more than 10% on any reservation holders in 2021 and beyond. Whatever that cost them in short term pain would more than be made up for in long term brand image and customer loyalty.

Missing from their email is what is their strategy for avoiding price hikes will be in the future. There is also very little in the email that is personal in how it is communicated.

This is a PR disaster.

 

[majorfriend]

Well.... 1 is illegal.

As for the rest of it, they are spending billions of dollars on the GA plant. Assume planning to produce at volume, but then they raise prices which will mean they don't have volume sales.

So...either they are planning on voluming producing commercial vehicles, have a new low price vehicle to announce, or don't have a viable business plan.

 

[RWerksman]

RIVIAN new that a price increase was going to be inevitable but they held back on announcing the increase until they had a better sense of what their costs were going to be and they wanted to have the highest pre-order numbers possible before the IPO.

This is deceptive and potentially subject to litigation. The more I think about this the more I'm convinced that is indeed a rug pull.

They are further behind schedule than where they expected to be, both with ramp up and total vehicles produced.

This is virtually guaranteed.

They anticipated that a significant percentage of pre-order holders would cancel their reservations after a substantial price increase.

I think this is correct, but I do believe they underestimated the defection rate. For instance, we on this forum are arguably their most fervent supporters. In another thread there is a poll that is well structured and likely indicative of overall cancellation sentiment.

40%+ percent flat out state they are out.

Another 40%+ say they are considering it, likely strongly.

To me, that indicates ~60% defection rate. For people that felt strongly enough to put down a thousand fucking dollars. It's incredible.

 

[Taycanfrank]

Well.... 1 is illegal.

It's only illegal if you can prove it.

They clearly propped up the IPO with things they knew were false. That's not unusual and isn't going to be punished. Global shortages alone is a convenient enough excuse for the radical change.

I tend to think they've overestimated the market for their car at the new price. Drastically so. They've also destroyed goodwill among their diehard fanbase which is a real problem for a new brand, and a consequence I think they've underestimated.

The price increase I get. The greed to not "grandfather in" their longest tenured, most diehard fans is a bizarre one that may just backfire on them.

 

[lostpacket]

If they didn't do churn projections prior to raising prices that would be a shocking level of incompetence.

But I would also bet that reality didn't fall within their projections.

Also we know they were worried about the price being too low to be sustainable from the discrimination lawsuit filed right before the IPO.

So they definitely considered it.

The real shock here though is they managed to fumble into the worst possible outcome of burning their most enthusiastic customers right at the last minute. So I agree this is a PR disaster.

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