\n
![](\"https:\/\/content.fortune.com\/wp-content\/uploads\/2024\/02\/GettyImages-1508517431-e1708605579413.jpg?w=2048\")
<\/p>\n [ad_1]
\n<\/p>\n
For months Elon Musk has been blaming high interest rates for his softening sales growth despite evidence showing that half of all new car buyers in America can afford his EVs. Now, Rivian founder RJ Scaringe joined the chorus, pinning the fault for his firing of every tenth employee indirectly on Federal Reserve chair Jay Powell.\u00a0<\/p>\n
In a statement, the CEO sought to assure investors that Wednesday\u2019s announced layoffs combined with flat 2024 sales guidance and billions more in\u00a0expected losses<\/a>\u00a0wasn\u2019t a warning sign demand had peaked. Just the opposite, he emphasized the EV market remained in its infancy with 1.5 billion combustion engine vehicles on the world\u2019s roads still to be replaced by clean, zero-emission cars like his R1S sports utility vehicle.<\/p>\n \u201cWe firmly believe in the full electrification of the automotive industry, but recognize in the short term the challenging macroeconomic conditions,\u201d he said, citing\u00a0broader headwinds<\/a>\u00a0outside of his control.<\/p>\n Yet the Irvine, California-based automaker almost exclusively depends on customers in the U.S., where equity markets hit new\u00a0record highs<\/a>\u00a0this month amid robust ongoing strength in the\u00a0labor market<\/a>\u00a0and a gross domestic product expanding at a faster pace than\u00a0anywhere else<\/a>\u00a0in the industrialized world. Even Fox<\/a> News host and former Trump economic advisor Larry Kudlow admitted he had\u00a0trouble finding fault<\/a>\u00a0in the data. <\/p>\n So what exactly are these challenges Scaringe blames then? During the investor call he was more specific.<\/p>\n \u201cOur business is not immune to existing economic and geopolitical uncertainties, most notably the impact of historically high interest rates, which has negatively impacted demand,\u201d Scaringe said.\u00a0<\/p>\n It\u2019s true that big ticket items like cars are more sensitive to rates, which are predicted to remain higher for longer<\/a> to prevent the U.S. economy from overheating. But Rivian caters to a well-heeled crowd of brand-conscious tech enthusiasts that can afford premium priced vehicles, including his R1T pickup and R1S.\u00a0<\/p>\n If you listen more closely, Scaringe revealed some of his customers are simply tired of waiting years in some cases for their car or their lifestyle requirements may have shifted in the meantime due to different choices. Incumbents\u00a0failing to deliver attractive EVs<\/a>\u00a0hasn\u2019t helped to raise interest in the sector, either, he added.<\/p>\n Unfortunately for the overall industry, Tesla<\/a> has soaked up most demand from higher income\u00a0early adopters<\/a>\u00a0in the U.S. market, a group upon which Rivian depends. That\u2019s why its longer-term future hangs on the outcome of the March 7 unveiling of its competitor to Tesla\u2019s Model Y, the new R2 mid-size SUV that will spearhead its global expansion. It\u2019s no understatement to say this is a make-or-break model for Rivian.\u00a0<\/p>\n \u201cThere is a lack of choice of highly compelling EV products in that $45,000-$55,000 price range, recognizing the average price of a new vehicle transaction was around $48,000,\u201d he said. \u201cWe remain very bullish on the R2 segment and the R2 product itself.\u201d\u00a0<\/p>\n In a bid to avoid ongoing comparisons with Tesla and whether Rivian can outcompete Musk\u2019s company, Scaringe sought to shift focus to the promise of hypergrowth by framing EVs as a product relevant for the remaining 93% of car buyers who haven\u2019t adopted the technology due to considerations like range and charging infrastructure.\u00a0<\/p>\n Much like some of Rivian\u2019s customers, investors once dazzled with fantasies of an unimaginably high \u201ctotal addressable market\u201d do not have the same outlook as they did when they bought into the company\u2019s IPO at the\u00a0peak of the EV bubble<\/a>.\u00a0<\/p>\n Scaringe has little choice now but to look for savings, and this is forcing him to take a giant risk. A major event that will determine the company\u2019s performance this year is a massive multi-week shutdown of production at Rivian\u2019s R1 manufacturing plant in Normal, Ill. Scaringe aims to onboard new suppliers and jettison others in an attempt to reduce material costs and boost assembly line speeds.<\/p>\n Even after work is completed, the slog to coordinate the subsequent ramp-up will affect production in the second half as well. As a result, output this year is predicted to stagnate at 57,000 vehicles, after more than doubling in 2023.<\/p>\n If all goes well, however, the company should exit the year with what he called a \u201cmodest\u201d fourth-quarter gross profit. Underlying annual operating losses are forecast to narrow to $2.7 billion from $4 billion last year.<\/p>\n Overall, however, the reality of stagnant sales for a growth stock expected to continue booking heavy losses amid continued executional risk will likely dim investor enthusiasm. Shares are set to open 15% lower on Thursday when trading begins.<\/p>\n<\/div>\n\u2018Historically high interest rates\u2019<\/h2>\n
Avoiding comparisons<\/h2>\n
Subscribe to the Eye on AI newsletter to stay abreast of how AI is shaping the future of business. Sign up<\/a> for free.<\/div>\n