Lightning vs R1T - Timing and cost

[Ruination]

Yes. Below is the email.


Hello Everyone,

Earlier this week, we announced pricing increases that broke the trust we have worked to build with you. Since originally setting our pricing structure, and most especially in recent months, a lot has changed. The costs of the components and materials that go into building our vehicles have risen considerably. Everything from semiconductors to sheet metal to seats has become more expensive and with this we have seen average new vehicle pricing across the U.S. rise more than 30% since 2018. Given our build lead up times, we need to plan production costs not only for today, but also for the future.

As we worked to update pricing to reflect these cost increases, we wrongly decided to make these changes apply to all future deliveries, including pre-existing configured preorders. We failed to appreciate how you viewed your configuration as price locked, and we wrongly assumed the announced Dual-Motor and Standard battery pack would provide configurations that would deliver price points similar to your original configuration. While this was the logic, it was wrong and we broke your trust in Rivian.

We also didn’t manage communications well. We didn’t give you enough insight into what was driving these decisions. The most important aspect of what we are building is our relationship with all of you. As we demonstrated earlier this week, trust is hard to build and easy to break. In speaking with many of you over the last two days, I fully realize and acknowledge how upset many of you felt. I have made a lot of mistakes since starting Rivian more than 12 years ago, but this one has been the most painful. I am truly sorry and committed to rebuilding your trust.

One of the things we talk about a lot internally is that we will make mistakes – it’s part of building something complex. The key is to learn from them and address them when they are made. It is how we grow. We made a mistake in how we approached our pricing changes, and what is important now is that we fix it.

For anyone with a Rivian preorder as of the March 1 pricing announcement, your original configured price will be honored. If you canceled your preorder on or after March 1 and would like to reinstate it, we will restore your original configuration, pricing and delivery timing. Our team will be sending an email in the next few days with more details.

Regarding our updated pricing for future preorders, the introduction of our Dual-Motor configuration and Standard battery pack has been designed to enable us to maintain lower starting prices while adjusting the pricing of the Quad-Motor and larger battery packs to reflect rising costs. Building a durable business is core to the continued impact we can deliver as a company. We are focused on building a brand and products that will continue to scale to different vehicle sizes, use cases, price points and markets – this growth will only be possible with your support and continued feedback.

Thank you for the personal notes and discussions I had with so many of you. Your feedback makes us better.

RJ

Wow the cancellations must have been massive.


Or this whole thing was planned.

I can't decide if this was a scheme or not. It seams so dumb.

Obviously the right thing to do.

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[Arthur]

I also cancelled my preorder but now willing to reinstate my preorder since Rivian promises to honor the original price. Right thing for them to do.

 

[Ruination]

No scheme, I am one of those that cancelled an order. They screwed up in a major way. I got the same email and while it's nice and all, the damage is done, how can anyone trust them to not pull some crap like that again? I can't. Mom use to say: Get me once, shame on you, get me twice, shame on me"

Too bad too because I really wanted that truck. Guess my run with Ford in the driveway isn't over after all. Lightning it shall be. ?

Yea, but maybe they just want to shake a few preorders.

 

[Ruination]

Shake seventy thousand (70,000) USD off income for what sane reason? I doubt your theory is valid when any amount of money is concerned much less approaching a 6 digit transaction. That's not how businesses stay in business.

Because they are probably losing money on every last one of those trucks.

 

[EaglesPDX]

And just like that, they are reverting pricing for preorder holders from 1 March and back.

And mine was Feb 12, 2022.

I'm asking Rivian if it is in their interest to swap the four motor drive/300 mile Explore for $67k to a two motor AWD/400 mile Explore.

Hope they do that as the range is more important to me than the mountain goat four motors.

Their answer will give an indication what was the bigger factor in raising the price post March 1, 2022 orders.

 

[FordLightningMan]

Shake seventy thousand (70,000) USD off income for what sane reason? I doubt your theory is valid when any amount of money is concerned much less approaching a 6 digit transaction. That's not how businesses stay in business.

You're confusing revenue and income. If I told you I'd pay you $7 to go to McDonalds and buy me a $10 meal, you'd have $7 in revenue and -$3 in income. That's what's happening to Rivian now, just with some zeroes on the end.

Someone did the math regarding brand value and goodwill impairment versus losing money per truck and deemed the brand value loss would be too high. There's enough investors with enough money in Rivian where it's easier for the investors to give Rivian another billion dollars to make sure they don't lose all their money already in the company, in hopes they recoup in 7-10 years. Even if it means eating huge losses on every truck sold through 2024 or later.

 

[jfried]

Yeah I'd say so, $70,000 at a time. What you fail to realize is they did it to EVERYONE, not just one or two or even half a dozen. They tried to zap every single person that ordered.

Or are you saying they simply wish to go out of business before they even get into it?

..........?‍

Personally, I think backtracking on the price increase is even worse than implementing it retroactively.

To me, there are "3 levels of stupidity".

1. Was having to increase the price by the truck by roughly 20% overnight. It just screams of "not knowing what we're doing", or building cars without really knowing what they cost. That being said, you're not really going to "offend" anyone if they had just increased the price for new orders.

2. Was increasing the price to already existing orders, displaying how they don't understand how a customer who gives a $1000 deposit, and configures an exact spec, might believe that's the truck they're going to get at the price they're going to pay. While they shouldn't have done the full-increase, they should have increased by some amount (now all of the early reservation holders stand to do stupid-well on the resale of their truck); standing behind both the realities of today's economy, and the value of their product relative to the EV space.

3. Was capitulating to pressure / POed customers. If you're going to stand behind your product and it's quality, do it. Let there be some PO'ed people -- to throw away close to $1b in price, while still having to produce the same trucks, is silly, especially for a startup. Capitulating shows that they aren't confident in their brand's ability to sell at the prices where it can be profitable.

 

[Yellow Buddy]

Wow the cancellations must have been massive.

On the Rivian forums there was a 65% cancellation rate and another 15-20% that were waiting to see what Rivian would do.

Considering their current pre-orders had them out until the end of 2023 with ~70,000 preorders that's a projected 45,500 cancellations with another 14,000 pending leaving them with only 10,500 pre-orders.

Put another way, at manufacturing capacity of ~200/week they were looking at fulfilling all of those orders by the end of this year. Their own projections seems to have them at ~400/week this year. Effectively meaning they would have lost more than an entire years worth of sales - and be forced to justify building of a 2nd plant when they would effectively be idle/build to order in Q3/Q4 of this year...

So yea, pretty massive.

 

[runawaytruck]

I have a relatively late preorder for both a Lightning and a Rivian R1S, looking at 2023 delivery (at best) for either one. I've been leaning toward the Rivian, was super pissed off/disapointed with the sudden, massive price increase and wrote a long letter to Rivian/RJ about how there was no way I was going to pay that much (13K more than I was planning on), or wait another 1-2 years for the lower priced dual motor version but wasn't canceling yet as I thought they would be forced to walk it back for preorder holders. Turns out I was right. The backlash was immediate and overwhelming.

They definitely screwed this up big time, but I have to give them some credit for walking it back in the face of a massive mutiny of both reservation holders and stockholders. Apparently they really didn't have a choice given the size of the backlash.

The net effect is that now Rivian preorder holders like me are (supposedly) going to get the Rivian at a ~20% discount compared to new orders. This means that I could theoretically drive it for 2-3 years and resell with no depreciation, which makes it seem like a hell of a deal as long as they stay in business and the quality/reliability are solid.

What this means to me is that they just locked in most of their reservations, including nearly all of those who cancelled, and now have even more incentive to ramp production quickly and get the new lower cost versions on the market ASAP. They will take a loss on the first 50-70K vehicles, but in the long run it's a drop in the bucket. They have enough cash to absorb the hit, and getting lots of them on the road and reducing lead times will help drive sales going forward. Given that they are an unproven startup at this point that's what they need to do to prove themselves and maintain customer goodwill. They need to be in it for the long term if they are going to survive and thrive. They may also need a change in leadership but we'll see what happens with that...

 

[cts888]

I have a relatively late preorder for both a Lightning and a Rivian R1S, looking at 2023 delivery (at best) for either one. I've been leaning toward the Rivian, was super pissed off/disapointed with the sudden, massive price increase and wrote a long letter to Rivian/RJ about how there was no way I was going to pay that much (13K more than I was planning on), or wait another 1-2 years for the lower priced dual motor version but wasn't canceling yet as I thought they would be forced to walk it back for preorder holders. Turns out I was right. The backlash was immediate and overwhelming.

They definitely screwed this up big time, but I have to give them some credit for walking it back in the face of a massive mutiny of both reservation holders and stockholders. Apparently they really didn't have a choice given the size of the backlash.

The net effect is that now Rivian preorder holders like me are (supposedly) going to get the Rivian at a ~20% discount compared to new orders. This means that I could theoretically drive it for 2-3 years and resell with no depreciation, which makes it seem like a hell of a deal as long as they stay in business and the quality/reliability are solid.

What this means to me is that they just locked in most of their reservations, including nearly all of those who cancelled, and now have even more incentive to ramp production quickly and get the new lower cost versions on the market ASAP. They will take a loss on the first 50-70K vehicles, but in the long run it's a drop in the bucket. They have enough cash to absorb the hit, and getting lots of them on the road and reducing lead times will help drive sales going forward. Given that they are an unproven startup at this point that's what they need to do to prove themselves and maintain customer goodwill. They need to be in it for the long term if they are going to survive and thrive. They may also need a change in leadership but we'll see what happens with that...

I am in the same boat. I have a base XLT lightning coming in June (may production) .. My R1T is on for early 2023. (base model for $67.5k.. which will be worth $82k) Now I need to decide which one to sell for a profit and which one to keep. Going to claim tax credits in back to back years so should be ahead of the game by a fair bit. I do think the Rivian will hold its value better long term.

 

[Yellow Buddy]

I am in the same boat. I have a base XLT lightning coming in June (may production) .. My R1T is on for early 2023. (base model for $67.5k.. which will be worth $82k) Now I need to decide which one to sell for a profit and which one to keep. Going to claim tax credits in back to back years so should be ahead of the game by a fair bit. I do think the Rivian will hold its value better long term.

My estimates is my Pro will be able to sell for about $5,000 more than what I'll end up paying for it. I just can't see someone plopping down $10,000+ on the lowest level trim.

The problem we have is the tax law. If it stays and Ford goes over the 200k units; we now have an extra $7500 in value. If it goes and BBB kicks in, new buyers are staring at getting $12,500 off a brand new truck. At that point assuming pricing holds, they're staying at essentially an XLT at Pro prices. I don't think we'll lose the value but that could swing the equation a bit.

As for the Rivian, it all depends on how the company evolves. I've been with Tesla through the non-autopilot phase. Then from the AP1 to AP2 phase. If we're getting outdated hardware and software in 2023, that $15k price difference will shrink faster than you know it. It all depends on timing. I remember getting a $20k discount on my Model X, thinking how I couldn't lose. Then a year later trying to sell my AP1 MX at a $15k loss - $35k less than MSRP in 2017 for a 2016 model.

Big MSRPs always have more to lose...

 

[cts888]

My estimates is my Pro will be able to sell for about $5,000 more than what I'll end up paying for it. I just can't see someone plopping down $10,000+ on the lowest level trim.

The problem we have is the tax law. If it stays and Ford goes over the 200k units; we now have an extra $7500 in value. If it goes and BBB kicks in, new buyers are staring at getting $12,500 off a brand new truck. At that point assuming pricing holds, they're staying at essentially an XLT at Pro prices. I don't think we'll lose the value but that could swing the equation a bit.

As for the Rivian, it all depends on how the company evolves. I've been with Tesla through the non-autopilot phase. Then from the AP1 to AP2 phase. If we're getting outdated hardware and software in 2023, that $15k price difference will shrink faster than you know it. It all depends on timing. I remember getting a $20k discount on my Model X, thinking how I couldn't lose. Then a year later trying to sell my AP1 MX at a $15k loss - $35k less than MSRP in 2017 for a 2016 model.

Big MSRPs always have more to lose...

My dealer called me and said that I could easily sell my XLT base for $15-20k more than I pay for it.. Based on demand and what's happening with Bronco that doesn't surprise me. I do want to keep the lightning though so its a tough call. Hopefully it holds great value for awhile

 

[Blainestang]

My estimates is my Pro will be able to sell for about $5,000 more than what I'll end up paying for it. I just can't see someone plopping down $10,000+ on the lowest level trim.

I think it would be worth more than that. Pros and XLTs will be pretty rare, and so the only other options are Lariats that start at $67k.

Even if XLTs are available, they'll be marked up, too, so if they're marked up, let's say by even just $5k (which is probably low), that's now $58k for an SR.

The Pro is a MUCH better value than the XLT, so it's only about $3-4k of actual feature cost different than the XLT. So, I bet it would comfortably be ~$50k.

My two cents, anyway.

 

[Yellow Buddy]

I think it would be worth more than that. Pros and XLTs will be pretty rare, and so the only other options are Lariats that start at $67k.

Even if XLTs are available, they'll be marked up, too, so if they're marked up, let's say by even just $5k (which is probably low), that's now $58k for an SR.

The Pro is a MUCH better value than the XLT, so it's only about $3-4k of actual feature cost different than the XLT. So, I bet it would comfortably be ~$50k.

My two cents, anyway.

The $50k mark is what I'm using, hence why I said $5k more than what I would pay.

$39,974 - MSRP
$1,070 - Pro Power
$825 - Max Trailer Tow
$1,695 - Destination & Delivery
$43,564 - MSRP

$498 - Document Fee
$401 - State Title Fee
$7.50 - State Tire Tax
$298 - Window Etching

Total OTD: $44,768.50

And that's for a car in a state with no sales tax on EVs.

 

[maverick92]

Personally, I think backtracking on the price increase is even worse than implementing it retroactively.

1. Was having to increase the price by the truck by roughly 20% overnight. It just screams of "not knowing what we're doing", or building cars without really knowing what they cost. That being said, you're not really going to "offend" anyone if they had just increased the price for new orders.

I applaud Rivian for realizing their mistake and realistically I don't think they had a choice if they wanted to survive. The loss in reservation deposits (aka cancellations) would have been reported in their Q2 earnings and their stock price would have gotten crushed. That's what this is all about... their stock price. They knew they had to increase prices last summer/fall but chose not to jeopardize their IPO.

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