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Price Increase Math (A numbers based perspective)

Aroohoo

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I haven't seen a dedicated thread on this and haven't read through all of the hundreds of posts since I went to bed, so hopefully it isn't a duplicate.

Lets assume the following:
  • 100k orders prior to the price increase was announced (probably less than this, but this keeps the math easy)
  • $15k average price increase in each order
  • 30% cancellation rate (based on all the posts here, this is low. However there is confirmation basis relying on numbers from a forum with members that are a small population of the total order community AND are more "dedicated" than the average buyer. In the end, the number really doesn't matter for this thought exercise)
This price increase would generate an additional $1,500,000,000 in revenue, nothing to sneeze at. This is 12.5% of the total cash they raised in the IPO, or 30% of the estimated $5billion Georgia Plant.

After 30% cancellation, the revenue is $1,050,000,000.

Rivian is going to be cash flow negative for years...from a business perspective, one can see they would want to try to harvest additional upfront revenue (spread over several years) from existing orders. At the rate they are burning cash, this extra revenue doesn't amount to much, but it does slow their losses.
As others have stated elsewhere, this new pricing structure is probably also closer to "Market value" based on where Tesla (Model X) and Ford (Lightening) are pricing their products

So, while I personally think they botched this price increase from a customer relations standpoint, from a numbers perspective it is something that not only did they probably have to do for the long term viability of the company but something that they thought the market could/would support.
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MoreTrout

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Probably a reasonable napkin math attempt. But their whole claimed ethos of being a different kind of car company, being transparent, and doing what is right for the customer just went down the toilet. At this point their actions are as bad and arguably much worse than just about any of the other OEMs. If they even wanted to make an effort to save some semblance of their (falsely) claimed reputation, they would give a detailed breakdown of exactly what their margins were and a full accounting of a component by component price increase they experienced to lead to the new prices and margins. And also an accurate and honest number of cancellations that resulted between yesterday and the conference call on Mar 10th. But it's RJ. That will never happen. Just more sound bytes and double speak. But it's not like he isn't feeling his dreams of saving the planet die as we speak. He just alienated thousands of ambassadors to his brand and emboldened the argument that BEVs will remain the playthings of the minority that can afford them for a significant number of years. Rivian sure isn't going to change that this decade. It probably will happen by the next decade, but all he has proven is that he is a master at raising capital. 50/50 at best whether his little pet projects and company will be around to be part of that transition.
 

ja_kub_sz

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Probably a reasonable napkin math attempt. But their whole claimed ethos of being a different kind of car company, being transparent, and doing what is right for the customer just went down the toilet. At this point their actions are as bad and arguably much worse than just about any of the other OEMs. If they even wanted to make an effort to save some semblance of their (falsely) claimed reputation, they would give a detailed breakdown of exactly what their margins were and a full accounting of a component by component price increase they experienced to lead to the new prices and margins. And also an accurate and honest number of cancellations that resulted between yesterday and the conference call on Mar 10th. But it's RJ. That will never happen. Just more sound bytes and double speak. But it's not like he isn't feeling his dreams of saving the planet die as we speak. He just alienated thousands of ambassadors to his brand and emboldened the argument that BEVs will remain the playthings of the minority that can afford them for a significant number of years. Rivian sure isn't going to change that this decade. It probably will happen by the next decade, but all he has proven is that he is a master at raising capital. 50/50 at best whether his little pet projects and company will be around to be part of that transition.
Their ethos went out the door.

This is a luxury EV company now.

"Keep the Wealthy Adventurous"

Rivian R1T R1S Price Increase Math (A numbers based perspective) the-great-gatsby-leonardo-dicaprio
 

manitou202

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They don't have the fan base of a brand like Porsche or Tesla. This will turn off a lot of current reservation holders and new customers.

The other big issue is the "low cost" version of the truck. Many investors assumed the lower cost version (dual motor with smaller battery pack) would be priced lower than the original $67,500 entry price of the quad motor. This would have made a very compelling option. Many people already are stretching to buy a $67,500 truck, so the lower cost version would have potentially brought in a lot of new customers and be the high selling model. Now with the low cost version simply moving into the $67,500 price makes it much less competitive to other vehicles hitting the market from more well known brands.
 

GoWest!

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Thank you for posting the “napkin” math as I was just thinking the same but simpler:
50k reservations remaining (super conservative) x $15k avg increase/reservation = $750M. Not bad for a day of work.

There are lot of justified emotions on the forum the last 24hrs. The great thing about math is that there are no emotions and when you just look at the math you can see more clearly what’s going on.

So help me understand what is going on with Rivian?

- Are they steering the brand back towards being “luxury” (everything is “expensive” or a “must have” these days so I don’t really know what “luxury” is anymore)? I mean Rivian was a smoking deal prior to yesterday In comparison to similar vehicles.
- Are they propping up numbers prior to reporting?
 

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COdogman

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There is no question this move helps their bottom line. Also no question it was an absolutely terrible PR/ customer relations move. Most companies would try to find a sweet spot in the middle of those 2 stones so they can at least say they *tried* to do right by their customers. What Rivian did is choose the path that communicates they really could give 2 $hits about their customers at all. That should be a concern for anyone (including myself) who plans to keep their reservation for now. I’m having a lot of trouble with the behavior vs all the talk we’ve heard from them over the last 5-8 years.
 

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They don't have the fan base of a brand like Porsche or Tesla. This will turn off a lot of current reservation holders and new customers.

The other big issue is the "low cost" version of the truck. Many investors assumed the lower cost version (dual motor with smaller battery pack) would be priced lower than the original $67,500 entry price of the quad motor. This would have made a very compelling option. Many people already are stretching to buy a $67,500 truck, so the lower cost version would have potentially brought in a lot of new customers and be the high selling model. Now with the low cost version simply moving into the $67,500 price makes it much less competitive to other vehicles hitting the market from more well known brands.
Exactly this. At $72,500 the R1S was going to be a stretch for me, but I anticipated these lower-price options to be available by the time my production arrived, so I put in my deposit. Unfortunately for me and others, I expected these offerings to lower the entry price, not increase it.

$72,500 -$6k (dual motor) -$6k (Standard pack) -$7.5 (EV credit) = $53k

Now you have a volume seller. Alas, it didn’t work this way.
 

mini2nut

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Rivian knew their gross margins were too thin and had to raise prices. I predict at least 1/3 of reservation holders will be requesting a refund.
 

lostpacket

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I wonder what the dollar value is on the trust they burnt. As a startup this will haunt them.

Trust pervades everything they do.

It changes the narrative around things like mobile service crews, warranties, and even AA/CP (sorry)

"Trust us, we'll do it better" is no longer believable

It's wild to me they didnt learn the "customer obsessed" ethos from Bezos
 

stickyfingers

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Stock is down almost 10% but no mention of the price increase and pre-order cancellations as the reason. I suspect that this will go down further after the Mar 10 call and hoping someone will ask the question regarding pre-orders and how many cancellations.
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