EV startups struggled to build cars. Now they struggle to sell them

Rivian said it plans to produce roughly the same number of vehicles this year as it did last year. (Bloomberg)
Rivian said it plans to produce roughly the same number of vehicles this year as it did last year. (Bloomberg)

Summary

Lucid and Rivian are more exposed to cooling demand than their legacy rivals, which can lean on gas-powered vehicles to support electric investments.

Electric-vehicle startups once said their greatest challenge was building cars fast enough; now selling them is proving difficult.

Rivian Automotive and Lucid Group last week offered disappointing production outlooks for this year, saying EV demand is being hit by high interest rates and economic uncertainty.

The electric-pickup maker Rivian plans to produce 57,000 vehicles this year, roughly the same number as last year. Lucid said it aims to produce 9,000 vehicles, a slight increase from last year’s figure. Both say they are concentrating on finding customers.

“Our key focus is on increasing demand to achieve our 2024 delivery targets," Rivian Chief Executive Officer RJ Scaringe said on a call with analysts Wednesday.

Investors piled into the public debuts of Rivian, Lucid and others, believing they were nimble, innovative companies that could beat established automakers in the race to sell EVs. 

The young companies racked up steep losses as they plowed billions of dollars into building factories and designing luxurious, high-performance vehicles. They struggled to master the nuts and bolts of mass-producing automobiles, but the companies said they had highly desirable products that customers were lining up to buy.

Just as the companies were overcoming their production woes, signs started to appear that the pool of willing buyers wasn’t as deep as expected.

As recently as this past summer, Rivian said it was focused on stepping up production volume and had a strong backlog of waiting customers. “We’re quite bullish on the continued strong demand we have for our products," Scaringe said at the time.

On Wednesday, he said the company’s backlog of orders had been “notably reduced," in part because of higher interest rates that made monthly payments pricier than when the orders were first placed. 

According to Edmunds data, the average interest rate on a new-car loan was around 7% in January, compared with roughly 4% in late 2021, when Rivian and Lucid started producing vehicles.

Lucid has also said it is working to boost sales, including by licensing its battery and motor technology to other car companies. “What’s important to recognize here is we are not production-constrained; it is sales and deliveries," said Lucid CEO Peter Rawlinson.

Rivian shares ended the week down 38% and hit an all-time low of $10.06. Lucid shares declined 19% for the week, closing Friday at $3.02.

Car companies from Tesla to Ford Motor are hunkering down in the midst of weaker than expected demand for battery-powered vehicles in the U.S. EV sales continue to grow, and executives say they remain committed to the technology, but many automakers have been slashing prices and discounting vehicles to bolster sales. Some are delaying EV investments or cutting production of electric models.

Startups are more exposed than legacy carmakers to the sudden cool-down in EV demand because they don’t have a profitable business to help them weather a period of weak sales growth.

Established car companies were also caught off guard by sluggish EV sales last year. But Ford, General Motors and others have issued strong profit forecasts for this year as they lean on profitable gas-vehicle businesses to support their battery-power investments.

Many of these automakers are also ramping up production plans for hybrid vehicles, which run a combination of electric and gas power, after sales of these vehicles surged last year.

The EV pioneer Tesla has cut prices and said last month that it expects slower growth this year. Tesla’s fourth-quarter operating margin fell by nearly half to 8.2%, in part because of lower average selling prices. The company has said its healthy profit margins allow it to absorb the impact of lower prices.

Tesla CEO Elon Musk took aim at Rivian and Lucid in a recent series of posts on X.

“Their product design isn’t bad, but the actual hard part of making a car company work is achieving volume production with positive cash flow," Musk wrote about Rivian.

EV companies say they have been reducing spending to conserve cash and lowering prices to boost sales. On Wednesday, Rivian said it would lay off 10% of its salaried workforce to cut costs.

The concern, according to investors, is if these currently unprofitable startups continue to cut prices to match competitors, they risk burning through their cash faster. Rivian’s cash reserves fell to $7.9 billion at the end of December, from $11.6 billion a year earlier.

Lucid’s cash and cash equivalents declined by $365 million last year to nearly $1.4 billion, though the company also raised $3 billion during that time. Most of those funds came from Saudi Arabia’s Public Investment Fund, which owns a 60% stake in the carmaker.

Rivian and Lucid said they have sufficient cash to last through 2025.

Rivian and other young EV makers are balancing their efforts to cut costs and boost sales with the need to invest in a new lineup of more-affordable vehicles, which the companies say will broaden their appeal to customers.

The pressure on startups could worsen as established automakers launch their own lower-price models in the next few years. Many vehicles sold by Lucid, Rivian and other startups are high-price, luxury models. Rivian vehicles sold for an average $88,000 last year. Across the industry, car buyers paid an average $50,369 for an EV in January, according to J.D. Power data.

Rivian sells the R1T pickup, the R1S SUV and an electric delivery van. In early March the company plans to unveil a new, lower-price model, part of its next-generation R2 series. The vehicle isn’t expected to go on sale until 2026.

Lucid sells a single vehicle, the Air sedan, the cheapest version of which is just under $70,000 and travels an estimated 410 miles on a single battery charge. The company plans to sell near the end of this year an $80,000 SUV, called Gravity, which it says will appeal to a wider base of potential customers. Lucid plans to sell a more affordably priced model in 2026.

Not all EV startups gave dire warnings for this year, and some have yet to report their fourth-quarter results.

The Vietnamese startup VinFast Auto said it plans to deliver 100,000 electric cars and SUVs this year, up from nearly 35,000 last year. Around 15,000 to 20,000 of those sales will be to North American customers, said VinFast Chairwoman Thuy Le. Fisker and Polestar Automotive are scheduled to report financial results Thursday.

Rivian has said it aims to turn a gross profit by the end of this year. Investors worry that pressure to cut prices when the company’s sales aren’t expected to grow will make it challenging to achieve the profit goal.

“This is a growth company; they are supposed to be increasing volumes significantly," said Garrett Nelson, a CFRA analyst. Instead, Rivian said it was sharply cutting costs and laying off workers.

“It sets the stage for a tough year," Nelson said.

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