Rivian Automotive, Inc. / DE Q3 FY2021 Earnings Call

Thank you for standing by, and welcome to the Rivian Third Quarter Fiscal 2021 Earnings Conference Call. At this time all participants are in listen-only mode. After the speakers’ presentation there will be a question-and-answer session. As a reminder, today's program may be recorded. And now, I'd like to introduce your host for today's program, Derek Mulvey, Senior Manager of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us for Rivian’s third quarter 2021 earnings call. Joining us in today's call, we have RJ Scaringe, our Founder, Chairman and Chief Executive Officer; Jiten Behl, our Chief Growth Officer; and Claire McDonough, our Chief Financial Officer. A copy of today's shareholder letter is available on our Investor Relations website. Before we begin, I would like to remind you during the course of this conference call or comments and responses to your questions reflect management’s views as of today only, and will include statements related to our business that are forward-looking statements under Federal Securities Law, including without limitation statements regarding our market opportunity, industry trends, business operations, strategy and goals, our second domestic manufacturing facility, and our expectations regarding vehicle deliveries. Actual results may differ materially from those contained in or implied by these forward-looking statements due to risk and uncertainties associated with our business. Except as may be required by law, Rivian does not have any obligation to update or revise such statements if circumstances change. For a discussion of the material risk and other important factors that could impact actual results, please refer to the cautionary statements and risk factors contained in our third quarter 10-Q filed with the SEC and today’s shareholder letter, both of which can be found on our Investor Relations website at rivian.com/investors. During this call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP and non-GAAP financial measures is provided in today's shareholder letter. With that, I'll turn the call over to RJ, who will begin with the opening remarks.

Hello, everyone, and thank you for joining us this afternoon for our first earnings call. As Derek mentioned, just before this call, we published our shareholder letter, which includes an overview of the progress we've made over the recent months. I encourage you all to read it for additional details around some of the items we will cover on today’s call. Before I dive into some of our recent milestones, I wanted to provide a quick overview of our business and mission for those who are new to Rivian. Our generation will have a profound impact on the planet that future generations will inherit. We can spend a lot of time on the specifics of climate change, but the reality is we, as a society, are rapidly changing the composition of our atmosphere. If we want life as we know it to thrive for many generations to come, we must change. This is what inspired me to start Rivian, and it's what drives the decisions we make as an organization, including the decision to become a public company. The challenge of shifting off fossil fuels is enormous and is going to require people, companies, and entire industries to collaborate more than ever before. From day one, we have focused on maximizing our impact to keep the world adventurous forever. The word forever is a humbling one. It's easy to think about the world in the context of our lives, but when considering future generations, we must inspire not only vehicle purchases but also a shift in behavior and a new relationship with the world around us. The transportation industry is beginning a transformation larger than the change from horse to automobile. The business model, value chain, customer model, and technology will be entirely remapped as we redefine how we move people and goods on our planet. Rivian's purpose is to create products and services that facilitate the planet's transition to carbon-neutral energy and transportation. Our business spans both consumer and commercial markets. In the consumer sector, we launched our R1 platform with our first vehicles, the R1T and R1S, marking our initial connection with the world and the first step in building a relationship with our customers. Engineered for all of life’s adventures, our vehicles combine performance, utility, and efficiency. As of yesterday, we had 71,000 pre-orders for our R1 vehicles. In the commercial market, we are introducing the Rivian Commercial Van platform. Our first vehicle on this platform will be the 700 cubic foot electric delivery van or EDV 700. We designed these vehicles in close collaboration with Amazon, which has placed an initial order for 100,000 EDVs. Our commercial vehicles focus on safety, comfort, and ease of use, offering significant improvements in driver experience while also ensuring a lower total cost of ownership. Each commercial vehicle delivered to Amazon is paired with FleetOS, our proprietary fleet management platform charged with a subscription fee. The 700 cubic foot EDV has demonstrated a range of 201 miles based on internal testing using EPA procedures. We have obtained the necessary certifications to sell these vehicles and plan to deliver our first market-ready vehicles to Amazon this month. Both our consumer and commercial products are backed by a comprehensive suite of services that address the entire vehicle lifecycle and strengthen our customer relationships. Starting with a clean slate, we have constructed a vertically integrated ecosystem comprising our vehicle technology platform, cloud architecture, product development, and operational capabilities. This ecosystem enables rapid development cycles, cost advantages, and exceptional customer experiences. After 12 years of preparing our strategy and offerings for customer deliveries, it has been incredibly rewarding to witness the excitement for what we are building. Recently, we've received many accolades from editorial and news outlets, including Newsweek, Forbes, and Edmunds. Additionally, earlier this week, the R1T was named MotorTrend’s 2022 Truck of the Year, recognizing the truck that pushes boundaries in safety, efficiency, value, advancement, design, engineering, and performance. We feel honored by this recognition and the opportunity to showcase how a technology-focused vehicle can eliminate long-accepted compromises. After years of meticulous attention to detail, it was gratifying to hear MotorTrend state that this may be their most significant recognition since the award's inception in 1949. Earlier this year, we also completed a historic all-electric crossing of the U.S. in an R1T on the Trans-America Trail. From a production standpoint, a significant milestone for our team was the production and delivery of our first vehicles. As our first R1T sale drove off the production line, I celebrated this emotional moment with my family and thousands of colleagues. Earlier this week, Claire and I purchased the first two saleable R1S vehicles. While we are facing challenges, I am incredibly grateful to be working alongside such a passionate team bringing these vehicles to life. I want to take a moment to discuss our manufacturing progress. Launching and ramping production of three different vehicles within a few months is a significant challenge. This production ramp requires simultaneous scaling of our supply chain, hiring and training our workforce, equipment setup, and rapid iterations through quality checks. These challenges are made even more difficult by the current state of the global supply chain, a tight labor market, and COVID-related complications. As of yesterday, we have produced 652 R1 vehicles and delivered 386 of them, including the first two recently certified R1S vehicles this week. With 13 working days left in our current facility, our teams are working hard to deliver as many vehicles as possible by year-end. For 2021, we expect our production to fall a few hundred vehicles short of our initial target of 1,200 vehicles. After starting R1T production, we decided to begin introducing the R1S and R1 production line. Ultimately, ramping up the R1S in November while also scaling R1T production proved to be more challenging than anticipated. We produced enough R1Ss to validate and certify them, which is essential for the R1S ramp in early 2022. Given the significance of the R1S, this was a strategic decision that we believe maximizes long-term business value. We are pleased with the progress and lessons our team is integrating into our operations. We have achieved our primary goal of certifying the R1T, R1S, and EDV 700 for sale this year. In early 2022, we will complete the certification of the EDV 500, which is narrower and shorter than the 700. Our production ramp of the R1T, R1S, EDV 700, and EDV 500 will continue into next year, and we are confident in our long-term manufacturing strategy. As we scale our manufacturing facility, many of our suppliers are also increasing their production to align with our vehicle ramp rate. Our procurement team is agile and continues to collaborate with supplier partners at all levels to address challenges from supply chain issues, the labor market, and COVID. Given the uncertainties in the supply chain, we have opted to maintain higher inventory levels than initially planned to ensure consistent access to necessary parts. The positive news is we don’t believe our supply chain challenges represent long-term systemic issues. While our product development and manufacturing teams focus on scaling our primary production facility, our real estate and facilities team has been working hard to position us for accelerated large-scale adoption of sustainable transportation. We are excited to announce our partnership with the State of Georgia, which will host our second U.S. manufacturing facility. The site selection was a result of a thorough process evaluating various locations nationwide, focusing on logistics, access to talent, and proximity to suppliers. This project marks the largest economic development deal in Georgia's history. The facility will be located east of Atlanta, in Morgan and Walton counties, and will employ over 7,500 workers at peak production. We plan to begin construction this coming summer, with an aim to start producing saleable vehicles by 2024. The facility will manufacture our next generation of Rivian vehicles with a target capacity of 400,000 annual units. I want to express my gratitude to the State of Georgia; we’re thrilled to make Georgia a second home for us. The last major milestone to highlight is the completion of our initial public offering in November, which raised $13.7 billion in gross proceeds. We are very thankful for the enthusiasm and support shown by our existing and new shareholders. These funds will help us achieve our near-term goals, including expanding our manufacturing capabilities, investing in our vertically integrated technologies, and enhancing infrastructure to strengthen customer experience and engagement. As part of our IPO, we launched Forever by Rivian to extend our impact beyond the immediate scope and inspire healthy competition. Forever's mission focuses on tackling the climate crisis and preserving essential biodiversity for the planet's long-term survival. We are donating 1% of Rivian’s pre-IPO outstanding equity to Forever, positioning the natural world as a stakeholder in our success. Forever will concentrate on land conservation, sustainable consumption initiatives, preserving biodiversity, and educational stewardship. The value of Forever’s equity is nearly $1 billion today, and I am excited about the impact this donation can have in preserving the planet for future generations. Now, I'll hand it over to Jiten, who will discuss customer engagement in the business.

Thanks, RJ. We continue to observe strong affinity for our brand, as evidenced by the acceleration we have seen in our backlog of pre-orders. At Rivian, a pre-order reflects a refundable $1,000 deposit and a configured vehicle including everything from paint and interior color to our accessories. As of the end of our third quarter, we had approximately 48,000 R1 pre-orders from customers across the United States and Canada. Since then, we have added another 23,000 net pre-orders, bringing our backlog as of yesterday to 71,000. Before I jump into a few additional customer experience milestones, I wanted to spend a few minutes walking through our go-to-market strategy. The Rivian go-to-market strategy is rooted in three foundational principles, all designed to efficiently solve existing customer pain points. First, we go direct to the customer. By doing that, we are able to ensure the quality of each interaction. Second, we have a digital force, which means we have invested heavily in a robust cloud-based digital backbone that enables and enhances each interaction. We expect this will provide deep learning, immersive experiences, and scalability as we grow. As an example, our intuitive digital purchase process replaces what otherwise requires several hours at a dealership. With a self-based, stress-free experience, you can manage in minutes from your account. Third, we maintain end-to-end control of the entire customer journey. This means every interaction is stitched together into one seamless experience through a set of vertically integrated digital and physical capabilities. These three foundational principles allow us to put the customer at the center of each touchpoint. Over the past few months, years of hard work, concepts and design have been put into action. You will find further details in our shareholder letter, but I will touch on a few. In September we kicked off our First Mile program. This program provides a variety of ways for consumers to experience our vehicles, including at-home demo rides, event-based experiences, and drives. Since launch, we have hosted over 10,000 guests in our vehicles, and have helped drive in a handful of locations including New York, Normal, Seattle, and California. Additionally, as we started to sell vehicles in September, our delivery team began to ramp up. As one of many interactions we have with our customers, we put a tremendous amount of thought into our delivery experience. Deliveries happen primarily at a customer's homes, so that they can experience a moment comfortably with family, friends, and their whole community if they so choose. During this delivery, a dedicated field specialist is there to walk the customer through everything they need to know about the vehicle and tailor the delivery experience to the consumer and the family. As we moved into October, we opened our first Rivian Hub in Venice, California. If you're unfamiliar with Rivian spaces, they are places for our customers, friends, and the local community to come together, connect, and share ideas. Our spaces portfolio will consist of hubs, like a location in Venice, these new spaces which will be temporary in targeted locations, outposts in more adventurous locations, and lastly, large tracts of protected land that are accessible to customers. On the service side, we are prioritizing the rollout of our service centers, targeting the highest concentrations of pre-order customers. The service centers are complemented by a fleet of mobile service plans, which will perform the vast majority of service at our customers' homes while expanding the service coverage area. Our delivery cadence is synchronized with the service infrastructure to ensure a worry-free and highly responsive service support experience. Our 24/7 service support and predictive diagnostic capabilities will further enhance the service model. Next, let me pass the call along to Claire, who will provide an update on our financials.

Thanks, Jiten. I wanted to echo RJ and Jiten’s excitement in talking to you all on our first earnings call as a public company. I'll start with a review of our third quarter results. In September, we delivered our first 11 R1Ts to customers, generating $1 million in revenue. As RJ mentioned, given that we just started production in September, the third quarter volumes on our manufacturing lines are a small fraction of our expected long-term production capacity. In the near-term, we expect that this dynamic of high fixed costs associated with operating and running our large scale, highly vertically integrated plants amortized over a small but growing number of vehicles produced across the R1 and RCV platforms will continue to have a negative drag on gross profit. As a result, in the third quarter, we generated a negative gross profit of $82 million. Additionally, we recorded a lower cost or net realizable value, LCNRV adjustment to write down the value of certain inventory that we anticipate receiving upon vehicle sale, after considering future costs necessary to ready the vehicle for sale. This expense negatively impacts the gross profit in the third quarter, and we expect it to also impact upcoming quarters in the near future. For example, in the fourth quarter, we have continued to build up our inventory balance to help mitigate the supply chain challenges we have experienced to date. We immediately record the LCNRV adjustments, which adds to the concentration of fixed costs we recognize as part of our cost of goods sold. As a result of these accounting dynamics, the marginal vehicle we produce in Q4 will have a limited impact on our cost of goods sold. Given the inflationary market backdrop, we will also continue to evaluate the pricing for our vehicles. Turning to our operating expenses, research and development expense for the quarter was $441 million as compared to $220 million in the third quarter of 2020. The higher expense was due to increased efforts related to our R1 Consumer Vehicle program as well as our EDV Commercial Van program. We also experienced increased expenses related to other advanced product development activities that are critical for our future products. SG&A expense for the third quarter of 2021 was $253 million as compared to $68 million for the third quarter of 2020. The primary drivers of this increase are related to scaling our sales and service operations, commercial office locations, customer-facing facilities, and corporate functions to support future business growth. During the third quarter, we recognized a $458 million non-operating expense related to the loss in our convertible note. This was the result of the issuance and subsequent mark-to-market valuation of our 2021 convertible note. This was a non-cash expense. Our capital expenditures for the third quarter were $469 million driven by our continued strategic investments in infrastructure, primarily due to the expansion of our normal factory, as well as investments in corporate facilities, service operations, and experience-based expenses. Now turning to our cash balance, we ended September with $5.2 billion of cash on our balance sheet. Since then, we've completed our IPO raising $13.5 billion of net proceeds and also raised $1.2 billion of net funds through senior secured notes. Adjusting our cash balance for these two fundraising events, we would have ended the third quarter with approximately $20 billion of cash on the balance sheet. As RJ highlighted, there's a tremendous opportunity in front of us to help drive the future of the $9 trillion transportation and services market. However, building out our organization and infrastructure to support our growth requires significant investments. The funds we've raised throughout 2021 offer us the opportunity to execute on our near-term objectives. However, we will continue to look for opportunities to pull forward investments to further accelerate our strategy. As we look a few weeks ahead, we remain focused on ramping our R1 production and deliveries. In addition, with the finalization of our EDV certification, we expect to start making deliveries of the EDV 700 to Amazon before the year-end. We plan to provide full year 2022 guidance during our fourth quarter and fiscal year 2021 earnings call. With that, let me turn the call back to RJ before opening up the line for Q&A.

Thanks, Claire. As I mentioned, delivering our first R1T, R1S, and EDV vehicles is our primary goal for 2021. I appreciate our team for their focus and dedication to making this goal a reality, despite the unprecedented backdrop of COVID and a challenging supply chain environment. With the growing backlog of 71,000 pre-orders and our 100,000 unit order from Amazon, we are excited to begin to satisfy the tremendous demand for our products and services. Our team has rallied around their shared values and continues to demonstrate a tireless work ethic as we continue scaling our production volumes. Thanks again to everyone for being with us today. And with that, let me turn it over to the operator for questions.

Our first question comes from Adam Jonas from Morgan Stanley. Please go ahead with your question.

Thanks. Good afternoon, everybody. One question, one follow-up, please. On the capacity expansion, I thought the idea was to ramp up normal first, see everything that works and what doesn't work, and then use those learnings to optimize the selection in the architecture of your second plant. So kind of why expand so soon? And how can you still get those learnings in?

Thanks, Adam. Yeah, this is a really key element of how we thought about cascading the programs and how we've architected the product development organization to be capable of not only running more than one program and launching more than one program at once, but also to have those fast feedback loops between the different programs. So with that, the commercial van has actually learned a lot from the R1 platform and the R1 platform launch. And as we look at our next generation of vehicles, we will certainly learn from what we're doing now on the R1 platform and what we're doing on the RCV platform while recognizing that those programs fully develop and then launch. What you see in terms of the second facility, the facility in Georgia, this is really key for us from an expansion point of view, and the timescales associated with bringing that plant online really require us to start that work as you've heard, early next year.

Thanks, RJ. I would like to hear your thoughts on the early builds you've been delivering. What aspects are working well, what issues have you encountered, and how are you addressing those? Additionally, regarding your previous comment in early November about expecting to deliver 55,400 orders to consumers by the end of fiscal '23 for the R1, can you confirm if that expectation still holds based on your current view of the supply chain? Thank you, RJ.

Sure. I guess, first just to touch on how we're seeing the vehicles in terms of quality and what's being delivered. There's a tremendous amount of excitement. What we're finding is early customers are excited to invite friends and family to take rides. And we think that's part of what's driving the increased rate of pre-order accumulation. And from a quality point of view, this has been a really key element for us where we're focused on making sure what we're delivering maintains and really delivers on quality in terms of how the vehicles are built, how they're put together. And what's exciting is watching us add additional features. Through software updates, we can not only enhance and improve the software capabilities in the vehicle, but to add features and respond to some of the early feedback that we're getting. And then with regards to – go ahead, I'm sorry, Adam.

Yeah. The second part of the question on reiterating the delivery target by end of 2023.

Yeah, so we are working as hard as we can to ramp, recognizing the rate at which pre-orders are coming in exceeds the current rate of production. We absolutely need to work to sort of have supply, so to speak, catch up with demand. So we do plan to have the existing pre-orders make those deliveries by 2023. But if you place a pre-order today and if you are delivered in that order, it wouldn't be until 2023 for that delivery.

Thank you. Our next question comes from the line of Rod Lache from Wolfe Research. Your question, please.

Hi, everybody. Congrats on what you accomplished in the response to the first product. I wanted to ask you a little bit more about production. First of all, obviously, lots coming together. Where are the biggest bottlenecks at this point in the ramp? Where are you focusing operationally? Can you give us some sense of where your daily production rate is now and what you expect to exit the year at?

Ramping up operations is akin to conducting an orchestra. We must simultaneously manage the supply chain, train the workforce, address equipment issues, and ensure quality. Each aspect presents its own challenges. The unique timing for this launch is impacted by supply chain constraints, particularly in vehicle production. Even if 99.9% of the components are ready, delays from a small number of suppliers can still create bottlenecks. We have been focused on effectively ramping both our production and that of our suppliers. Recently, these challenges have been our main concern, but we don’t anticipate long-term systemic issues. Most are short-term and solvable. One area that has constrained us has been the production of battery modules. Each vehicle battery pack comprises nine modules, each containing numerous cylindrical cells. The assembly process is automated and requires significant work. To mitigate long-term risks, we have started three separate production lines. We have a development line that has been operational for years and a larger automated line producing most of our current output. The third line, which is designed for higher volume, is currently being launched. We proactively decided to establish this capacity last year to prevent battery module constraints in the future. While this has posed challenges so far, we do not view it as a long-term issue due to the capacity we have added recently.

Thanks for that. As your backlog increases, there will come a time when deliveries may extend into 2024, which is concerning for me. Claire pointed out that you're exploring ways to accelerate your strategy. Are there any measures you can take to speed up the ramp-up for the R1 platform considering the strong demand for the product? Additionally, regarding inflation and pricing, are you considering adjusting prices based on the demand for the product?

With regards to production, we're certainly looking at how we can accelerate the ramp, given the really strong demand that we have for the products. One of the things that we built into the way we've designed not only the plant but also the organization is we've made sure that as we set things up, we are capable of exercising the discipline to ramp two lines in parallel. We have our R1 line and we also have our commercial vehicle line. Not only those separate assembly lines, but those are also separate teams that are working on those activities. And what that allows us to do is to be really intentional around how we deploy resources. And that ability to be very intentional also allows us to look at increases in capacity; the plant has been for the plant here in normal to grow capacity from 150,000 units between those two lines to 200,000 units. It's part of the long-term plan for the plant and we're looking at how we can accelerate that capacity increase, leveraging the discipline teams that we built. With regards to pricing, and certainly the backdrop of inflation that we're seeing, and a very strong demand for products, not just within our product set but I’d say broadly within the electrified space has caused us to look at our pricing. And really, I'd say recognizing the set of product features that we've been able to put together into the vehicles; they are incredibly fun to drive, very capable, over 800 horsepower, zero to 60 in three seconds, great on-road, great off-road, but also a great everyday vehicle. In terms of a competitive set, we recognize they are very aggressively priced. So that is something that we've certainly considered and talked about quite a bit as a management team.

Great. Thank you.

Thank you. Our next question comes from the line of Ryan Brinkman from JPMorgan. Your question, please.

Hi, thanks for taking my question. I wanted to ask about the pace of the orders you have been receiving. I think that they'd maybe increased in the lead up to the IPO given the increased attention the product was getting after the first media reviews with R1T et cetera. Also, maybe just because of the increased attention the company was getting around the IPO. So it would be great to get an update on what the pace of weekly orders has been looking like if that took another big leg up after the IPO with the company's name in the news, or maybe some of the market events you've done in California or elsewhere. Also be interested if there has been any increased inbound interest in the RCV platform from potential non-Amazon fleet customers. Thank you.

Yeah, hi, Ryan. I think you said it right. Over the last few weeks, we've definitely had increased attention coming through all the coverage in the media. Equally importantly, with the launch of our First Mile program and getting the vehicles to the customers, having them experience those vehicles—our first deliveries to which started out predominantly to our employees but then now happening to non-employees, and end customers—they've all resulted in definitely an increase in interest and demand. What you're seeing in terms of the heat map of our demand is that it's getting more and more intense. We're seeing demand grow in all the big markets that we were always present. The intensity of demand is growing, both in the major markets and then also in the greater metropolitan areas around those major markets. So we are, I would say, more than anticipated definitely, but the demand still needs to be robust. On the RCV platform, we have, as you know, we have an exclusivity arrangement with Amazon in the Last Mile space. Amazon being the biggest player in the Last Mile delivery space and having them as an anchor customer was a strategic decision that we made. It allows us to learn fast and scale and deploy a large mega fleet. But outside the Last Mile delivery space, there is a huge market out there. We are seeing a lot of interest, inbound interest. We are actively engaged with players in this space, looking at different formats or configurations that could serve their specific use cases. So we are actually quite excited about the size of this opportunity outside the Last Mile delivery space. What is even more interesting is the FleetOS. This fleet management platform that we are launching with the first vehicles that will be delivered to Amazon, and it's going to be present with every vehicle that we sell as a monthly recurring fee. It also applies to other use cases and drove the scalability of this fleet management platform, the flexibility, and the modularity of this provide a lot of opportunities to grow the services side of the business on the commercial side. So that's another unlock of value, long-term value that we've launched.

Okay. That's very encouraging. Thank you. And then just lastly as a question on, I guess, battery sourcing strategy. How would you describe the relationship with Samsung? At what point does it make sense to have a maybe more custom-designed battery pack or maybe to insource or partner with a battery company to vertically integrate manufacturing of the pack? Is there, I don't know, a unit volume threshold, or maybe a date in mind by which you would like to bring batteries in-house? How are you thinking about that?

Ryan, this is a great question. In fact, I think it's probably one of the most important questions in the context of electrification. It stems from the sheer scale of increase that we're going to need to see as an industry to produce all the batteries necessary to electrify 90 to 100 million vehicles a year, and eventually in the aggregate around one and a half billion cars on the planet. As we've thought about this, we've developed a strategy that has three what I would call parallel approaches. And truly parallel, meaning these are not mutually exclusive. The first category is sourcing an existing cell. That’s what we've done with Samsung SDI for launch vehicles. It’s a cylindrical 2170 cell, high nickel content cell. We've sourced that from existing capacity that already existed in the world. That type of deal we see as really being—we don't see a lot more deals like that happening across the industry. As the demand for cell starts to climb, we need to be building new capacity. The second category or second approach, again, happening in parallel, is the need to create capacity or co-investing capacity with cell suppliers. We're certainly doing that. We haven't announced any of those relationships yet. But for us to continue scaling out to 2023 and beyond, that co-investment in capacity is going to be critical for us. The last parallel path, last arm of the strategy for us, is taking a more vertically integrated approach where we completely control the design of the cell and the sourcing of the raw materials that go into the cell. That third approach is core to our strategy. We've been working on that for quite some time. We will be producing cells in pilot form starting late next year. That vertical integration of the cell doesn't mean the first two categories don't remain super important. It simply is in response to our intended growth. When one looks at the amount of cells we'll need as a company, all three of those approaches—sourced capacity that was already existing in the world, newly created capacity that we co-invest in with our supplier partners, and newly created capacity that we entirely invest in and control—all three of those pathways are critical for us as we start to look out into the second half of the 2020s and scaling as a business.

Very helpful. Thank you.

Thank you. Our next question comes from the line of John Murphy from Bank of America. Your question, please.

Hey, everybody. A first question on the ramp of the pre-orders because they're certainly a bit faster than maybe we were expecting. And we thought you'd have to have more of these trucks out on the road to really build this momentum. But it's coming fast and furious here. So I'm just curious relative to your expectations how the pre-orders are rolling in. And if you have any early read sort of on the demographics and the vehicles that are certainly not being traded indirectly here, but where the buyers are coming from? Any sort of specifics around these folks because it's a lot, and it's pretty quick.

Yes, it's certainly exciting. Their response to the vehicle has been outstanding. What we're seeing a lot of over the last, really over the last couple of months is heightened awareness of the company. Certainly the IPO contributed to that, but much of it has also been just the broad coverage that we've seen from a variety of different outlets and media sources. As I mentioned earlier, MotorTrend’s selection of us as their 2022 Truck of the Year and their comments and excitement around the vehicle are emblematic of what we've seen from a number of different publications. Coupling that with just more awareness of the vehicle, so some of our drive events that we've done and the early deliveries we're conducting, we often joke, every early customer turns into a sales representative for the company because there is just so much excitement for the vehicle and so much excitement for the product. With that said, we expect that to continue. We expect to, as awareness continues to go up, that will lead to continued increases in pre-order demand. As we talked about, we look for opportunities to pull production ahead.

Yeah, absolutely. I think this has been one of the—it's sort of validated the strategy and the hypothesis that we had in terms of positioning of the R1. We had always intended this vehicle to be in this whitespace. By definition, the whitespace should be attracting share from a lot of adjacent markets and segments. You're absolutely right; what we are finding is a true validation of that hypothesis, where a vast majority of our customers are coming from, one, never having owned electric vehicles and two for the R1T we have close to 90% of customers that have never owned a truck. That has been one of the factors where this vehicle is attracting so many shoppers, and so much of cross-buying activity that is resulting in interest in the product with this. I will add this is a lot due to the coverage and the experience that our customers are having with the R1T. We are expecting this to actually get even bigger once the R1S hits the market, and people are able to experience that up close and personal and able to drive it. We are definitely—this is more than we anticipated. Absolutely, very encouraging. And as RJ mentioned, it has also opened up opportunities on what we could do from the quality of earnings, from a pricing point of view. So we are looking at all these options right now.

Well, this is something you'd have a real high-class problem on your hands. Just lastly, on the Georgia facility, 7,500 jobs use a multiplier on that you could certainly argue for Georgia. This is going to be 50,000 to 100,000 net incremental jobs all in when you go through the value chain. I'm just curious as you worked out this deal with Georgia, what the terms are? And Claire, I mean, if you were to think about this on gross CapEx versus net CapEx, I mean, how big a benefit is it going to be to have worked with Georgia versus what you would have spent otherwise?

Sure. So relative to our original plan record, as we thought about the overall cost for our second facility, I would say that this is certainly an advantageous position to what we originally anticipated in terms of growth CapEx metric that we would put out there in the market. We've worked really closely with the State of Georgia across the incentive package here. It's a very attractive one for Rivian and we're really excited about not just the incentive package but, as you mentioned, the true talent pool that exists within that market that we think will be really optimal as we want to scale production and build out a significant second facility in the U.S. market.

Could you quantify that at all? I mean, it's a really good thing for Georgia. So, I mean, they should be pitching in. I'm just curious what maybe relative to your base case expectations versus what you're able to work out here, if you can give us an idea of what you got on the capital side or NPV.

I would say, we'll have more to come on that in future announcements. But right now, I would just say that it's certainly a great deal for Rivian and a great deal for Georgia as well.

Thank you. Our next question comes from the line of Brian Johnson from Barclays. Your question, please.

Yes, thank you. I just want to drill a little bit more down on the production ramp. If you kind of think through, you went to the word constraints, of course, that brings to mind the classic Theory of Constraints. Could you maybe describe in a little bit more detail where you think the key constraint is? Now you did mention perhaps the welding of the battery packs. And how do investors get confidence that the constraints can be knocked off versus their worst case, something fundamental about the design of the vehicle or the battery packs that would complicate anyway?

In ramping up a production system like this, it is, as I said before, a really complex orchestra. You have hundreds of suppliers providing thousands of parts, thousands of robots within the production facility operating to prescribed movements, and then thousands of team members assembling and working to put the vehicles together. As we go through that process, we have multiple meetings throughout every day, tracking how we're managing all those different constraints. Each aspect of the plant, whether it's stamping, body shop, paint shop, battery assembly, or driving assembly, or general assembly of the full vehicle—whether there's any constraints within those and how we continue to progress the hourly and daily output. With that said, we're ramping largely as expected. The battery constraint is really an artifact of just bringing up a highly automated line. As I said, that doesn't represent any long-term challenges for us. We have a second line that's coming on that will put the battery module production way out in front in terms of capacity of the other areas of the plant. As we work through quality loops, as we work through training our workforce, this is part of the challenge. We just need to recognize that the plant is designed to run at significantly higher output. What we're seeing today in terms of output just represents the front end of an S curve, which is typical for this type of ramp up.

And just to follow up, anything in terms of having to go back to the drawing board, either the configuration of a pack, particular parts, or things that would be longer cycle fixes, as opposed to just ironing out the kinks and attacking bottlenecks on a daily basis that come up?

No, we don't see any long-term systemic challenges, either in the supply chain or with the way that the vehicle has been designed or the manufacturing plant has been designed.

Thank you. Our next question comes from the line of Mark Delaney from Goldman Sachs. Your question, please.

Yes, good afternoon. And thank you very much for taking the questions. So I'm going to start on the commercial side of the business. The 201 miles of estimated range that you're seeing is very attractive, I think, would cover a number of routes. Moving to better understand what it may take to build upon that initial 100,000 order from Amazon. Is it executing on some of the technical milestones as you seem to be doing? Or would be more around having to hit a certain percentage of that order in terms of delivering vehicles before there may be upside to that initial 100,000?

Mark, it's a good question. As we think about the commercial space and Jiten spoke to this earlier, Amazon represents such a large pool of demand for us. As a result, we're very focused on making sure that we deliver to their needs. They're not only the largest player within the Last Mile space, but they're also the most rapidly electrifying. It's critical that we do not starve them of vehicles. Now saying that, the vehicle platform, the RCV platform was architected and designed to fully contemplate vehicles beyond Last Mile—so that’s in the cargo space, that's in the workspace. There are various opportunities that exist both in large volumes and across a very long spread out tail of commercial applications. For us, bringing up those non-EDV versions of the vehicle is something that we are focused on, and the design and engineering teams are working towards that. We are balancing that with just managing how much complexity we're introducing; it's the plan of wanting to do that at the right rate, and at the right time. As you heard me talk about earlier, over the course of the next quarter, we'll be ramping up not just R1T, R1S, and the EDV 700, but we're introducing the EDV 500, which is a narrower and shorter variant of the EDV van. Adding additional variants on top of that will come, but we’re balancing the desire to minimize complexity while we’re ramping up production.

That's helpful. And for my second question, I hope you could comment on the supply environment in terms of semiconductors and other components, it's been tight for a long while now. A few auto companies have started to see a little bit of easing as we move through the fourth quarter or reopening some previously closed factories. At the same time, unfortunately, we have the Omicron variant that could perhaps complicate things. So just hoping if you could give a bit more specific insight into any changes that the company may be seeing in its supply chain environment. Thank you.

Yeah, the supply chain environment has been incredibly challenging. It's unprecedented in the number of issues that we've seen as an industry across a variety of different commodities and components. Certainly, semiconductors is one of those, and we're very, very focused on that. A week doesn't go by where I'm not speaking to heads of some of our major semiconductor suppliers. With that said, I'd say the element of this that's really worked in a positive way is we've taken a very transparent approach with our suppliers to both communicate to them our ramp and to be very clear on expectations. In return, we also have a clearer picture of what their ability to supply is and how that translates to our ramp. We're managing that very thoughtfully. Semiconductor certainly gets the most attention. But I'd say that's true across the rest of the supply chain. In many cases, the areas where the constraints have been challenging for us over the last three plus months have been in areas that might not be expected; these are smaller suppliers that have been unable to hire a second shift or smaller suppliers that are having issues with COVID. We're seeing a lot of those types of challenges and bringing up our supply base with several hundred suppliers. We've got a team that's very hands-on with all these different suppliers. We're working with them closely in many cases, working with them in their production facilities. So we have both very good visibility and we're also working very collaboratively to make sure that they achieve the ramp.

Thank you. Our next question comes from the line of Emmanuel Rosner from Deutsche Bank. Your question, please.

Yeah, thank you very much. My first question is around software and subscription. On what timeline would you expect to start essentially seeing some of these revenues both on the commercial side with Amazon—is that going to be from day one—and then on the consumer side? And then any sort of like initial views on the consumer side in terms of take rates or sort of like average subscription revenue per vehicle?

Yeah, hi, Emmanuel. Two parts to that. So on the commercial side, just to confirm the FleetOS sort of goes live at launch. In other words, as we start deliveries to Amazon this month, each vehicle comes with a recurring monthly subscription of FleetOS. The set of features that are included, we consider them as a V1 of a feature set. As these makers are deployed and operational, we expect to grow this feature set by creating more value on the TCO level for Amazon. So that software subscription goes live basically now on the commercial side. On the consumer side, the software side or the services side of our business has different flavors. The primary flavor is membership, which every vehicle owner today gets a complimentary membership for a year. Our goal is that at the end of that period, we would start charging our customers a monthly fee. That would represent, again, a basket of features, which will include, but not be limited to charging, roadside assistance, and connectivity. There will be other elements into that membership offering that we are working on, curating, and designing diligently. You will use this time, this fee, this time where the members get this free membership to build that basket. Apart from that, there are other flavors of software subscription which could be on an individual software basis or other bundles that we will put together. We expect to work on those and announce those in the coming months. But yes, it's early for us as we've just started doing deliveries, which come with a free membership period.

The only other point that I would just add on that from a services perspective is, we have seen strong uptake in regard to our insurance and financing as well for the vehicle, given the really seamless experience. You can go through our transactions and delivery process in a matter of minutes. I've gone through it twice myself in literally less than 10 minutes. The ease of use and simplification of that process has really shown through from a take rate perspective, especially on those two leading-edge features that are part of that initial transaction as well.

Okay. That's great color. And then my second question, coming back to the topic of ramping up production. So RJ, I understand your points around not being structural and, obviously, to be expected, I guess, with this kind of challenge and environment. But based on what you've seen so far and going through these issues, are you generally confident that your ramp-up should be on target to be able to deliver some of the 2022 targets? There were obviously some reports early a few weeks back around some of the SUV delivery timeline being pushed out. So overall, are you confident that this is mostly in the rearview mirror and going forward you're tracking in line with some of your delivery targets?

Yeah, we're quite confident in the path ahead. I guess it's worth just commenting a little bit on what the activities have been over the last three months. And I said it at the start of the call, but it's important to reiterate. We're launching three vehicles this year. We had the first R1T drive off the line in September. We just sold the first two and delivered the first two R1Ss this week, actually, Claire and I as the first two customers. And we'll be making deliveries on the EDV 700 very soon here before the end of the year. When you look at those three different launches, there's also a correspondence with three different certifications. All three of those vehicles have been certified for sale. They are being produced on two different production lines. There's a line that's producing the R1 products, and there's a line that's producing the commercial vehicle products. As we've discussed before, this is such a critical element of what we're building; we wanted to ensure the company and the organization was architected to facilitate running and operating multiple programs at the same time. One of the challenges that we've seen over the last two months has been bringing up R1S on the R1T line, recognizing that because it's a shared line, we just started production of sellable units on R1T in September. Within a few weeks, we were putting our R1Ss into the line as well. That proved to be more challenging than we had anticipated before. Fortunately, we managed through it, and we were able to produce enough vehicles to certify the R1S and put that through the validation process. It was a decision we made to rapidly integrate the R1S into the line while we're still ramping R1T, given our long-term focus and what we see is being critical long-term for our brand and for our customers to have both of those products in the market as quickly as possible. Now, as we look at what the ramp will look like for both R1T and R1S into next year, having done those activities this past fall positions us to rapidly grow through the course of 2022.

Great. Thank you.

Thank you. Our next question comes from the line of Alex Potter from Piper Sandler. Your question, please.

Perfect. Thanks, guys. First question is on in-house cell capacity in Georgia. You alluded in the investor letter that you'll have in-house cell capacity contemplated to be co-located with that facility in Georgia. I'm interested, is that going to be the case from day one in 2024? Is that something that you're working into the plants to eventually have in Georgia?

As we think about the Georgia site, and this is one of the key considerations for us as we looked at different sites around the country, this is a platform for us to grow from. As we introduce the first products there, the plant was immediately started 400,000 units of annualized capacity, but we'll grow to that. Much the same way we've sized the site. In the site selection process, we've made the selection contemplating a significant amount of battery cell production. That will come in over phases. When we first launch the site, it will be just vehicles. Shortly thereafter, we will add our in-house cell production, and that in-house cell production will grow quite dramatically over the course of the following years. Given the criticality of that from a cost structure and scaling point of view, we've placed a lot of emphasis on selecting the site.

Okay, great. And then the second question just on DC fast chargers. If I recall, you're working on a target of 600 or so DC fast chargers in the network. Just curious to hear if that still is the target, what the timeline is behind that and any opportunities to accelerate, maybe also regions of initial focus? Thanks.

Yeah, absolutely. We are on track for our long-term 2023 target of having 600 sites. We are prioritizing sites and synchronizing them with locations where we are making deliveries. We're trying to do this in a planned fashion and in stages. There are multiple sites across the country that are in different stages of commissioning, both from procuring the sites, setting them up. We believe having a robust charging infrastructure is going to be critical in the adoption and also from a customer experience point of view. We continue to invest in that area of our business and progress.

Great. Good to hear. Thanks for taking the questions, guys.

Thank you. Our next question comes from the line of George Gianarikas from Baird. Your question, please.

Hey, everyone, thanks for taking my question. Sort of tangential to a previous question asked, but some of your auto OEM colleagues recently secured critical materials supply chain contracts. I'm curious as to how you think about the EV material supply chain and how much of a priority you place on making sure you have materials for the next several years as you ramp production? Thank you.

Very similar to the comments I made before regarding overall battery cell production. We have incredibly strong conviction around the importance of playing an integral role in the far upstream supply of battery raw materials. We've built our team to drive that. That's understanding the mining space, understanding the processing space, of course, understanding deeply, and designing in-house cells that then support that or leverage that I should say. We expect and we believe that many of the investments necessary to rapidly build up the upstream supply of raw material—when I say rapidly build up, I mean increasing the capacity of the upstream supply chain by a factor of 20x to 30x over the next 10 to 15 years—we believe that the end customers, in this case, the OEMs, including ourselves, will need to take a very active role in that. While we haven't made any announcements in this area, we're focused on it.

Thanks.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to RJ for any further remarks.

Well, thank you everybody for joining the call. It was great to spend time on some questions here, and provide some updates on the business. We're really excited about the path ahead and really excited to have such strong support from our investors and partners. We look forward to future discussions. Thank you.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.