Shares of electric vehicle companies, Tesla (NASDAQ:TSLA) and Rivian (NASDAQ:RIVN), closed 2.8% and 2.1% lower, respectively, yesterday. The decline can be attributed to concerns regarding the contraction in profit margins for electric vehicle (EV) companies, stemming from lower selling prices of vehicles. The automakers are under growing pressure to reduce EV prices due to a slowdown in demand for these vehicles.
Tesla recently announced a temporary price cut for some Model Y cars in the U.S. to boost demand. This price cut aligns with similar measures taken by Tesla earlier this year in key markets such as Germany and China. It is worth highlighting that last month, CEO Elon Musk warned that 2024 vehicle delivery growth rates would be significantly lower than the previous year.
With TSLA implementing price cuts, Rivian is under more pressure to adjust its pricing strategy to remain competitive in the EV market. The company has lowered the prices of its R1T and R1S base models. Another reason for the decline in RIVN’s shares is a rating downgrade by Barclays analyst Dan Levy. The analyst believes that, based on current demand trends, Rivian is less likely to report a positive gross margin in 2024.
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The profit margins of EV automakers are already struggling due to lower prices resulting from intense competition in the industry. Furthermore, persistent softness in EV demand, due to higher interest rates, is likely to keep their margins under pressure throughout the year.
Compared to Tesla, analysts have a more positive outlook for Rivian stock. It has a Moderate Buy consensus rating based on seven Buys and seven Holds. Also, the average RIVN stock price target of $22.69 implies a 38.95% upside potential. Shares of the company have declined 24.3% over the past six months.
