A federal judge has ruled that Rivian Automotive, Inc. (NASDAQ: RIVN) must confront a lawsuit accusing the company of defrauding shareholders during and after its highly successful initial public offering (IPO) in 2021. The judge’s decision comes in response to claims that Rivian intentionally concealed the fact that it had undervalued its electric vehicles, leading to unfavorable price increases.
U.S. District Judge Josephine Staton in Los Angeles permitted shareholders to proceed with their claims, suggesting that Rivian, despite not being profitable, may have been aware that it would have to raise prices on its R1S SUV and R1T pickup truck due to increased materials costs. This move was likely an attempt to avoid even greater losses.
Price Hikes Trigger Stock Plunge
Following the announcement of price hikes on March 1, 2022, which saw the R1S priced at $84,500 (up from $70,000) and the R1T at $79,500 (up from $67,500), Rivian’s stock plummeted by 39% over a span of ten days. This sparked outrage among customers, who expressed their discontent on social media platforms and elsewhere.
However, Rivian promptly reversed its course just two days later, assuring customers who had pre-ordered vehicles before March 1 that they would not be subjected to the higher prices. RJ Scaringe, the founder, and CEO of Rivian, issued a public apology to the affected customers, acknowledging that the company had breached their trust.
Rivian’s Executives Aware of Cost Problem – Judge Staton
Judge Staton, in her ruling on July 3, described the alleged higher costs as a significant barrier to Rivian’s profitability, one that is unique to the company and not a commonplace issue. She further emphasized that it is more reasonable to assume that Rivian’s senior executives were aware of the problem, given that the bill of materials for each R1 electric vehicle exceeded its retail price by approximately $40,000 leading up to the IPO.
In addition, Staton declined to dismiss claims against the lead underwriters of the IPO, namely Goldman Sachs, JPMorgan Chase, and Morgan Stanley.
Rivian, backed by Amazon.com, made its debut on the stock market on November 10, 2021, with an initial share price of $78.00. The IPO turned out to be the largest of that year, raising approximately $12 billion in funds.
The lawsuit covers shareholders who held Rivian stock from the IPO date until March 10, 2022.
As of press time, Rivian’s shares on the Nasdaq exchange were trading at $22.30, up 3.15% compared to the previous trading session.
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