Rivian Automotive Inc. investors asked a California federal judge Thursday to greenlight a $250 million settlement resolving their claims that the company underpriced its electric vehicles and misrepresented its profitability ahead of a blockbuster 2021 initial public offering, just one day before a summary judgment hearing.

Rivian Automotive Inc. on Thursday said that resolving a lawsuit that alleges it misrepresented its profitability will enable it "to focus its resources on the launch of its mass market R2 vehicle in the first half of 2026." (Matthias Balk/picture-alliance/dpa/AP Images) In a motion for preliminary approval, the investors told the court that Rivian, its executives and board directors have agreed to pay $250 million in cash to settle the lawsuit, which claims Rivian miscalculated how much it actually cost to build its electric vehicles and knew before its November 2021 initial public offering that it would have to increase the vehicles' retail prices by nearly 20% to make up for the losses.

Rivian announced price hikes in March 2022, and the investors say they were left holding the bag when Rivian's stock took a beating.

The investors tell the court Thursday that the settlement "is an excellent result" for the pair of classes, which include investors who bought Rivian stock between Nov. 10, 2021, and March 10, 2022.

"While plaintiffs and their counsel believe the classes' claims against defendants are meritorious and supported by substantial evidence developed during discovery, they also recognize the significant risks they faced, including that the court would grant, in whole or in part, defendants' summary judgment motion, or that a trial of the action could have precluded any recovery for the classes," the motion states.

"The settlement amount represents a substantial percentage of the classes' potential recoverable damages as estimated by plaintiffs' damages expert," it adds.

A hearing on the Rivian defendants' summary judgment bid was scheduled for Friday.

In a statement Thursday, Rivian denied the allegations in the suit, noting that the settlement is not an admission of wrongdoing. But the company said resolving the litigation will enable it "to focus its resources on the launch of its mass market R2 vehicle in the first half of 2026."

The company added it will pay the settlement, if approved, through a combination of directors' and officers' liability insurance, about $67 million, and cash, about $183 million.

Rivian, which counts Amazon.com Inc. as its largest shareholder, in November 2021 priced an upsized $11.9 billion IPO, which was the largest IPO of 2021. The operative complaint contends that Rivian had been struggling with bringing its so-called bill of materials costs down for years before the IPO without success. The bill of materials refers to the total amount for parts and materials to build each vehicle.

Rivian announced March 1, 2022, that it would raise the price of its R1T pickup truck from roughly $67,500 to approximately $79,500, and the price of its R1S SUV would be bumped up from roughly $70,000 to approximately $84,500. Rivian said at the time that the price hikes would apply to all future orders as well as existing preorders because of "inflationary pressure on the cost of supplier components and raw materials across the world."

Rivian's stock price fell from $67.56 per share Feb. 28, 2022, to close at $53.56 per share March 2, 2022.

Amid fierce customer backlash, Rivian promptly walked back the price increase for customers with preorders placed before March 1, 2022. The EV-maker said it would honor the original configured price for anyone with a Rivian preorder as of the March 1, 2022, pricing announcement.

Within weeks, the company's stock price fell to $35.83 per share March 14, 2022, according to the suit.

In the motion for preliminary approval of the settlement Thursday, the investors say that after the defendants moved for summary judgment in July, the parties reengaged with a mediator to try to reach a settlement. On Sept. 19, "following hard-fought, arm's-length negotiations," the parties agreed to the mediator's recommendation to resolve the dispute for $250 million, the motion states.

The investors say the deal represents a "meaningful percentage" of the classes' damages, noting that their expert had estimated aggregate damages to range from about $1.87 billion to about $2.04 billion.

"If defendants had one of more of the alleged corrective disclosures dismissed at summary judgment, or in proving that plaintiffs had not adequately disaggregated the price impact of any confounding information, damages would be reduced if not eliminated," the motion says.

The settlement represents about 12.3% to 13.4% of the potential damages, according to the investors.

Class counsel says it will seek no more than 24% of the settlement fund for legal fees, which they note is below the 25% benchmark in the Ninth Circuit.

The investors are represented by Sharan Nirmul, Darren J. Check, Richard A. Russo Jr., David A. Bocian and Jennifer L. Joost of Kessler Topaz Meltzer & Check LLP, and Stephen G. Larson and Paul A. Rigali of Larson LLP.

Rivian, its executives and board directors are represented by Boris Feldman, Doru Gavril, Eunice Leong and Rebecca Lockert of Freshfields LLP.

The case is Charles Larry Crews Jr. v. Rivian Automotive Inc. et al., case number 2:22-cv-01524, in the U.S. District Court for the Central District of California.