Elon Musk and Rivian founder RJ Scaringe have been pointing fingers at high-interest rates for their declining sales growth. Scaringe recently announced that he was forced to lay off 10% of his employees, which he indirectly blamed on Federal Reserve Chair Jay Powell. He emphasized that the layoffs, combined with flat 2024 sales guidance and expected losses, were not indicative of a decrease in demand for electric vehicles. Scaringe stated that the electric vehicle market is still in its early stages, with millions of combustion engine vehicles needing to be replaced by clean, zero-emission cars.
Despite the CEO’s optimism, Rivian is heavily reliant on the U.S. market, which has seen record highs in equity markets and ongoing strength in the labor market. Scaringe mentioned that the company is facing economic and geopolitical uncertainties, particularly high-interest rates, which have negatively impacted demand. He acknowledged that luxury car buyers are more sensitive to interest rates, but also noted that some customers have grown tired of waiting for their cars or have shifted their lifestyle requirements.
The electric vehicle market in the U.S. is primarily dominated by Tesla, leaving little room for new entrants like Rivian. The success of Rivian’s new R2 midsize SUV, set to be unveiled in March, will be crucial for the company’s future. Scaringe is optimistic about the R2 segment and the product itself, emphasizing the need for more compelling electric vehicle products in the $45,000 to $55,000 price range.
To avoid comparisons with Tesla, Scaringe is focusing on the potential for hypergrowth by highlighting the untapped market of car buyers who have not yet adopted electric vehicles. However, investor enthusiasm for Rivian has waned due to stagnant sales and continued heavy losses. The company is now looking for cost-saving measures, including a shutdown of production at its manufacturing plant in Illinois, to reduce material costs and boost assembly line speeds.
Despite these efforts, Rivian is still expected to see a stagnation in vehicle output this year, with the company forecasting a reduction in annual operating losses. However, the reality of stagnant sales and continued executional risk is likely to impact investor sentiment, with shares expected to open 15% lower when trading begins.
