Rivian Automotive, Inc. / DE Q1 FY2023 Earnings Call

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Rivian’s First Quarter 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. Please note that today’s conference is being recorded. I will now hand the conference over to your speaker host, Tim Bei, Vice President of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us for Rivian’s first quarter 2023 earnings call. Before we begin, it’s important to note that matters discussed on this call, including comments and responses to questions, reflect management’s views as of today. We will also be making statements related to our business, operations, and financial performance that may be considered forward-looking statements under federal securities laws. Such statements involve risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are described in our SEC filings and today’s shareholder letter. During this call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures has been provided in our shareholder letter. Just before the call, we published our shareholder letter, which includes an overview of our progress over the recent months. I encourage you to read it for additional details around some of the items we’ll cover on today’s call. With that, I’ll turn the call over to RJ who will begin with a few opening remarks.

Thanks, Tim. Hello, everyone, and thanks for joining us today. I would like to highlight key developments during the first quarter as well as discuss progress on our key value drivers. We had a strong start to the year as our team delivered on our targets, including continuing to ramp R1 production, integration of the Enduro motor and LFP battery packs, and improved operating efficiency. This quarter, I’ve asked Frank Klein, our Chief Operations Officer; and Nick Kalayjian, our Chief Product Development Officer, to join us for Q&A, given the importance of the launch and ramp of our Enduro motor platform. Last week, our R1S was awarded the highest possible safety rating of TOP SAFETY PICK+ from IIHS, joining our R1T which earned the award earlier this year. This makes the R1S the only large SUV and the R1T the only electric pickup to achieve this rating in 2023. During the first quarter, we produced 9,395 vehicles, which reflects continued quarter-over-quarter growth in R1 production. As of March 31, we’ve now produced nearly 35,000 vehicles since the start of production. Our team drove further improvement in the ramp of our consumer platform while successfully launching new technologies into our commercial ramp platform. Production during the first quarter was in line with our expectations, and as a result, we are reaffirming our production outlook for the year of 50,000 total units. In addition to production, we made significant progress on our technology and product development road maps during the first quarter. As described during our last earnings call, we took the EDV line down for most of the first quarter to implement our in-house and our drive units as well as LFP battery packs. Our Enduro production line is the first to use our internally developed plant software platform designed to aid in the rapid bring up of equipment and our robotics. This platform offers greater control over our equipment and visibility into thousands of data points across all parts of the manufacturing process. Enduro is providing cost improvements that will result in a significant reduction in our bill of materials. We expect to start implementing the Enduro motor into our R1 vehicles as a dual motor configuration during the second quarter of 2023, which will contribute to expanding our addressable market by enabling lower-priced future R1 variants. As a reference, the introduction of the Enduro and LFP battery pack in EDV enabled us to reduce the EDV bill of materials by approximately 25%. Our core priorities for 2023 are unchanged. The team remains focused on ramping production for our R1 and RCV platforms, driving cost reductions, developing the R2 platform and future technologies, and delivering an outstanding end-to-end customer experience. Growing production volume improves fixed cost leverage at our large-scale manufacturing plant in Normal, Illinois. This is crucial to realizing the long-term structural cost advantages of our vertically integrated strategy and represents the primary lever on our path to sell each vehicle profitably. While challenges remain, we’ve become a stronger, more agile company through this process. The duration and magnitude of our impact is directly linked to our ability to produce vehicles profitably. We have a strong sense of urgency in achieving this goal. Driving lower costs will be enabled by integration of new technologies, such as Enduro and LFP battery packs, as well as our company-wide program designed to maximize efficiency across key cost elements of material costs, logistics, labor overhead, indirect costs, and capital expenditures. Beyond our push to drive operational efficiency, innovation is delivering both improved performance and range, as well as simplified production, which is the core focus of our development teams. Much of the work we are doing in R1, including Enduro drive units, simplified network architecture, updated sensor set, and compute directly translates to our R2 platform. We are utilizing R1 to help capture and drive earnings to ensure a smooth ramp of R2. This alignment of technical road maps between R1 and R2 will help further drive long-term cost efficiencies. Finally, we continue to progress the purchase process and service experience. This year, we expect to grow our physical go-to-market infrastructure, including our mobile and physical service footprint, charging through our Rivian Adventure Network and Rivian spaces. Further, we plan to increase engagement with our preorder customers and drive additional demand by expanding our demo drive program, offering more opportunities for potential customers to experience Rivian vehicles. Overall, the progress we’re making against our core value drivers of ramping production, driving costs down, developing new technologies and platforms, and enhancing customer experience positions us well to continue executing on our goals for the remainder of the year as well as into 2024. With that, I’ll pass the call over to Claire for more details on our financial and operating performance for Q1.

Thanks, RJ. The team’s achievements during Q1 established an important base of new technologies that will benefit Rivian for quarters to come through greater material cost reduction, enhanced range efficiency, and access to additional market segments. Technologies such as Enduro and LFP are critical to achieve our long-term target cost structure across current vehicle platforms as well as R2. Turning to our first quarter results, we produced 9,395 vehicles and delivered 7,946 vehicles, which was the primary driver of the $661 million of revenue we generated. During 2022, we took measures to drive greater efficiency, which remains our focus for 2023. Compared to our fourth quarter of 2022, Q1 gross profit per delivered vehicle improved 46%. Cash SG&A expenses were relatively flat, while cash R&D increased slightly, primarily due to restructuring expenses. Total gross profit for the quarter was negative $535 million, which was impacted by a net charge for LCNRV write-downs on inventory and losses on firm purchase commitments. The cumulative inventory write-downs and losses on firm purchase commitments of $822 million is comprised of $561 million of write-downs related to inventory on hand and $261 million of losses on firm purchase commitments. Given we are now in a new fiscal year, the LCNRV charge of $229 million that you will see on our statement of cash flows is reflective of the charge on new inventory purchased and firm purchase commitments entered into in Q1. The cumulative LCNRV and firm purchase commitments of $822 million represent a $98 million decrease versus the prior quarter due primarily to significant reductions in material costs for the EDV and an increase in average selling price for our R1 vehicles. As the cumulative LCNRV inventory write-down decreases, we expect to see an increase in net inventory balances and, over time, a net decrease in cost of goods sold per vehicle. We forecast reaching positive gross profit in 2024 and therefore, expect by the end of 2024, we will no longer have material LCNRV inventory charges and losses on firm purchase commitments associated with our production at our Normal plant. Total operating expenses in the first quarter of 2023 fell to $898 million as compared to $1.1 billion in the same period last year. The primary driver of the reduction in operating expenses was related to decreases in stock-based compensation. We continue to prioritize investments in our core and vehicle technologies and customer experience while also driving additional focus and cost optimization across the business. Adjusted EBITDA for the first quarter of 2023 was negative $1.1 billion, as compared to negative $1.1 billion for the same period last year. Capital expenditures were $283 million in Q1 of 2023 as compared to $418 million during the same period last year. We ended the first quarter of 2023 with $11.8 billion in cash, cash equivalents, and restricted cash. Importantly, during the quarter, we took steps to reinforce our robust liquidity position. Maintaining a strong balance sheet is a key priority. It provides a buffer during volatile industry conditions and mitigates risk while scaling significant growth capital projects. It also allows us to focus on delivering against our long-term growth plans, including the path to positive gross profit in 2024 as well as the launch of our R2. During the first quarter of 2023, we issued green convertible senior notes due in 2029, which generated proceeds of approximately $1.5 billion. In mid-April, we announced an amendment to our asset-based revolving credit facility, which doubles the available revolving commitments to $1.5 billion extends the maturity to 2028, improved borrowing availability by more efficient lending on some current assets, and increases our permitted indebtedness provisions to expand debt capacity. In aggregate, these transactions have increased Rivian’s liquidity profile by over $2.4 billion, providing debt maturity beyond the launch of R2 and are reflective of our diversified approach to funding the business. We remain confident that our cash can fund operations through 2025 and believe with these recent additions, we have strengthened our balance sheet as we approach the launch of R2 in 2026. I also want to take this opportunity to reiterate our gross profit bridge from Q1 2023 to Q4 2024. We continue to target positive gross profit in 2024. Excluding the impact of LCNRV and firm purchase commitments, we expect approximately half of the improvement will be driven by greater volume and utilization of our installed capacity. Our 2023 production guidance of 50,000 units implies a doubling of capacity utilization, which will result in significantly lower fixed costs per vehicle, and we expect production volumes to increase further in 2024. The remaining half is split between increases in average selling prices and material cost reduction. Lower material costs will be enabled by the integration of new technologies such as Enduro and LFP battery packs, which delivered about a 25% material cost reduction for our commercial vehicles in Q1 versus Q4. In addition to the engineering design-driven cost reductions, we also expect to realize commercial cost savings as we negotiate with our suppliers. The increase in average selling prices is based upon the gradual improvements we expect to achieve as we complete the fulfillment of our pre-March 2022 preorder base as well as the introduction of new technologies that produce improved performance and capabilities. While gross margin is expected to remain negative in 2023, Q1 represented significant progress versus Q4 2022 with gross profit loss per delivered vehicle nearly cut in half. This was due to cost of goods sold improvements and higher average selling prices. During the first quarter of 2023, cost of goods sold benefited from lower LCNRV, freight, and material costs versus Q4 2022. While performance for any particular quarter may vary, we expect these trends to persist throughout 2023. We are reaffirming all aspects of our 2023 guidance. Most notably, we are reaffirming 2023 total vehicle production of 50,000 units and 2023 EBITDA guidance of negative $4.3 billion, which represents an improvement of $900 million versus 2022. Additionally, we expect capital expenditures for 2023 will be $2 billion. In closing, I want to reiterate our confidence in our long-term financial targets. We see a clear path to our approximately 25% gross margin target, high teens EBITDA margin target, and approximately 10% free cash flow margin target. With that, let me turn the call back over to the operator to open the line up for Q&A.

Thank you. Now the first question is from John Murphy with Bank of America. Your line is open.

Good afternoon, guys. Just wanted to ask a first question on pricing. I mean, RJ, sort of your entire strategy, you’ve kind of looked at the lifetime revenue opportunity of the vehicle and really thought about that in a holistic way. And I think I have a pretty good view of that. There are some folks that are taking that view and saying, 'Hey, listen, I can cut my upfront price on the vehicle and not make that much money on it and make up the profitability on the back end from that lifetime revenue and profit opportunity.' I’m just curious, as you think about the company and the strategy and the philosophy of running it, if you would ever think of embracing something like that, and then maybe as a sort of a second part of that question, you’re talking about raising pricing. So you’re kind of going in the opposite direction. How should we think about the cadence of the roll-off of the pre-March 2022 preorders that had the price protection?

Thanks, John. These are, I think, really relevant questions here for us as we consider the pricing of vehicles. In the case of R1, this is our flagship product. So from a flagship product point of view, we’ve introduced what we call a large pack and with our quad motor. Over the course of the next several months, we’re going to be launching our Max pack, which introduces a higher price variance for R1, and it will also be introducing our Enduro motor with the Enduro drive unit, which introduces our entry configuration. So we’re both going to be growing pricing on some variants, while also offering some of our lower-price variants at the same time. For us, it’s really important to give customers what they’re looking for. A significant portion of our customers are looking for the best of the best when it comes to the R1 platform in terms of wanting to get the maximum range and maximum performance. We’re really looking forward to getting the Max pack out there, and that will contribute to growing average selling prices (ASP). As you said, the other element is the growth in post-March 1 orders. As Claire noted, the pre-March first orders have a lower price and as we start to come off of those orders and into newer orders, that’s naturally going to start to shift pricing up. We’re already seeing that in Q1 of this year. Those two together give us a lot of confidence in average selling price growing over time for the R1 platform. Now more broadly, as we consider the business in terms of revenue opportunities beyond the initial sale, this is something we also believe strongly, and it’s driving a lot of the investment we’re making into our technology platforms, of course, around our full software stack, but importantly, and what we’re building with autonomy. As I mentioned in my opening comments, a lot of work is underway right now in our next-generation platform for new sensor set and updated compute, which will allow us, as we look at future variants and future products, to really over-deliver when it comes to Level 2 and Level 3 self-driving feature sets and enable our ability to monetize as well. We certainly see this as part of the business in the long term and above and beyond self-driving, there are other opportunities to create meaningful recurring revenue. Some of those, we’ve started to launch and initiated already with our insurance product, with some of the financing products that we have. So we do see the business, as you pointed out, very holistically across the life cycle of the products.

Just to follow-up, RJ, you would never cut the price on the front end to drive the hardware sale to get the profit back over time on sort of the software and services side over time. You believe you need to earn adequate margins and returns on the front end, even though you have this opportunity in the back end. Is that a fair statement?

Our strategy for the R1 platform is not to reduce prices in that manner. However, in the long term, as the business progresses, we are significantly focused on enhancing cost efficiencies within our R2 platform. This approach involves the vehicle's architecture as well as part consolidation and optimizing network architecture to achieve cost reductions, which will ultimately allow us to offer a lower-priced vehicle and create flexibility for exploring various revenue streams and opportunities. As for the R1, I want to emphasize that we expect average selling prices to continue rising, driven by new customers post-March 1 and an expanded range of offerings, including features like the Max pack, which will help us fully meet customer demand.

Okay. And if I could just ask one follow-up here on the virtual factory technologies that you used for the Enduro motor launch. Can you just explain what that actually means? And how you can use that in the future and how much that saves you in the launch process as far as time and money?

Yes, this is an important development. Our team has been working hard on this. Enduro represents for us really the sort of full embodiment of what we believe we’re capable of in terms of both product engineering as well as our manufacturing engineering teams. The close integration between those teams led to a lot of innovations, which we’ve talked about in previous calls in terms of part consolidation and design simplification. What’s not necessarily seen in the product is how we’re manufacturing it, and the bring-up of this line has gone very smoothly. It’s ahead of schedule. We’re actually ahead of our ramp curve, which is great. A lot of that’s been facilitated by careful planning from the teams, but also what I referred to in the opening comments, we developed a platform that allows us to very seamlessly bring up all the PLCs, all the controllers, and all the robotics associated with that much more seamlessly by creating effectively an extraction layer that we control from a plant software point of view. We can access equipment much more seamlessly, and we can bring up the equipment much more seamlessly than when we’re working through a variety of third-party platforms to do those things.

Very interesting. Thank you very much.

Thank you. And our next question coming from the line of Adam Jonas with Morgan Stanley. Your line is open.

Hey everybody. So my first question is for Frank. You’re coming up on one year at the company as COO. When you think about the next 12 months, where do you see the greatest opportunity to improve efficiency at Normal? And what would you point out as the greatest risk to execution from here? Thanks, Frank.

Yes. Thanks, Adam, for the question. My priority, certainly for the next 12 months, is to continue focusing on the ramp-up in Normal, certainly driving down the cost, as RJ and Claire already mentioned, and certainly also already preparing the ramp-up of our R2 platform. This, I think, will give us a competitive advantage as we are already as a team jointly working with Nick on the next generation R2 and really preparing that. We’ve already shown that we are in line with the expectation on the Q1 production numbers, and we really anticipate continuing the ramp-up of the R1 line. We should see the numbers being really close to our installed capacity in the second half of this year. Again, regarding the cost initiative, yes, I mean we still see a significant gap on what we should be paying our suppliers and what we’re currently paying. In the last few months, we’ve started discussions with every single supplier and are working on closing that gap within the next few months. So this is really my priority. I think we have a great plan in place. Right now, for me, it’s literally just executing the plan that we put together as a team.

Thanks, Frank. And RJ, just a follow-up for you. Now that you’ve released some exclusivity on the EDV, are you able to provide any update on the status of discussions with other commercial customers at a high level in the last few months? Thanks.

Thanks, Adam. At this point, we continue to focus from a production point of view on really the single customer with Amazon. In terms of looking beyond the exclusivity into other customers, we do see a broad set of needs in the commercial space. These are long lead-time discussions and negotiations, especially for some of these larger contracts. Those have been underway for some time now, and certainly play into the long-term plan for the platform, and it’s been something we’ve been working very closely with Amazon on to allow us to pursue these other customers as quickly as possible.

Thank you. And our next question coming from the line George Gianarikas with Canaccord. Your line is open.

Hey good afternoon everyone. Thanks for taking my questions. I was wondering if you could help us understand a little bit with a little more granularity, some of the leverage you could have to EV commodity prices coming in. You’d mentioned in the past that your contracts from 2018, 2019 are expiring. Any additional color would be greatly appreciated.

This is important. Frank referenced it a bit in his previous comment, but a lot of our – the vast majority of our bill of materials from when we started production were negotiated in contracts in the 2018, 2019 timeframe. That was a few years before we started production, and we certainly didn’t have the negotiating leverage that we have today. As we wind the clock forward through to today, the level of excitement and engagement that we have from suppliers is absolutely night and day. There’s a tremendous amount of passion to help us drive towards profitability. As the suppliers see us as a significant partner going forward and are excited not just about R1, but are certainly very excited about the R2 platform as well. As Frank talked about, these are negotiations that are happening real time, and we’re working closely with our partners to find appropriate cost-down paths to achieve our targets and the long-term profitability on R1, but also to set up the relationships to be profitable very rapidly in R2.

As a follow-up, asking for Frank, any curious on timing for the Max pack durations for the R1 platform? Thanks.

Yes. My dad has been asking me that a lot lately too. There’s a tremendous amount of excitement for the Max pack, and we are working very hard to bring that forward. I think as I noted at the beginning, it certainly also helps us grow ASPs. So there are a lot of reasons to pull in the Max pack as quickly as possible.

Thank you. And our next question coming from the line of Rod Lache with Wolfe Research. Your line is open.

Hi everybody. I know that you are not talking about backlog anymore on the consumer side, but I was hoping, RJ, you might be able to just give us some color on what you’re seeing in terms of demand trends on that side of the business?

Sure. Thanks, Rod. Well, backlog still extends well into 2024. I think it’s important to note here that the engagement we have with customers and the level of satisfaction that our early customers, the first 35,000 or so customers, are having really creates a powerful flywheel where our most important advocates are the buyers of our vehicles. With that said, we continue to see that through the online forms and the communities that are forming, and we even see that through third-party recognition. J.D. Power awarded us the highest level of customer satisfaction of any vehicle in the 2023 ratings, which was great and is reflective of the brand we’re working so hard to build, and also the experiences we’re trying to create across the full life cycle of the ownership experience. The work that we’ll continue to do over the course of this year will help us expand brand visibility and awareness. The additional physical spaces that we’re building out, the sales infrastructure, and customer service infrastructure that we’re building out will continue to contribute to this growing flywheel of awareness and growing demand.

Great. Thanks for that. And Claire, I want to make sure that we’re thinking about the underlying gross profit ex LCNRV impact correctly? Because we’re seeing some signs of improvement here even with the downtime that you took and probably before the impact of the 25% decline in BOM on the RCV. In the past, you’ve suggested that we look at the difference in the LCNRV charge, so that would be $98 million this quarter. Broad strokes, would you say that on the gross profit line, a clean run rate was a bit over $600 million loss on 8,000 units delivered versus $760 million or so on kind of similar delivery volume last quarter? And is that the run rate from which you’re bridging to breakeven? Or are you talking about the full year guidance?

Rod, that’s correct. That’s the run rate that we’re working on. As I mentioned in my prepared remarks on the Q1 walk from current Q1 gross profit, excluding the impact of LCNRV to where we expect to be in Q4 of 2024. As you rightly noted, we saw a 17% improvement quarter-over-quarter as we went from Q4 to Q1.

Okay. So it sounds like you’re confirming that. And is your bridge – are you sort of holding commodities somewhat flat in your guidance bridge? Or how do you sort of think about as we’re seeing lithium carbonate hydroxide costs falling? What – how are you sort of factoring that into your bridges at this point?

Sure. The way I would characterize it is within the forecast guide to that Q4 2024, the expectations are for more of a normalized state of commodity costs. To put it another way, we haven’t expected material reductions in commodity costs, even though we, in the course of the last quarter, have seen significant declines in the cost of lithium carbonate and lithium hydroxide.

Thank you. And our next question coming from the line of Alex Potter with Piper Sandler. Your line is open.

Great. Thanks guys. So my first question is on the 25% reduction in the bill of materials as a result of the LFP pack and Enduro, which I think is an interesting data point. Do you expect something similar when you start rolling those technologies out with R1? And if that comes alongside a price hike, it seems like the impact on gross margin could be pretty material. I just don’t know if it has such a big impact on the bill of materials for R1 as well.

Yes, Alex, thanks for the question. As Claire noted, we’re excited to see the 25% reduction that we referenced start to make its way into the numbers in Q2 as the EDV line comes back on, and we’ll see those numbers in Q2. But for R1, this is a really important development. It’s part of a broader set of developments that, when we talk about the R&D work on the innovation that we’re driving, a big portion of this is focused on driving costs out and driving simplification. I’d like to invite Nick just to talk a bit about some of the work we’re doing there, inclusive of Enduro, but there’s a host of other work streams that we’re going to start to see come to light.

Yes. Thanks, RJ. So the Enduro drive unit is a significantly less expensive product and diversifies our supply chain, which brings additional value. When we think about the EDV experience that we’ve been able to deliver on over the last quarter with the ramp of Enduro and the integration of LFP, that 25% reduction is really impactful. We expect to see something similar in R1 as we look over the next couple of quarters in the beginning of next year.

Okay. Great. Second question on CapEx. I saw that you maintained the $2 billion guidance, but that’s a pretty material step up versus what you spent in Q1. So just wondering maybe qualitatively and/or quantitatively if you can talk through what that money is earmarked for in the back half? And if there’s any potential to defer some of that in order to protect the cash balance? Thanks.

Sure, Alex. As we think about the cadence of our CapEx, as you can imagine, with the $2 billion guide that we have, that implies significantly higher levels of CapEx over the remaining three quarters of the year. For us, our expectation is to make significant investments, predominantly in tooling as we think about new generation technologies that will start to be introduced throughout the course of 2023 and importantly, as we’ve talked about in prior earnings calls before, throughout the course of 2024 as well. One of the primary drivers of our CapEx spend beyond that are incremental payments associated with the commissioning and utilization of our Enduro line, where we have the lines fully running today, but all of that cash is not yet out the door at Rivian. Beyond that, as RJ alluded to, we are focused on the continued build-out of our go-to-market infrastructure as we build out incremental service centers and the charging network. Based on your second part of your question on the availability to defer CapEx, given the sort of lumpy nature of our CapEx deployment and spend, there certainly is some likelihood, especially as we think about some of the Georgia CapEx initiation that some of that could fall into 2024 relative to 2023.

Thank you. Our next question coming from the line of Dan Levy with Barclays. Your line is open.

Hi. Good evening. Thanks for taking the question. First I want to ask about the constraints at Normal. In the past, I think you said the largest constraint on production was on power semis. I want to get a sense of where that stands. We’ve heard about tightness on silicon carbide. I know that you used both silicon carbide and IGBT, but how much is the tight silicon carbide supply still a challenge for you?

Thanks, Dan. One of the things we’ve embedded in our comments here and that we should add some more color to is with the bring-up of the Enduro drive unit. It’s not only providing us with a lower-cost propulsion platform, but it also helps us diversify our supply chain with regards to the power modules. So bringing on additional suppliers of both silicon IGBT and silicon carbide was very intentional. We’ve designed the ramp-up of that such that it helps alleviate some of the constraints we have on our existing quad motor silicon carbide supply, which we’ve talked about in the past as being one of the major ramp constraints. This is also something that as we look forward into R2, we’re spending a lot of time on to ensure that these constraints aren’t there. Nick’s team in designing our next-generation inverters and power modules has spent a tremendous amount of effort to ensure that we really consider some of the long-term constraints that we see in this space.

I think the comments earlier about when we sourced a lot of the components for R1 are really relevant in power semis as well. The supply base for our original launch configuration was a relatively smaller set of players than who we’re working with today for both silicon and silicon carbide. As we move into Enduro and we move into those larger, more mature suppliers, we build out that capacity today and strengthen those relationships towards the future as we think about our R2.

So is it fair to say that as you’re addressing the silicon carbide issue in a variety of ways, your patent production should increase dramatically, which is implied within your guidance in any case?

Yes, that’s right.

Okay. Great. Thank you. Second question, and I think you’ve addressed this somewhat with Enduro and LFP, but wondering what other opportunities you have with vehicles to potentially de-content further or to help reduce the material costs? I know you’ve talked about working with suppliers to try to cut away some of the costs, but within the engineering of R1 itself, what other opportunities might there be to de-content to help improve the path to breakeven?

Yes. So Enduro and LFP are clearly big pieces of the puzzle. We tend to talk about those because they’re customer-facing—we’re offering different range packs and driving configurations. There’s a lot of work that’s also going on under the covers to ensure that we have continued cost reduction. RJ has talked in the past about moving to a zonal architecture, which really has a significant impact on the number of ECUs in the vehicle, the complexity, and cost of harnessing. These have significant impacts on our ability to reduce labor content in the vehicles. We also are looking at a series of body manufacturing updates late this year, as well as updates to joining technology and materials to help improve yield and lower costs. We have a new part of the Max pack and the Large pack platform coming early next year that involves significant changes to the battery structure that really pull out costs and again drive up manufacturability. Some of these are really customer-facing things, but our goal is to offer better value to customers. Many of these changes—like the zonal architecture—are successes that will go unnoticed by the consumer; they will just benefit customers through more efficient vehicles.

I think the other thing just to note, Nick referred to it earlier. The updates we’re making to our network architecture really laid the groundwork for what we’re doing with R2. One of the benefits of developing all the electronics in the vehicle and, of course, the software stack is that we’ve now reached a level of maturity. We’re consolidating a number of those ECUs and removing a lot of those parts from the vehicle while maintaining feature sets. All that work flows very naturally into R2, so we not only pay costs out of R1, but we de-risk the launch of R2.

Great. So I understand that. Thank you.

Thank you. And our next question coming from the line of Vijay Rakesh with Mizuho Group. Your line is open.

Yes. Hi. Just a couple of quick questions. On the Enduro dual-motor, Enduro and the LFP, what mix are you assuming of your shipments or deliveries will be on those as you ramp those to the year?

In the case of our commercial vans, 100% of the commercial vans are moving to the LFP pack configuration and the Enduro drive unit. As it pertains to the R1 platform, we expect a drivetrain level between what we call our origin, the quad motor, and Enduro, the dual motor, to be about a 50-50 split. We have flexibility within our production capabilities to flex that up or down some. But as you heard from myself and Frank earlier, the supply chain constraints around the power semi are really key considerations, and that flexibility of our production lines to respond to any supply constraints that may come up is really important. In the case of our R1 battery pack, we will be introducing what we call our standard pack, but that’s going to be a little later this year.

Got it. And on the higher ASP sales, just wondering how that is ramping. Is all your deliveries post-March 31st to April 1st on the higher ASP vehicles or...

Yes. The pre-March first vehicles have a lower price point. With every vehicle we deliver of those, we’re actively working towards a growing mix of post-March 1 reservations and progress. Over the course of the next year, we hope to work through those pre-March 1st quarters and get into newer post-March 1, 2022 orders.

Thank you. And our next question coming from the line of Tom Narayan with RBC Capital. Your line is open.

Hi, yes. Thanks for taking the question. And apologies if you answered this, just a quick question on the guidance, the EBITDA guidance. If I take the Q1 adjusted EBITDA and annualize it, I get a number that’s only, I think, 6% below your full-year guide. I know deliveries should probably ramp higher and you have these cost outs. Just curious as to maybe is there a quarterly cadence dynamic that’s leading to that EBITDA guidance for the full year?

Sure, Tom. As we think about the overall EBITDA cadence, it’s driven by a couple of key factors. First and foremost, while we’ll be improving our overall cost of goods sold per unit, we are still running at a loss position throughout 2023. As we go throughout the course of the year, we’ll see some variability, both in terms of how rapidly we’re taking down the LCNRV charges and the trajectory we expect to see as we continuously improve on each of those core drivers as the year progresses. However, we’ll be delivering greater volumes of vehicles albeit at lower loss positions as we continue to scale throughout the year.

Okay. And just kind of a high-level question. Wondering for RJ, how you think about the kind of long-term market opportunity for your consumer offering in light of what appears to be maybe increasing competition from legacy OEMs, particularly in trucks and SUVs. Does that change how you view the market opportunity longer term? Or do you view it as a different kind of world? Certainly, these legacy OEMs are getting more competitive with regards to EVs across these vehicles?

Yes. Thanks, Tom. Today, with the R1 product, we’re seeing demand relative to others that are in similar segments or similar price points. It’s significantly outpacing equally priced vehicles. So at this price point, the R1 platform is really the leader in terms of overall share. That level of excitement and demand is reflective of how we’ve approached the brand and product design. Of course, we hope to carry that into a much lower price point with the R2 platform. While R2 will have a number of other players offering products that are in that price range of $40,000 to $50,000, the way we’re thinking about it and the things we’re excited about with the product is just how unique we can make it in terms of capturing the essence of everything we’ve shown with the flagship product. We want to have a product that delivers high performance both on and off road, a tremendous amount of capability, and the ability to inspire folks to fit their pets, kids, and gear into the vehicle. While we haven’t shown the R2 yet, we have tremendous confidence around the product we’re developing and how that fits our brand very nicely, extending the addressable market relative to what we’ve done with R1.

Yes. I think it’s important to extend the vision of what we’re doing well beyond the electric powertrain. Legacy OEMs are moving in this direction, which is great for the overall mission. But we really do focus on the overall customer experience and what we can deliver with a combined hardware and software platform. The fact that we’ve been shipping a product for less than two years and influencers like Marcus Brown say it's the best SUV in the world. We have a software experience and overall customer experience that we’re proud of, which we think differentiates beyond just being an electric vehicle.

Yes. I guess, relative today, we haven’t really seen what the legacy OEMs have done yet, right? I mean, a lot of these launches are still yet to come. 2024, specifically, we’re going to see a couple more—and then obviously, as we get further into the decade, that’s what I was referring to. I mean today, obviously, it’s not as robust, especially in the U.S., but in the coming years, I would think that competition intensifies more. That’s kind of what I was referring to.

I think the other thing to keep in mind, Nick references it. In the not-too-distant future, everything will be electric. So being electric alone isn’t a sufficient differentiation point. It really ties into the way the product comes together, the interplay between software, the electronics in the vehicle, the dynamic performance of the vehicle, the packaging and architecture of the vehicle. Frank referred to it and I reiterated it, but how manufacturable the vehicle is, which ultimately drives the cost structure for what we’re building. Given the significant changes in electrification, it does create new opportunities in terms of how we architect the vehicle, design the cost structure, and the types of driving dynamics and experiences that can be delivered.

Thank you. Our next question coming from the line of James Picariello with BNP Paribas. Your line is now open.

I think the reception cut out for me. Can you hear me?

Yes. We can.

Okay. I think this was asked, but I just want to clarify, given the 25% bond savings, it will be meaningful. As we think about next year, what could the mix of your total R1 production be tied to LFP and Enduro? I imagine you have some visibility into that based on your reservations. Can you just remind us if there’s going to be an impact to the lines as you integrate LFP into R1, similar to what we saw for EDV this past quarter? Thanks.

As I referenced, we expect from an Enduro perspective, the dual motor versus the quad motor on our R1 to be roughly a 50-50 split. In the case of commercial vans, 100% of those will be with the Enduro drive unit. In terms of how we plan to ramp up R1 with Enduro, it’s important to note that while we brought the EDV line down in Q1 for the integration of both Enduro and the LFP, we were also bringing up the Enduro line, and the significant cost savings that that propulsion package delivers led us to make that decision. I’d like to invite Frank to have a few comments on the ramp of Enduro and how that now will soon be feeding R1 as well as EDV. A big part of it beyond plant software, equipment, and design of the product is also the operations and team setup and training.

Yes. The Enduro ramp-up, we started production at the beginning of February, and we’re already exceeding our anticipated ramp-up curve. Bringing the Enduro into R1 will not significantly impact our production. We’ve already built several Enduro Motors into the R1 to test production, and it works seamlessly. I don’t see a major impact on the ramp-up curve of R1 as we introduce Enduro into that product.

As Frank said, the Enduro has been introduced, and we’re blending those into the line for R1. I can tell you, I’ve been driving an Enduro R1S for the past month, and it’s incredible. I can’t wait for customers to get their hands on it. As Frank said, the risk around the Enduro ramp-up in R1 is well managed. We’ve been very intentional around how we’ve planned that integration.

We have really put a lot of emphasis on preparing and training the team offline and online to ensure that the team is capable and ready to ramp up R1 with the Enduro motor as well.

Got it. That’s super helpful. And then just two quick ones. Is the first half of next year still the timeframe for normal capacity re-rating to the R1? And is there any update on the Georgia plant incentives outcome? Thank you.

Yes, on the first question, yes, that is the plan. We plan to re-rate the R1 line in 2024 as we also use that opportunity to modify the line to incorporate the technical changes that Nick mentioned. We’re already preparing for this with our equipment suppliers and teams.

On your second question about Georgia-related incentives, a couple of weeks ago, the Georgia court sided with the state in a ruling over the tax abatement for the project. The court ruled in favor of the state’s position, confirming Rivian’s benefit overall. This is great momentum as we sit here today on progress in Georgia.

Thank you. And I will now turn the call over to RJ Scaringe for any closing remarks.

Thank you, everyone, for joining the call. We enjoyed talking about some of the progress we've made in the last quarter. We’re certainly, as you heard from all of us, very much looking forward to the quarters and years ahead. We have a lot of work to do in terms of continuing to drive our production ramp and drive costs down. We’re operating with an incredible level of focus and urgency as we drive towards that. The excitement we’re seeing from customers and the passion from those who want to get future products is certainly an innovating force for us all within Rivian. We’re looking forward to continuing to show progress quarter-over-quarter as we work towards not only profitability but also significantly higher volumes. Thank you all for joining, and I look forward to the next call.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.