It feels as though the U.S. market has been on the cusp of electric vehicles (EVs) going mainstream for a few years. Arguably, the biggest obstacle for mass adoption of EVs has been the high price tags. However, Ford Motor Company (NYSE: F) recently slashed prices of its Mustang Mach-E and the results were intriguing.
Not only were they intriguing, but it also makes Rivian Automotive‘s (NASDAQ: RIVN) move to accelerate the production schedule of its R2 vehicles even more imperative. Let’s see what steps Rivian is taking and what it could mean for investors.
Sales up, inventory down
Rewind back to January, when Mustang Mach-E sales fell by more than half, as the crossover lost eligibility for $3,750 of a federal tax credit. It was a blow to Ford’s near-term EV ambitions, but more importantly it highlighted just how sensitive consumers are to pricing and incentives for EVs.
In February, with Ford needing to clear some Mach-E inventory, the company began discounts of up to $8,100 on the older 2023 models. According to data analytics firm Cloud Theory, movement of Ford’s Mach-E inventory has nearly tripled, based on dealership data, and inventory declined 9%.
The surge was noticeable in sales data as well, with the Mustang Mach-E up 77% during the first quarter compared to the prior year, and that’s including the dismal January result. In fact, the Mustang Mach-E is now the second-best-selling EV SUV, trailing only Tesla‘s Model Y.
Ford’s drastic change in results, between losing the $3,750 tax credit and then offsetting that with discounting of up to $8,100, makes it even more clear that the industry needs more affordable options. Consumers are willing to switch to EVs, but the price has to be comparable and competitive with internal combustion engine options.
The high end of the EV market is saturated and early adopters willing to spend at the highest end of the EV range have already jumped in — and that’s what makes Rivian’s recent move a little bit of good news for investors.
In case you missed it
Early in March, Rivian showed off a critical component to its long-term vision: R2 and R3 SUVs and crossovers. The R2’s starting price of $45,000 is roughly $30,000 below the company’s flagship R1S and R1T, and will help open up the doors to a more mainstream consumer. The lower price tag should help convince some consumers to shop Rivian who otherwise might have avoided the high price tag.
In addition, management noted that it would adjust its production strategy. Rather than waiting to produce the R2 in the upcoming Georgia plant, it accelerated the launch schedule and plans to bring production into its original Illinois factory.
The strategy adjustment not only speeds up the R2 launch timeline, it also helps fill unused capacity in its Illinois plant, making its goal of reaching positive gross profit in the near term more feasible. And as the cherry on top, the move is also expected to save more than $2.25 billion at a time when cash crunches have all but collapsed some EV start-ups such as Fisker.
A little good news
Ultimately, what Ford’s results from discounting means is that the demand is there; it’s simply that consumers willing to purchase EVs currently are extremely price sensitive. The truth is that if the demand wasn’t there from mainstream consumers, regardless of price, Rivian was going to be in a world of hurt even if it accelerated the schedule for its R2 vehicles.
Ford’s Mach-E results, highlighted by a 77% surge in the first quarter, is just another sign that demand awaits, and it’s a little good news that the more affordable R2 will hit the roads sooner than originally expected.
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Daniel Miller has positions in Ford Motor Company. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
A Little Good News for Rivian Investors was originally published by The Motley Fool
