U.S. District Judge Josephine Staton in Los Angeles has decided that Rivian Automotive Inc (NASDAQ:RIVN) must face a lawsuit claiming it defrauded shareholders during and after its blockbuster 2021 initial public offering. According to the lawsuit filed by lead plaintiff Sjunde AP-Fonden, on behalf of shareholders from Nov. 10, 2021 to March 10, 2022, Rivian underpriced its electric vehicles, leading to unpopular price hikes.
Judge Straton indicated that shareholders can attempt to demonstrate that Rivian, despite being unprofitable, had foreknowledge of the need to raise prices on its R1S SUV and R1T pickup truck due to higher materials costs. A measure was taken to prevent even greater financial losses.
Following Rivian's decision to increase the price of the R1S from $70,000 to $84,500 and the R1T from $67,500 to $79,500 on March 1, 2022, the company experienced a 39% decline in its share price over a span of 10 days. This move triggered dissatisfaction among customers, who expressed their frustration on social media and other platforms.
However, two days later, Rivian reversed its decision and announced that customers who had pre-ordered vehicles prior to March 1 would not be subjected to the higher prices. RJ Scaringe, the founder and CEO of Rivian, offered an apology, telling customers "we broke your trust."
In her July 3 decision, Staton called the alleged higher costs a "major obstacle to profitability unique to Rivian," not merely a "garden-variety" problem.
"The inference that Rivian senior executives knew that the (bill of materials) cost for each R1 EV exceeded its retail price by approximately $40,000 leading up to the IPO is far more plausible than the inference that those executives were in the dark about the issue," Staton added.
The case, which names a different plaintiff, is Crews v. Rivian Automotive Inc et al, U.S. District Court, Central District of California, No. 22-01524.
Shares of RIVN are up 2.20% in early afternoon trading on Thursday.