In a single quote this past April, Tesla (TSLA +0.90%) CEO Elon Musk essentially struck fear across the electric vehicle (EV) industry. Musk noted that Tesla would push for higher volumes with lower prices, rather than lower volumes at higher margins. And with that, the price war essentially began, putting pressure on EV start-ups already feeling the heat in an expensive and young industry.
Let's explain why Tesla's price cuts likely won't cripple Rivian's (RIVN +0.94%) recent rally -- but also two things that could.
NASDAQ: RIVN
Key Data Points
Price war!
Tesla kicked off its price cuts to spur sales back in January before tweaking the prices up and down more than half-dozen times in the following months.
It wasn't just price cuts, however. Tesla also threw in incentives such as lower interest rates and free access to its Supercharger network for certain models and even brought back a referral program. Some of Tesla's vehicles, such as the Model Y, also became eligible for a federal tax credit of up to $7,500.
All of the above moves helped drive Tesla to deliver a record 466,140 EVs across the globe during the second quarter, topping Wall Street estimates -- it was a strong 83% increase compared to the prior year.
Who felt the pain?
Despite Tesla's price cuts, Rivian maintained it would not join the price war as it had a healthy backlog of orders. Further, Rivian's R1T truck and R1S SUV aren't exactly competing in the same vehicle segments as Tesla's cars. If a consumer wants an electric truck or SUV, it might matter less to them that Tesla vehicles are receiving price cuts.
In fact, after working through its manufacturing line adjustment to relieve production bottlenecks, Rivian's output surged and topped estimates for the second quarter.
Image: Author. Information source: Rivian production releases.
While Rivian's rally hasn't been derailed thanks to Tesla's price cuts, other start-up EV companies can't say the same. Lucid Group, as an example, reported a drop in second-quarter production, which initially sent its stock 12% lower. Unlike Rivian's truck and SUV, Lucid's Air luxury sedans start at roughly $87,000, putting them in competition on price and in a similar segment with Tesla's Model S.
Rivian isn't out of danger yet, however, as two things could potentially present speed bumps for the EV maker's recent rally.
What could derail Rivian's rally?
One of the largest threats to Rivian right now could be Ford Motor's F-150 Lightning electric truck. While Rivian's R1T outsold the rival truck through the first half of 2023, Ford announced this week it would cut prices between $6,000 to nearly $10,000 depending on the trim.
The price cuts from Ford emphasize its work to lower material costs and increase its production capacity in an effort to boost sales. Let's add some context to these price cuts to better understand why they could negatively impact Rivian sales.
Ford's cheapest F-150 Lightning trim will now start at just under $52,000, and while that's still 25% more expensive than the initial launch price in April 2022, it's still far below Rivian's R1T starting price of roughly $73,000.
Another possible hurdle for Rivian to jump will be Tesla's Cybertruck, which the company announced is on track to begin initial production later this year in Texas.
The bottom line
Ultimately, thanks to a healthy backlog of orders and different vehicle segment offerings, Rivian will likely feel far less impact from Tesla's price war than many competitors. However, despite Rivian's recent rally and surge in production and deliveries, the company will be tested with Ford slashing prices on its F-150 Lightning and Tesla's Cybertruck set to hit the roads later this year.
Rivian's rally should have room to run, and the company has a lot going for it with vehicle quality, awards, and a pile of cash to ensure the company has plenty of time to ramp up production. But long-term investors would be wise to keep an eye on EV truck price cuts and new entrants to the segments Rivian focuses on.
