Rivian Sued by Investor After Price Hike Debacle
The lawsuit alleges Rivian knew it would need to raise the prices of its vehicles after its IPO.
Startup electric automaker Rivian is facing a potential class-action lawsuit following its decision to raise prices on its R1T pickup and R1S SUV earlier this month by 17 and 20 percent, respectively. While Rivian ultimately walked back the decision for reservation holders after a widespread outcry, it didn't come without damaging the company's stock price—hence a new investor lawsuit seeking damages.
Protocol reports that a lawsuit filed Monday in a California U.S. District Court alleges that Rivian violated federal securities laws by failing to disclose that the R1T and R1S were so underpriced that it would have no choice but to raise prices after its initial public offering. Subsequently, doing so could have posed a risk to the company's reputation, meaning that its stock prices may have been artificially inflated from day one when Rivian sold millions of shares to investors. Plaintiffs are seeking class-action status with their case.
When Rivian went public in Nov. 2021, it priced its IPO at $78 a share, making the company worth more than $66.5 billion. Shortly afterward, the stock ballooned to $129.95 a share but quickly found itself tumbling back down to earth. By Feb. 28, the stock had fallen to $67.56 a share, or more than 48 percent down from its peak. Rivian announced its model price hike the following day, March 1, which caused a further 37 percent tumble and led up to the lawsuit's filing.
Rivian CEO RJ Scaringe later apologized for the price increase in a blog post, saying, "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."
Adding fuel to the fire is a lawsuit from ex-Rivian VP Laura Schwab, who says she was fired due to the company's "toxic bro culture." In the lawsuit—which was filed ahead of the automaker's IPO stock offering—Schwab said that she warned other top Rivian bosses, including Rivian's Chief Growth Officer Jiten Behl, that its vehicles were underpriced, and worked up projections to show that each sale of an R1T and R1S would result in a loss for the company.
"Beginning in spring of 2021, Ms. Schwab started to raise the alarm about concerns she had relating to Rivian’s ability to deliver on its promises to investors," reads Schwab's lawsuit against her former employer. "Shockingly, Mr. Behl dismissed her concerns and explicitly asked Ms. Schwab not to raise these issues in front of [Rivian CEO RJ Scaringe]."
Schwab's lawsuit later says that Behl agreed that prices would need to be increased after Rivian's IPO. The company also noted in its IPO filing that the success of its business depended on "attracting and retaining a large number of customers," meaning that it may have known that raising prices would risk an exodus of its then-71,000 preorders.
In the original price change communication, Behl blamed "inflationary pressure, increasing component costs, and unprecedented supply chain shortages and delays for parts" for the price increase; however, the investor lawsuit taking on the Amazon-backed startup believes that isn't the case. The drastic price difference (which caused one buyer's configuration to increase from $78,000 to upwards of $92,000) is alleged to have been planned, a notion backed by Schwab's suit.
Rivian declined to comment on Schwab's lawsuit when The Drive reached out in Nov. 2021, noting that it had entered a "quiet period" ahead of its IPO. It also declined to comment last week when we again asked for confirmation if the company planned to increase the price of its vehicles outside of inflation, or if there was merit to Schwab's claim of management being aware of a necessary price increase ahead of its IPO.
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