Rivian CEO RJ Scaringe recently blamed high interest rates for the company’s layoffs and flat sales growth. This comes after Elon Musk, CEO of Tesla, has also been pointing fingers at interest rates for his own softening sales growth. Despite evidence showing that many Americans can afford electric vehicles (EVs), Scaringe and Musk believe that high interest rates are hindering their sales.
Scaringe made a statement to assure investors that the recent layoffs, along with the flat sales guidance for 2024 and expected losses, do not indicate a decline in demand. On the contrary, he emphasized that the EV market is still in its early stages, with a large number of combustion engine vehicles on the roads that need to be replaced by zero-emission cars like Rivian’s R1S sport utility vehicle.
However, Rivian primarily relies on customers in the U.S., where the equity markets have been hitting record highs and the labor market is strong. This raises questions about the validity of blaming high interest rates for Rivian’s challenges. Even Larry Kudlow, a former Trump economic advisor, admitted that he had trouble finding fault in the data.
So what are the challenges that Scaringe is referring to? During an investor call, he mentioned that existing economic and geopolitical uncertainties, particularly historically high interest rates, have negatively impacted demand. While it is true that big-ticket items like cars are more sensitive to interest rates, Rivian’s target market consists of affluent tech enthusiasts who can afford premium-priced vehicles.
Upon closer inspection, Scaringe revealed that some of Rivian’s customers are simply tired of waiting for their cars, while others may have made different lifestyle choices in the meantime. The lack of attractive EV options from other automakers has also contributed to the lack of interest in the sector.
Rivian’s future heavily relies on the success of its upcoming competitor to Tesla’s Model Y, the R2 midsize SUV. This model will spearhead Rivian’s global expansion and is considered a make-or-break product for the company. Scaringe believes that there is a lack of highly compelling EV products in the $45,000 to $55,000 price range, which is the average price of a new vehicle transaction. He remains optimistic about the R2 segment and the product itself.
To avoid constant comparisons with Tesla, Scaringe wants to shift the focus to the potential growth of the EV market. He believes that there is still a large percentage of car buyers who haven’t adopted EVs due to concerns about range and charging infrastructure.
In an effort to cut costs, Scaringe plans to shut down production at Rivian’s manufacturing plant in Illinois for several weeks. This will allow the company to onboard new suppliers and reduce material costs, ultimately boosting assembly line speeds. However, this will affect production in the second half of the year, and output is expected to stagnate at 57,000 vehicles.
Despite the challenges, Scaringe predicts that the company will achieve a modest gross profit in the fourth quarter and narrow its annual operating losses. However, the reality of stagnant sales and continued losses may dampen investor enthusiasm, with shares expected to open 15% lower on Thursday.
In conclusion, Rivian CEO RJ Scaringe has attributed the company’s layoffs and flat sales growth to high interest rates. While some critics question this explanation given the strong U.S. economy, Scaringe remains optimistic about the future of the EV market and believes that there is still a large untapped customer base. The success of Rivian’s upcoming R2 midsize SUV will be crucial for the company’s growth and profitability.