Rivian Automotive, Inc. / DE Q4 FY2021 Earnings Call

Thank you for standing by, and welcome to Rivian Fourth Quarter Fiscal 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. I would now like to hand the conference over to Tim Bei, Vice President of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us for Rivian's fourth quarter 2021 earnings call. Joining us on today's call, we have RJ Scaringe, our Founder, Chairman, 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 that during the course of this conference call, our 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 laws, 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 production. Actual results may differ materially from those contained in, or implied by, these forward-looking statements due to risks and uncertainties associated with our business. For a discussion of the material risks and other important factors that could impact actual results, please refer to the cautionary statements, risk factors contained in SEC filings and today's shareholder letter, both of which can be found on our website. During this call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to 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 a few opening remarks.

Hello, everyone, and thank you for joining us this afternoon for our earnings call. Before we dive in, we wanted to first take a moment to address the crisis in Ukraine. As an organization, we are deeply concerned about Russia's invasion and stand by the people of Ukraine. The humanitarian crisis resulting from the current development is clearly becoming a focus of governments and companies around the world. We are inspired by the actions so many have taken and we'll continue to evaluate ways we at Rivian can show our support. As Tim mentioned, just before the call, we published our shareholder letter, which includes an overview of the progress we've made over the recent months. I'd encourage you to read it for additional details around some of the items we'll cover on today's call. We'll touch on our recent achievements, production progress and product development. Before we do that, I want to personally address last week's pricing announcement. We released an update to our R1 product portfolio that included our new dual motor propulsion system as well as our standard battery pack. The dual motor propulsion system consists of a single motor drive axle, where we've integrated the drive unit, the inverter, the gearbox into a really power-dense package. And in the dual motor application, we put one of those in the front and one of those in the rear of the vehicle. In total, it delivers over 600 horsepower and achieves zero to 60 in less than four seconds. It's really cool. We also use that drive unit in a single motor application as a front-drive unit in our commercial delivery vans. Along with that, our standard battery pack leverages LFP chemistry, and that chemistry not only allows us to offer that pack at a lower cost, but it really fits commercial applications well. And it's first going to be launched in the commercial vehicle platform later this year, and then will make its way into our consumer vehicles by late 2023. Now, as we develop these new offerings, we need to make sure that they fit into our product portfolio. To do that, we revisited the overall pricing strategy. Prior to the pricing changes, our R1 platform had a price range without options of $67,500 to $83,500 and only included quad-motor variants. With the addition of these new product offerings, the R1 platform's price range is now $67,500 to $95,000, including both quad and dual-motor configurations as well as the standard range LFP battery pack. On March 1, we announced the dual-motor and standard battery pack along with this updated pricing model. In applying the updated pricing to existing pre-order customers, we failed to appreciate that customers view their configuration as price locked, and we wrongly assumed pre-order customers would be open to reconfiguring to the recently announced dual-motor and standard battery pack if they wanted to maintain a similar price point to the original configuration. We recognized this was a mistake and quickly moved to honor the original configured pricing for our pre-March 1 pre-orders. Our relationship with customers is the most important aspect of what we're building, and we believe our early customers are critical for establishing the brand foundation needed to support many millions of sales across our future vehicle portfolio. Since launching in 2018, we believe the brand loyalty we have forged is one of our most viable assets and something we believe will continue to drive network effects moving forward. With this, we remain highly confident in our ability to address the massive market opportunity that sits before us. Electrification is at a tipping point as trillions of miles traveled each year across the planet transition to EVs. This is a massive shift and one that requires multiple companies to be successful in building interesting products that give customers lots of choices. While the near-term industry conditions remain very fluid, our path to creating long-term value is unchanged. We are targeting the most attractive market segments with exceptional products. In the consumer space, we're building a global brand that applies to a wide range of product sizes and markets in the truck, SUV and crossover segments. In the commercial space, we're launching with an initial focus on last-mile delivery through our partnership with Amazon, and we'll use this critical scale to support growth across the commercial space. We are in a unique position to establish significant last-mile market share through our Amazon partnership and have the opportunity to capitalize on software and services through fleet OS. We are vertically integrating core technologies to ensure our products continue to lead, enable us to move quickly to make enhancements and provide long-term structural cost advantages. The initial feedback from customers and third parties has been really rewarding to see, from customers excited about the most recent OTA, to MotorTrend selecting our R1T as their 2022 Truck of the Year. Our products continue to generate a lot of enthusiasm. All of this excitement continues to provide momentum to the brand. As of March 8, we had approximately 83,000 pre-orders. Our pricing model, which encompasses the dual-motor drivetrain and standard pack, has demonstrated continued strong demand, with pre-orders following the pricing update remaining at approximately the same rate as prior to the announcement. Demand remains extremely robust. With our 2022 priorities, we've been very focused on ensuring we have the right team working towards our mission. Next week, we'll be announcing our new COO who will be responsible for helping to scale our production and supply chain. We have also continued to hire great leadership across the business to keep up with our rapid scaling. Ultimately, the strength of our team is what determines our ability to execute our vision. Not surprisingly, our highest priority for the remainder of 2022 is ramping production at our Normal, Illinois manufacturing facility. As of March 8, we produced 1,410 vehicles this quarter and 2,425 vehicles since the start of production late last year. During the last two weeks, we have averaged a weekly production rate that is approximately two times the actual rate of the fourth quarter of 2021. With that, I'd like to talk a bit about the R1 production ramp. This ramp is progressing well across all areas of the R1 production line, and we're achieving demonstrated production rates that are in line with our expectations. With all this progress, the biggest constraints we now face really lie with the supply chain, and it's a small number of parts for which the supplier isn't ramping at the same rate as our production lines are ramping up. I want to talk just about one specific area. Previously, we talked about battery modules, and this was a constraint that we saw at various times through Q4. As you may remember, we have two module lines, module line 1 and module line 2. Module line 1 is now running at twice the speed we saw at the end of 2021. Module Line 2 is ramping up very quickly, and it's in line with our expectations. With line 1 and line 2 now ramping, battery modules are no longer a constraint to the plant. With that, I also want to talk about R1S. R1S is being ramped very methodically. We learned a lot from what we've been through in the fourth quarter. As we're methodically ramping this up, we're balancing component supply for the parts that are different on R1S relative to R1T, and we're managing the fact that this product is coming up behind the R1T in terms of its level of ramp maturity to ensure that we're optimizing for overall production output for the line. Now with that said, we should also talk about EDV. The EDV ramp is quite a bit different than what we've been through in R1. It benefits from all the learnings you'd expect from the EDV line really being our second production line. Operationally, the line is ramping as intended without any major surprises or roadblocks. But as we've seen with R1, we are gated by a number of supplier ramp challenges. Given that the EDV production lines are capable of ramping faster than what we saw with R1, these supply constraints feel more pronounced than what we experienced in the initial weeks of ramping R1. With these supply constraints, the EDV is being built or being used to refine the digital integration of our software systems with Amazon to ensure alignment with the standard operating procedures for these vehicles. Feedback from Amazon and the drivers on the software is quickly being ingested, and we're using that to drive the OTAs on the platform. With all this, we expect EDV production to ramp considerably during Q2. Now it's worth noting the challenges our suppliers are facing vary and include company-specific production issues, COVID-related delays, and semiconductor allocations. We're working closely with any of these constrained suppliers to identify component challenges early so that we can support the supplier ramp and develop alternative solutions if needed. While the 2022 production ramp is a core focus from an operational point of view, our future technology and product pipeline are also really exciting. As a preview of some of the major initiatives, we're developing a proprietary 800-volt architecture, which includes new in-house drive units that will further enhance performance and efficiency of our announced dual and quad motor configurations. This higher voltage architecture also includes an onboard charger, DC/DC converter and DC to AC converter, where the power stages of the DC/AC and the AC/DC are bidirectional and share semiconductors, magnetics and the controller. We're also developing a heat pump-based thermal system, and along with that, a range of new battery packs, including what I talked about before, the LFP chemistry being used within these packs. Now, beyond the in-vehicle power electronics, we also continue to develop our portfolio of charging and energy products to expand beyond what we've already talked about and shown in our DC chargers to include a bidirectional home charger and home energy products. The technology work isn't just focused on propulsion platforms or charging or power electronics. We're also developing an improved network architecture and the associated electronics topology to consolidate multiple compute platforms for reduced costs and complexity. We're developing our next generation of perception hardware along with that. That perception hardware is being used with a new higher compute platform for the autonomous system. We believe that all these investments and all this technology will really increase the desirability and, of course, the capability of our vehicles while also delivering improved unit economics on the vehicles. Next, let me pass the call on to Claire, who will provide an update on our financials and the business outlook.

Thanks, RJ. I want to echo RJ's feeling of encouragement with the progress we're making at the plant, the robust technology roadmap we have in place and the strong backlog of demand from consumers and Amazon. I'll start with a review of our fourth quarter 2021 results. After years of development and design, 2021 was an important year for Rivian as we launched three vehicles across two vehicle platforms and initiated our first customer delivery. During the fourth quarter, we produced 1,003 vehicles and delivered 909 vehicles, which generated $54 million of revenue. As we've discussed in the past, as we ramp our production, the volumes being produced on our manufacturing lines are a small fraction of our current 150,000 units of annual capacity. In the near term, we expect this dynamic of high fixed costs associated with operating and running our large-scale, highly vertically integrated plant, amortized over a small but growing number of vehicles produced across the R1 and RCV platform, will continue to have a negative drag on gross profit. In addition, we experienced higher costs due to inflation and supply chain challenges, which resulted in increased bill of materials and higher logistics costs associated with expediting shipping of certain parts. As a result, in the fourth quarter, we generated a negative gross profit of $383 million. Additionally, we recorded a lower of cost or net realizable value, LCNRV adjustments to write down the value of certain inventory to the amount we anticipate receiving upon vehicle sale after considering future costs necessary to ready the inventory for sale. This expense negatively impacted gross profit in the fourth quarter, and we expect it to also impact upcoming quarters in the near term. Turning to operating expenses. Research and development expense for the quarter was $726 million as compared to $255 million in the fourth quarter of 2020. The increased spend stemmed from our current and future vehicle programs as well as cross-platform technologies. As RJ mentioned, we have kicked off our in-house motor system standard range LFP battery pack, Rivian Cloud architecture and many other hardware and software technologies that will allow us to introduce more accessible price points, improve gross margins and enable us to expand our high-margin lifetime software and services revenue opportunity. Finally, we realized a stock-based compensation expense of $277 million in the fourth quarter of 2021. As a reminder, our stock-based compensation vesting conditions were deemed probable at IPO, resulting in the recognition of our first stock-based compensation expense in Q4 2021. SG&A expense for the fourth quarter of 2021 was $682 million as compared to $98 million for the fourth quarter of 2020. As we scale our production, it's important we also scale our commercial operations. Providing a seamless, comprehensive consumer solution is part of what customers expect when purchasing a Rivian vehicle. This requires investments in our digital experience, customer engagement and delivery teams, service operations and customer-facing facilities and events. In addition, we continue to focus on attracting new talent that will help us grow and reach our long-term objectives. We realized $277 million in stock-based compensation associated with SG&A. In Q4 2021, we also recorded other expenses of $663 million. This primarily non-cash expense represents the accounting for the 8 million shares of Class A common stock and $20 million of cash that was donated to Forever by Rivian, Inc., in conjunction with our IPO. Our capital expenditures for the fourth quarter were $455 million, driven by our continued strategic investments in infrastructure. The capital expenditures were primarily due to the expansion of our Normal factory as well as investments in corporate facilities, service operations and experience bases. We have created a tremendous ecosystem, bringing together our in-house in-vehicle technology, the Rivian Cloud, and our product development and operations infrastructure that support our launch products and services and build the foundation for growth. We are at the tipping point of the EV transformation. We play in the fastest-growing and most profitable market segments, and we'll continue to scale our offerings with new price points, use cases and form factors. During the fourth quarter, we completed our initial public offering, which provided us capital to help execute our near-term roadmap. We ended the year with $18.4 billion of cash on hand, which includes restricted cash. As we look forward to 2022, I wanted to reiterate our excitement for the opportunities ahead and continued improvement in the areas of our business that we can control. Our primary focus will be to ramp our Normal facility and the production of our R1 and RCV platforms. While we work diligently to alleviate any supply chain challenges, we believe that through 2022, the supply chain will be the fundamental limiting factor to our total output for the year. We believe our Normal facility, manufacturing equipment and processes have the ability to produce approximately 50,000 vehicles across our R1 and RCV platform in 2022, if we were not constrained by our supply chain. Our confidence comes from weeks of batch building that have proven our processes and equipment are ramping as we had expected and intended. Despite this, due to the supply chain constraints, which are currently visible to us, in 2022, we plan to produce 25,000 vehicles across our R1 and RCV platform. Our estimated adjusted EBITDA for 2022 is negative $4.75 billion, primarily due to continued forward investments. We will increase our research and development expense through investments in future vehicle platforms, vertical integration of shared technologies as well as our in-vehicle and Rivian cloud technology roadmap. Our SG&A expense will increase primarily due to expected investments in our technology and commercial organization. As more of our vehicles hit the road, it's important we continue to invest in all aspects of our business that makes the digital-first ownership experience seamless and enjoyable. We plan to continue investing in our business throughout 2022, and therefore, expect an increase in capital expenditures compared to 2021. Capital expenditures are expected to be $2.6 billion, driven by additional investment in our Normal factory to expand the capacity of our R1 line to over 100,000 units annually. In addition, we expect to realize increased capital spend associated with the tooling for the current vehicle platform, future vehicle manufacturing lines, battery technology and supply, our service network, digital offerings and general technology. In closing, I wanted to reiterate our excitement for what we have ahead of us. Our long-term targets remain unchanged, with gross margin targets of 25%, EBITDA margin targets in the high-teens and free cash flow margin target of 10%. We expect the capital we are investing today will deliver powerful returns on investment. While the past year was filled with so many incredible milestones, we are truly just getting started. With that, let me turn the call back to RJ before opening up the line for Q&A.

Thanks, Claire. We're no doubt experiencing one of the most challenging supply chain environments the automotive industry has ever seen. But as we look out 10 years from now, our products, our technology and our brand platform will help us capture substantial market share in the transportation space. I want to thank everybody for being with us today. And with that let me turn it over to the operator for questions.

Thank you. The first question is from Adam Jonas with Morgan Stanley. Your line is open.

Hi, thanks everyone. RJ and Claire, during your S1 late last year, you mentioned having 55,400 orders for the R1 and that you expected to deliver those vehicles by late 2023. Can you confirm that you can still deliver the 55,000th R1 by late 2023?

Hi, Adam. Yes, we can confidently say we'd be able to deliver the 55,000th vehicle by the end of 2023. Right now, the real constraint for our production is within the supply chain, which has been a major focus for us. Every morning starts with thinking about which suppliers we need to go speak to and push harder on to make sure they're ramping as fast as the rest of our production line. Our ability to ramp this year will continue to be gated by the supplier ramps. It's not all the bill of materials; it's just a small fraction of the bill of materials where we're having some of these supplier constraints.

Okay. RJ, I'm interpreting that as that you confidently reiterate that given your visibility on the supply constraints, this is how I'm interpreting that, meaning including the supply constraints.

Absolutely.

Thanks, RJ. Just as a follow-up, how many EDVs have you delivered to Amazon to date and are in service?

So, as you heard, Adam, we're in the process on EDV of ramping the production. The ramp on that vehicle is going a lot smoother than what we've seen on R1. We're capturing a lot of the lessons learned and organizational capabilities we've built on the ramp-up of R1. The EDV is outrunning the supply chain today. The vehicles that we're producing are being used to refine the software integration with Amazon's system, so we really look at the second quarter to see significant ramp-up of the EDV.

Okay. RJ, thanks for that. So, I'm interpreting that as there really aren't any significant numbers in the fleet right now. They're being built and up-fitted and improved and optimized in the factory until sometime in the second quarter.

Well, right now, we have a number of vehicles deployed as part of this testing pilot fleet. But in terms of significant scale, that's correct; we wouldn't see significant scale until the second quarter of this year.

Thank you. Our next question comes from John Murphy with Bank of America. Your line is open.

Good afternoon, guys. Maybe just to push a little bit harder on this volume number. RJ, as you look at the supply disruption right now, I wonder if you could give us maybe a little bit more color about specific parts, is it semis, or we've heard just general malaise and snarl in supply chains. And then two, why you think this means ultimately for line expectations as we get beyond 2022 into 2023. Because I think generally, there's an expectation to do 100,000 units-plus in 2023. So, I think you're talking about capacity to do 50,000 units right now on a tooled basis. I mean, do you think on a tooled basis, the supply chain issues get worked out that you could do something like 100,000 units in 2023?

Yes. Thanks, John. We're working as hard as we can to get the suppliers ramped. The vast majority of our suppliers have been keeping up with the production ramp in the plant. As the production rates continue to increase within our facility, the constraints within the supply base become more apparent. We're working closely on these constraints to ensure we do everything we can to expand our component supply because ultimately, our goal is to deliver as many vehicles as possible this year. We’re not for supplier constraints; we're confident we could achieve in excess of 50,000 vehicles this year. The areas that we're seeing more challenges are within the semiconductor space, wire harness space and electronic space at some of the contract manufacturers building the printed circuit boards for us. In each area, there are different constraints. In the semiconductor space, a lot of it is dealing with allocation. The harnesses are coming out of Mexico and facing labor challenges exacerbated by COVID. There is a ripple effect of component shortages that feed into assembly.

That information is very useful. I have another question regarding the pricing of your products. Personally, I believe you have priced your products too low, even before the supply chain issues and inflation arose, as your product quality is quite high. It seems you might not fully recognize your own success. Have you considered the reactions from customers who have not expressed concerns about the price increases and who continue to place orders despite the hikes? Do you think there might be further opportunities to adjust pricing for your vehicles, independent of the input cost inflation?

Yes, John, we spent a lot of time looking at our pricing model. A big part of the new pricing model was to ensure we could really ingest our dual-motor and standard battery pack within our price range. We have a nice mix of options for our customers and configurations for our customers. When you step back and look at the product at the new pricing levels, it is competitively priced. The SUV is a three-row vehicle with a large pack and the dual-motor, zero to 60 in under four seconds, over 320 miles in range, a true proper three-row vehicle with a lot of space for storage. I've been driving one now for over three months. The products are exceptional, and we are seeing tremendous demand. Since announcing the new pricing, we've seen really no change in the rate at which pre-orders are coming in. Customers also see the value proposition; it's been validated by the continual influx of demand and growing backlog of demand.

Okay, that's great. Yes. No, I think you may even have more room than you think, but that's a high-class problem to have. Thanks so much for the time.

Thanks, John.

Thank you. Your next question comes from Rod Lache with Wolfe Research. Your line is open.

Hi everybody. Just on the supplier issues, I understand the types of things that you're doing to help suppliers, but can you give us a sense of the visibility into bringing those constrained suppliers into where they need to be? So the suppliers of semiconductors and wire harnesses and electronics that are an issue, are they giving you a high confidence schedule at this point? And just give us a sense of what that looks like?

Yes. Thanks, Rod. It really depends on the commodity area and on the supplier. We have teams on site with suppliers like wire harness or ECU systems, and we're able to build crisp line of sight over the next several quarters of production. The challenge within semiconductors has more unknowns. We can't send folks into foundries or semiconductor manufacturing sites. My team is spending a lot of time with our semiconductor suppliers to ensure we're securing the right allocation, which is where we see risk, especially in the back half of this year. We're pushing very hard on those suppliers; we need to get those numbers as high as possible because they are constraining us. It's quite painful when we see our production plants ramping and have to throttle production due to part shortages. This is something we're laser-focused on; management discusses it every morning.

Okay. And you said that you're now at 2x the 2021 exit rate of production. Can you just tell us specifically what that means? What is the production per day? And what kind of cadence are you expecting over the course of this year?

The rate at which we can produce will be gated by the number of components we have. One of the things giving us confidence around the production ramp is the way we've been validating our production equipment and also training our teams while accumulating enough parts. We may finish a shift early because we're operating the lines at a much higher rate, but our lines are sitting still too often than we'd like because we're waiting on components. This gives us confidence to state that we see the ramp continuing to improve, but it will be limited by unlocking some of these key components.

Okay. But surely there is some schedule that you have in your mind and embedded in that 25,000 unit forecast. Can you give us a sense of what that cadence looks like?

As we think through the volumes for the year, we'd expect those volumes to be more back half-weighted as we think about the trajectory of the manufacturing plant and ensuring our supply chain partners ramp their weekly output in lockstep with Rivian. There's a heavy push for us to ramp production throughout Q2 and Q3, tapering into the holiday period. Big push as we think about building up production into Q3 to deliver on that 25,000-plus unit target.

Got you. Thank you.

And next question comes from Ryan Brinkman with JPMorgan. Your line is open.

Hi, thanks for taking my question. Relative to the earlier planned 17% to 20% price increase for current reservation holders, is this price increase needed to offset inflationary pressure since the time of the IPO in order to meet the financial expectations you may have had at that time? And does that imply then that margin might now be lower than previously contemplated until you begin selling the new orders at the higher price? Or does this mean that prices in the out years will now be higher than previously contemplated, which could imply that volumes might be lower than previously contemplated?

Sure. There are many different factors driving what we've experienced over the last handful of months, in regards to the inflationary pressures in the market. There's still a phenomenal value proposition for the vehicles, even at the revised pricing levels. As we think about what's changed since the IPO, our current and future vehicle programs, while we're supply constrained at 25,000 units this year, we remain confident in our 25% long-term gross profit margin target. Our long-term targets are unchanged. We're investing in our technology and commercial organization. We plan to continue investing in our business throughout 2022.

Great to hear. Thanks so much. And then just lastly, what are your thoughts on battery and metals cost inflation? How do you think the increase in the price of nickel, which seems like it could be temporary, but some of the other metals, too? How do you think that impacts the competitiveness of EVs versus ICE vehicles?

Ryan, we hope the recent inflation in nickel pricing is short-lived. But there will continue to be movements around commodity pricing across a variety of commodities. We recognize the implications of these materials on our margin structure, which we are monitoring closely. We're developing a portfolio of battery solutions, including LFP battery chemistry, which helps to hedge against fluctuations in materials like nickel.

Very helpful. Thank you.

And your next question comes from Joseph Spak with RBC Capital Markets. Your line is open.

Thanks everyone. I guess to start, can you just give us some color on what you actually saw in terms of cancellations from the pricing decision? I mean, I know reading message boards can lead you to a dark place, but you probably have better information than we do. And then it's good to hear about the good rate on preorders since the pricing change. But can you give us some context? Is that more for the new dual motor standard pack, or are customers still opting for the original quad motor?

Yes, absolutely. On 31, when we announced the new prices, we did see an increased rate of cancellations in that 24-hour period. But right after the reversals, we got massive reinstatement requests, and more than half our customers requested to reinstate. So, the demand continues to be robust both from a reinstatement perspective and new orders. The rate at which new orders are coming in is similar to pre-pricing announcement rates, which validates the pricing model that we shared. We continue to be confident about our product competitiveness and expect this to grow our backlog and demand moving forward.

Joe, just to add a bit to that, the decision to ultimately honor the original configuration pricing was really about the brand we’re building and the relationship we have with customers. This wasn’t driven by mass cancellations, but rather the recognition that our early customers are critical for our success as we expand.

Yes, I would agree with that sentiment. As a second question, with the standard LFP packs that you mentioned in the opening remarks, will those be the Rivian-produced packs? Or are those still going to be sourced?

Great question, Joe. Our approach to battery cells includes developing relationships with cell suppliers where we co-invest in capacity. This includes high nickel cells like those we've launched, but it also includes LFP cells. We're developing in-house battery chemistries and production capability. The LFP that's launching later this year is sourced through a partner, and it's built in a close partnership.

Thank you. And your next question comes from Alex Potter with Piper Sandler. Your line is open.

Okay, great. Thanks guys. So maybe first question, a quick one. Any chance you'd be willing to give a general idea of the mix breakdown of R1 versus the Amazon van in that 25,000 units?

The overall mix relatively hasn't changed from our original thoughts or forecasts overall.

Okay, fair enough. So I hate to harp on this, but obviously, supply chain is a pain. I'm just wondering, if you take a step back and think strategically, if you would have known everything that you know today in formulating your supply chain strategy, what would you have done differently? Looking forward to the plant you have coming up in Georgia, how will you apply those learnings to that future product rollout?

It's a great question, Alex. We certainly have spent time considering how to avoid some of these supplier constraints going forward. In the context of semiconductors, we have supply-demand imbalance as an industry. It’s a bit like a game of scheduled chicken. We've taken a very aggressive approach, ensuring close and transparent relationships with suppliers. As we think about future launches, we'll have proven demand and proven output, and we're restructuring contracts to avoid surprises. We're ensuring that we have resources on site with suppliers to provide more hands-on support and audits throughout the ramp-up process.

Thanks RJ, and that’s super helpful. I’ll now pass on.

Thank you. The next question comes from Mark Delaney with Goldman Sachs. Your line is open.

Yes. Good afternoon and thank you very much for taking the question. I was first hoping to better understand the production outlook of 25,000. One of the things we've seen for the industry broadly is unexpected issues have arisen, such as suppliers not meeting forecasts. So, I'm hoping to better understand how much you're incorporating unexpected disruptions into that 25,000 production target? If everybody delivered to plan, would the number actually end up being more than 25,000?

Thanks, Mark. We're working hard to exceed that 25,000. When we put that guidance together, we considered constraints we see today as well as potential issues over the next year. It's impossible to predict everything, especially in this environment, but we're focused on achieving as much as we can and fully utilizing our plant’s capacity.

Understood. My second question was on the materials inflationary environment. I'm hoping to better understand how much you've been able to lock in pricing, either in terms of financial hedges or fixed-price contracts?

As we structured our contracts, many contracts are tied to a specific component or system at a fixed price, while others have raw material pass-throughs. Most of the price is added from the value over the raw material. Exceptions include items like battery cells, where we see a significant commodity impact. These contracts typically have more raw material pass-throughs, and we're paying very close attention to fluctuations in these critical materials.

Thank you. And ladies and gentlemen, this concludes our Q&A session. I will pass the call back to RJ Scaringe for his final remarks.

Thank you. I appreciate everybody joining us for this call and enjoyed the questions and discussion. We look forward to future discussions. Thanks so much.

And with that, we conclude our program. Thank you for your participation. You may now disconnect.