Rivian follows a different strategy than Tesla: That’s why Rivian doesn’t reduce the prices of its cars  05/27/23

Rivian follows a different strategy than Tesla: That’s why Rivian doesn’t reduce the prices of its cars 05/27/23

• Rivian has not planned any price reduction
• Unrelenting customer demand according to CEO RJ Scaringe
• Rivian is focused on profit, not volume

Competition in the electric vehicle market is increasing rapidly. Not only are many established car groups increasingly reliant on e-mobility, but for a few months now Tesla, the industry’s top dog, has been trying to gain market share through aggressive price cuts. In the United States alone, for example, the electric car manufacturer cut the price screw six times this year alone. Tesla recently raised the price again, but only slightly compared to the previous price cuts.

Several competitors have followed the American electric car maker’s example in recent months and have also lowered their prices. But not so Rivian. The electric car-Startup led by CEO RJ Scaringe continued to hold its high price. This means that customers have to pay at least $73,000 for the R1T electric pickup truck and at least $78,000 for the R1S electric SUV. This high price level should not change in the future either – despite the strong competition.

Rivian features premium models with premium features

According to “Car News”, the CEO of Rivian, RJ Scaringe said at the beginning of the year that the startup will not join the current price war due to the back order and the total value of its cars at the current price level. “We believe in the value proposition of what we’re delivering at today’s price,” Scaringe said in February. In addition, Rivian’s order is “very strong” and will take until 2024 to process.

The CEO of Rivian also recently confirmed this view in a conversation with the “Reuters” news agency. “We’re seeing demand from customers for what we’re building,” said Scaringe, who remained confident Rivian could maintain its prices going forward. The startup sets itself apart from the competition with its extra large battery, excellent performance and other premium features. Features that can justify the high price. “These are the main products,” Scaringe explained to “Reuters” for the purpose of R1T and R1S. “These are the products that build our brand. They are not intended to sell hundreds of thousands of units.” Accordingly, no mass of buyers should be attracted by low prices.

In general, Rivian’s strategy is similar to Tesla’s

Apparently, Rivian’s customers have not had any problem with the high price level so far and continue to buy: Rivian’s sales increased in the first quarter of 2023. So the current pricing strategy reflects the purchasing behavior of customers. According to “Teslarati”, CFO of Rivian Claire Rauh McDonough also recently presented data according to which most buyers do not choose the cheapest version of cars, but would choose the most expensive variants. The average selling price (ASP) of all Rivian vehicles is similarly high. “Based on the data we have on customer behavior, the overall result is that ASPs continue to move higher,” RJ Scaringe told Reuters, without giving a specific ASP figure.

“We will offer a cheaper option, but not necessarily the lowest price for the things we offer today,” Scaringe also promised in an interview with the news agency. According to “Reuters”, the first cars of the R2 family are expected to come to the market in 2026, to which the mass market will be targeted. So Rivian is following a strategy similar to that of its biggest rival Tesla, which also served the first segment before the Model 3, the first, cheapest electric car, came to the market. In fact, the group should Elon Musk In recent months, the price has also been reduced, especially for its cheaper models Model 3 and Model Y – that is, in a segment where Rivian still does not operate. Maybe that’s why the e-startup doesn’t feel compelled to follow Tesla’s example.

A high price is probably necessary to make a profit

In addition, Rivian has also created a clear goal: In 2024, the start-up company wants to make a significant profit for the first time. Higher prices can be an important means of achieving this goal. Significant cost reductions and increased production should also make Rivian profitable. According to official information, the company wants to produce 50,000 cars in 2023, but a much larger number has been mentioned internally. But high sales volume is probably of secondary importance to Rivian at the moment, the goal is profit.

That’s what analysts say about Rivian’s pricing strategy

It seems that analysts are not sure how to evaluate Rivian’s car pricing strategy. While Orwa Mohamad, an analyst at investment research firm Third Bridge, warned that competitors could “gain momentum in the market” and beat Rivian, Elliot Johnson, chief investment officer at Evolve ETFs, called for a higher price. “I think it’s crazy not to raise prices because now they have more demand than supply,” Johnson said. However, he does not believe that Rivian will always offer its cars at such a high price. “Prices will definitely come down as more economies of scale become possible and there is more competition,” Johnson continued.

Editorial office finanzen.ch