As EVs rev up for a future of dominance, the U.S. seems to be pumping the brakes a little too firmly for some investors’ liking. Reports suggest a slowdown in EV sales growth over the past year, coupled with dropping EV prices. Despite Rivian (NASDAQ: RIVN) remaining relatively resilient to this trend, the signs of weakening demand are difficult to ignore.
Take, for example, the recent strategic maneuver by Ford Motor Company (NYSE: F) to scale down production of its flagship EV model, the F-150 Lightning. Should this development signal a red flag for Rivian investors in terms of demand for its R1T truck?
Ford’s Workforce Reductions
The decision made by the folks at the Blue Oval involved cutting two-thirds of the workforce at its Michigan plant, responsible for manufacturing the F-150 Lightning. This downsizing of the plant, a pivotal component of Ford’s EV expansion, is accompanied by a corresponding reduction in production.
Ford has beckoned 1,400 employees at the plant to consider retirement or relocation to another facility, as it shifts from its previous two-shift, three-crew operation to a solitary daily production shift for the F-150 Lightning. The company is aligning this move with its ambition to halve F-150 Lightning production in 2024, citing “changing market demand,” from 3,200 trucks a week to 1,600. On a larger scale, Ford has postponed approximately $12 billion in EV investments, including delaying the opening of one of the two battery plants planned in Kentucky.
For investors in Rivian, a pressing question emerges: “Does this adjustment hint at a potential softening of demand for the R1T?”
Potential Signs of Softening Demand
It’s plausible that Rivian is already witnessing a decline in demand for its R1T. As observers may recollect, in the third quarter, Rivian’s management divulged that production of the R1S had surpassed that of the R1T for the first time.
Initially perceived as positive news given the R1S’s higher current profitability compared to the truck, it’s now possible that this shift signifies Rivian’s adaptive production strategy to counter waning demand for the R1T, while bolstering output for the more lucrative R1S.
The enigma lies in the fact that Rivian’s backlog of orders remains undisclosed. The company ceased updating its backlog several quarters ago, and Rivian may have appeared more resilient to a demand slowdown due to its previously robust backlog of orders.
Digging Deeper: The Stark Reality
Although Rivian’s fourth-quarter production figures were commendable, a deceleration in deliveries was evident.
Image source: Author. Data source: Rivian production and delivery releases.
A deeper analysis reveals that the deceleration was largely attributed to Amazon‘s rejection of electric van deliveries during the holiday season.
However, the verity remains that Rivian cannot indefinitely evade the effects of softening EV demand, even if they are not entirely conspicuous yet. In the grand scheme, this development appears diminutive. The long-term potential for significant EV growth remains intact, albeit at a slower pace than anticipated.
The realm of EV stocks manifests as a long-term gamble, involving numerous undulations and course-corrections by companies to navigate price and demand fluctuations. For steadfast investors, the future of EV stocks gleams brightly, provided they possess the financial fortitude to endure until demand traction resurfaces.
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