Good day. Thank you for standing by. Welcome to Rivian's Fourth Quarter and Full Year 2024 Earnings Conference Call. 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 fourth quarter and full year 2024 earnings call. Today, I'm joined by RJ Scaringe, our CEO and Founder; Claire McDonough, our Chief Financial Officer; and Javier Varela, our Chief Operations Officer. Before we begin, 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 is 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. Beginning with the fourth quarter of 2024, there was a change in the composition of our reportable segments, and we now analyze the results of the business through the automotive segment and the software and services segment. Our Q4 2024 results are presented on this basis. With that, I'll turn the call over to RJ, who will begin with a few opening remarks.

Thanks for joining us, and thanks to the team for the tremendous effort in 2024. I'm pleased to be able to speak to our positive gross margin in Q4. This is a result of outstanding effort from the team driving a focus on cost, driving a focus on continuing to build our demand generation capabilities, and, of course, looking at opportunities to improve efficiency across the business. With that, we removed $31,000 in COGS per vehicle in Q4 of 2024 relative to Q4 of 2023. This is a really important milestone for us as a company and something Claire and I have spoken to a lot over the course of last year. And there are a number of drivers of this. Of course, the cost reduction I just spoke to is a major driver, but we also had an increase in revenue. An increase in revenue on a per unit basis as the mix that we're producing, so we see that translate to higher average selling prices. We've also seen an increase in regulatory credit revenue, which Claire will speak to in a moment. And then, of course, the revenue associated with our joint venture with Volkswagen Group. Now on the mix side, along with the Gen 2 launch, we introduced the Tri-Motor. Internally, we often say this is the Goldilocks of powertrain configurations. It's one motor on the front, two in the back, and it represents a really unique product market fit where it delivers outstanding performance with zero to 60 in just 2.9 seconds. It's dynamically incredible. It's not quite as extreme as our quad motor, but it does represent a meaningful step up relative to our dual motor, which is also very high performance. The Tri-Motor really connects with consumers, and we're seeing a higher take rate on our Tri-Motor than we expected. With that, we are launching a special version of our Tri-Motor, which we just announced, which is our Dune edition, and we're really excited about that. Linked to that, the product is creating a clear vision around the product and the types of products we launch is the brand that we're building. The first products we launched, the R1T and the R1S, were intended to act as a handshake with the world to establish who we are as a brand. Today, we see a brand that has customers that are really excited for what we're building. A range of different third-party analyses look at brand strength, customer happiness, and customer satisfaction. For the second year in a row, we've come out as the highest-rated brand in terms of customer satisfaction and likelihood of repurchase on one of the leading customer satisfaction and brand surveys that's conducted every year. There are many reasons our customers love our products, and one of the most important to us is safety. It is something we put at the very core of the vehicle development process; we make decisions around trade-offs for content, structure, and even the design of the vehicle to ensure that these are the safest vehicles in their respective segments. Speaking to that, the Insurance Institute for Highway Safety tests our vehicles, and their highest safety rating, which is Top Safety Pick Plus, has been awarded to both our SUV, R1S, and to our truck. In the case of the R1T, we're the only electric pickup to achieve this Top Safety Pick Plus rating. And in the case of the R1S, we're the only large SUV across both internal combustion and electric to achieve this rating. We're really pleased with that result, and we see it manifest in how consumers are starting to see our brand as exciting and fun, but also incredibly safe. The work that we've done in R1 to continue to progress our technology stack—our software architecture, the topology of computers and ECUs across the vehicle, the sensor set that's in the vehicle, and the associated compute platform used for our self-driving features—has continued to progress with R1, of course with the launch of Gen 2, and it has laid the foundation for what we're launching with R2, and also served as a big part of the foundation for what we established with Volkswagen with our joint venture. Now regarding R2, we couldn't be more excited about this program. In terms of the product and the attributes and features that go into it, it is a result of countless learnings that have happened with R1, where we've simplified the product from a design point of view. We've optimized around cost in a way that we weren't able to on R1, enabling us to deliver a feature set that truly speaks to our brand and values in terms of product attributes. We're on track for launching this vehicle in the first half of 2026. The development work associated with that is well underway. Many parts are being tooled, and much equipment is being built. We're also in the process of building the expansion in Normal, a well-in-excess of a million-square-foot expansion where the foundations are in, and the walls are going up. Over the next several months, we will see the completion of that building expansion and the beginning of the installation of equipment, which will lead to launching our manufacturing validation builds in that expanded portion of the facility by the end of the year. The progression we see in product development and the build-out of the expansion at our plant are very visible to those driving by Normal or those who see our test vehicles on the road. We've sourced 95% of the bill of materials, and the bill of materials for R2 is expected to be roughly half of what we have in R1. The other non-bill of material COGS targets are significantly less than what we have in R1, indeed, significantly less than half of what we have in R1. Overall, the cost structure we are planning for R2 is a night and day improvement compared to what we launched with R1 and the current R1 production. With this said, one of the things that excites us the most is the response to the R2 product. We receive many inbound requests daily asking if we can accelerate the launch or customers can take delivery sooner. We love this anticipation of the product and what we will soon launch. I want to speak a little about our technology, focusing first on autonomy. With the Gen 2 platform on R1, we used it as a reset for how we've approached our autonomy platform. We call it the Rivian Autonomy Platform. That comprises 55 megapixels of cameras around the vehicle. We have four corner radars and a front imaging radar, totaling five radars. These systems feed into a much higher compute platform, about 10 times the compute levels we had in Gen 1. This architecture is designed to fully contemplate the ability to use AI to help train our self-driving capabilities. We employ an end-to-end approach where the Rivian-owned camera feeds and perception stack go into our vehicle. We're able to identify unique events, training our model offline and using it in the onboard vehicle and inference platform to drive a growing set of features. The headroom we have for the feature set on our R1 vehicles, along with those for our R2 vehicles, is phenomenal. We're very bullish on that. As I mentioned earlier, we have a hands-off highway feature that we're launching very soon, within the next several weeks. We also have an eyes-off feature that we're going to launch for highway functionality in 2026. The number of roads and types of conditions that will allow our hands-off, eyes-off features to operate will continue to expand beyond that once we get the highway eyes-off feature launched. Beyond autonomy, we’re also making progress in the mechanical aspects of our vehicles and technology. With R2, we're using large high-pressure die castings to eliminate many parts. If you compare the R2 body structure to that of R1, we’ve taken out approximately 65 parts and reduced the number of joints in the body by about 1500. We are performing these actions through part consolidation and elimination. This focus on part consolidation, simplicity of assembly extends into every aspect of the R2 vehicle. The electrical compute platforms, their attachments to the harness, connectors, and attachment points for the harness to the body, interior trim components—everything has been optimized meaningfully to achieve the significant reduction in costs I discussed earlier, with bill of materials about half of what we have in R1 and a further reduction of non-bill material COGS. With all this, it’s critical to note the regulatory environment in which we operate. We align with the administration on the importance of creating U.S. jobs and driving tech innovation here. Areas that are vital to our transportation industry include technology, electrification, software, and electronics—all which we’re committed to focusing on. They enable us to create products that are compelling, as demonstrated by our joint venture with the Volkswagen Group. In addition, we’re working towards our new Georgia facility, which will manufacture both the R2 and R3 product lines. Together with our facility in Normal, Illinois, they will form the core foundation for building the R1, R2, and R3 product lines in the U.S. In closing, I’d like to thank our employees, customers, partners, suppliers, communities, and of course our shareholders for their support and excitement for what we're building. We couldn't be more excited about R2. It is a focal point for us as a business and represents the many learnings we've had across the R1 and commercial van product lines that are fed into launching and developing R2.

Thanks, RJ. I want to thank our team for a tremendous quarter. At the start of 2024, we communicated our goal of reaching positive gross profit for the fourth quarter as a result of the improvements we were targeting in our material, conversion, and depreciation costs per vehicle as well as an increase in the sales of regulatory credits and software and services revenue. We're pleased to be able to walk you through how this important milestone was executed. As RJ mentioned, on a year-over-year basis, we reduced our automotive cost of goods sold by $31,000 per vehicle delivered in the fourth quarter while increasing our automotive revenue per unit, excluding regulatory credit revenue to $86,000. This was the result of higher R1 average selling prices from the introduction of our Tri-Motor offering, which was partially offset by a higher mix of commercial van sales. We earned revenue from the sale of nearly $300 million of regulatory credits in the fourth quarter. We're proud of the progress made through engineering-driven design changes that made the second-generation R1 higher-performing, lower-cost, and easier to manufacture and service. We also delivered meaningful supplier commercial cost reductions and raw material cost benefits, which we expect to continue into 2025. As Tim noted, we reported new segment disclosures to provide visibility into core drivers of the automotive and software and services segments of our business. The automotive segment includes the sale of new consumer and commercial vehicles, as well as regulatory credits. We produced 12,727 vehicles and delivered 14,183 vehicles in the fourth quarter of 2024, which was the primary driver of the $1.5 billion revenue in the automotive segment, including the regulatory credit sales mentioned earlier. Our segment-level automotive gross profit was $110 million, reflecting a 7% gross margin for Q4 2024. We consolidated the financial results of the Rivian and Volkswagen Group joint venture into Rivian's financials. Vehicle electrical architecture and software development services paid for by the Volkswagen Group are now reflected in Rivian's revenue and cost of goods sold in the software and services segment, with Rivian's share of the development services reflected as R&D expenses, consistent with prior practice. Incremental ongoing revenues generated by the joint venture are expected to recognize approximately $2 billion as revenue as the joint venture delivers against its development roadmap over the next four years. This includes cash received from Volkswagen Group for licensing of the background intellectual property, equity premiums, and non-cash benefits. Beyond the vehicle electrical architecture and software development services previously mentioned, our software and services segment includes remarketing, vehicle repair and maintenance services, charging, software subscriptions, and other services including financing and insurance. The $214 million of software and services revenue in Q4 2024 was primarily driven by remarketing sales, vehicle electrical architecture and software development services, as well as repair and maintenance services. Our software and services segment level gross profit was $60 million, reflecting a gross margin of 28% for Q4 2024. We're strategically focused on driving efficiency into every element of our cost structure. This work has enabled funding for our technology roadmap and our investments in sales and service to enhance customer experience and increase brand awareness. We made these investments while reducing our total operating expenses by 15% in Q4 2024 compared to the same period in 2023. The combination of our positive gross profit milestone and our operating expense management enabled an improvement of $729 million in adjusted EBITDA for Q4 2024 compared to Q4 2023. Our adjusted EBITDA losses for the fourth quarter were $277 million, which is the best performance we've had since the start of production. Overall, cash equivalents and short-term investments increased to $7.7 billion compared to $6.7 billion in the prior quarter. This includes $1.3 billion received in November in conjunction with the closing of our joint venture with the Volkswagen Group. We're also beginning to realize some of the working capital benefits discussed on prior earnings calls. Inventory levels at year-end were $372 million lower compared to the end of 2023, primarily driven by reducing our raw materials and finished goods inventory. We expect to generate cash from working capital in 2025 as we reduce our inventory levels by year-end. During 2024, we reinforced Rivian's long-term financial flexibility. We received $2.3 billion of the expected $5.8 billion of funding from the joint venture transaction with Volkswagen Group. We also announced the closing of a loan up to $6.6 billion from the Department of Energy, which, together with the remaining proceeds from the Volkswagen Group, is expected to fund an additional $10.1 billion of potential capital on top of the $7.7 billion we had on hand as of December 31, 2024. This capital is expected to fund Rivian's operations through the ramp of R2 in Normal, as well as R2 and R3 in Georgia, enabling a path to positive free cash flow and significant scale. Considering our 2025 outlook, we acknowledge the fluid nature of the current policy, regulatory, and demand environment. There are external factors outside our control that could impact this outlook, particularly changes to regulations or policies that may influence market dynamics, supply chains, incentives, and the market for regulatory credits. Our guidance represents management's current view on potential adjustments to incentives, regulations, and tariff structures. Importantly, it's early in the year and some of these factors could change. As mentioned on previous earnings calls, we expect to shut down both the consumer and commercial manufacturing lines in our Normal plant for approximately one month in the second half of 2025 to prepare for the launch of R2 in Normal in the first half of 2026. We expect to deliver between 46,000 and 51,000 vehicles in 2025. As a reminder, due to a supply shortage of a component in our Enduro motor system, we produced and delivered more Tri-Motor R1s and commercial vans in Q4 2024 than initially expected. These incremental commercial vehicles delivered in Q4 are anticipated to result in lower commercial deliveries in 2025 and higher finished goods inventory in Q1 2025. Additionally, we expect to deliver fewer consumer vehicles in Q1 than in the prior quarter. These lower anticipated volumes are due to seasonality and a challenging demand environment, partially driven by the impact of the fires in Los Angeles, which has historically been one of our largest markets. Consequently, we anticipate deliveries to be approximately 8,000 vehicles in Q1. We expect production levels to be roughly 14,000 vehicles in Q1 as we focus on building inventory to mitigate the impacts of our plant shutdown in the second half of the year and enable higher commercial deliveries in Q2. We expect modest gross profit for the full year of 2025, supported by strong profits from our software and services segment. This positive gross profit is anticipated to lead to a significant improvement in our adjusted EBITDA, expected to be between $1.7 and $1.9 billion loss for 2025. We expect capital expenditures to range from $1.6 billion to $1.7 billion in 2025, largely driven by spending related to our manufacturing facility expansion in Normal and supplier tooling for R2 as well as our continued growth in our go-to-market infrastructure, including service centers, experiential spaces, and the Rivian Adventure Network. As a result of starting construction on our manufacturing facility in Georgia, we expect to see a year-over-year increase in capital expenditures from 2025 to 2026. Looking forward to 2026, we're excited to launch R2 in the first half of the year. This marks the first line of production for our new mid-size platform. Consequently, we intend to gradually ramp the R2 line and operate on a single shift of production for most operations in 2026. We want to thank our team for delivering a great quarter. We remain steadfast in our belief that R2 will be truly transformative for our growth and profitability. I'd like to turn the call back over to the operator to open the line for Q&A.

Thank you. Our first question will come from Dan Levy with Barclays. Your line is now open. Please feel free to ask your question.

Hi, good evening. Thank you for taking the questions. First, I wanted to start with the question on your assumptions for policy. You said you're embedding here your best guess on what the policy shift is. Could you just outline what exactly you are assuming on tariffs, credits, et cetera?

Sure, Dan. As I mentioned in my prepared remarks, our outlook reflects our current view on potential adjustments, including incentives, regulations, tariff structures. I'm not going to get into any details on each specific driver. However, when looking at the overall impact in aggregate, our guidance reflects hundreds of millions of dollars of impact to Rivian's EBITDA, inclusive of potential demand impacts. As I said, this is based on management's current outlook and view, but we recognize the fluidity of this environment, and we felt it essential to provide guidance that reflects our current assessment of policy outlook.

Thank you. The second question is about the trajectory of COGS. Could you clarify what we should expect for R1 COGS throughout the year? By the end of the year, will COGS per unit roughly match ASP per unit? Additionally, how does this relate to your confidence in achieving the necessary BOM and COGS for R2, considering that RJ mentioned you are at 95% sourcing? Any insights on the COGS trajectory and its implications for R2 would be appreciated. Thank you.

Thanks, Dan. We've focused a lot on the history of our cost of goods sold on R1. When we launched production, we faced challenges associating with being a first-time manufacturer and carried a burden of premium costs with many of our suppliers. With Gen 2, we resourced more than half of the bill of materials for the vehicle. And you are now seeing the benefits of this. We removed a substantial amount of costs from our bill of materials. Also, if we resourced roughly half of the bill of materials, we were able to implement new designs that permitted better efficiency and production of those parts going into the vehicle, as well as ensured better assembly. We uncovered numerous opportunities across the vehicle and supply chain for further improvement. All those learnings are being captured in R2. As for R2's bill of materials, we project it to be about half of what R1 is today, and for non-bill material costs, we're seeing more than a 50% reduction. A huge amount of effort has gone into driving progress in engineering and design, as well as sourcing. We're excited about what R2 represents—not just a lower price product, but a product that opens up a more mass market for us, supported by a robust cost structure.

Indeed, with generation 2 of R1, we've made significant strides in cost reduction and are still working on all cost elements with our suppliers. We are analyzing flows and complete supply chains internally in our plant. Our focus includes line balancing, automation, operator efficiency, logistics, and optimizing supply chains. We are reducing inventory levels and using pull systems, all while involving our team members, especially those on the frontline, to find opportunities. Empowering our people has been key to identifying additional savings and improvements in R1 and R2. R2 will benefit from a simpler product, fewer components, and effective design for manufacturing processes. All these insights will be implemented in our new line in Normal, in body shop and assembly, and across the new processes we are setting up.

Thank you, that's really helpful color.

Our next question will come from the line of Adam Jonas with Morgan Stanley. Your line is open; please go ahead.

Hello, everybody. Hi. I wanted to ask about the Rivian autonomy platform where you have a pretty major change in strategy moving to end-to-end, with 10 times the compute and enhanced sensor suite as well. I'm curious about how much you're spending on compute and training, how much you're doing in-house, how much is shared with partners, and how much of your forward R&D, OpEx, and CapEx is allocated towards AI infrastructure and training as you use your proprietary data and leadership there.

Yes, thanks Adam for the question. This area is crucial for us as a business, and we're excited about how rapidly this space is evolving. To address your question, we need to rewind the clock about three years to start our development on what launched into the Gen 2 platform. The decision we made then was based on the belief that self-driving systems would be largely AI-centric, requiring large data flywheels and training platforms. For this, raw signals from the cameras and the perception stack are vital. We specifically designed our camera and compute platform in the vehicle for this purpose. The team has done exceptional work in engineering this system, and many costs are associated with these efforts. We've decided to architect our camera platform and compute platform in the vehicle to ensure real-time decision-making. The data feeds into off-line models for training, and we’re focused on ensuring our self-driving capabilities improve over time. This ongoing investment into training and compute resources is essential, and we've seen creative methods to access vast amounts of GPUs for this purpose.

I appreciate that. I think people on this call will be listening very carefully to the NVIDIA GTC sessions as well. Just a follow-up question on the Software and Services segment. It's helpful that you break it out and perhaps have opportunities to follow up. But Claire, can you confirm whether, let's say, relative to the $300 million or so recognized in 2024, whether you have—First, if you included any in your assumptions for 2025? Or could you tell us if it's similar, higher, or lower? Then the joint venture revenues from the electrical architecture, I know it follows a kind of spooling up scale. Could you provide any details on what's included in the fourth quarter and how that scales up over the year within that segment?

On the regulatory credit outlook, we still expect that we'll generate roughly about $300 million of regulatory credits embedded within our outlook for 2025. There are scenarios where that value could increase, and policy impacts could lower it, but that's our guardrail for you as you assess what's embedded within the outlook, indicating a relatively flat outlook from a regulatory credit standpoint year-over-year. Regarding the joint venture-related revenues, we noted $214 million of software and services revenue, relative to about $100 million of baseline revenue in the prior quarter. Most of the growth was driven by the joint venture, which was only operational for about half of the quarter. However, we also saw strong underlying revenue growth in our non-JV related software and services over the same timeframe, primarily through significant growth in our remarketing efforts, especially in second-hand Rivian vehicles. For 2025, we anticipate overall revenue from the software and services segment to be north of about $1 billion, with the joint venture playing a significant role in that growth year-over-year.

Yes. Thanks, Claire. Thanks, RJ.

Our next question will come from Mark Delaney with Goldman Sachs. Your line is open; please go ahead.

Yes. Good afternoon. Thanks for taking the questions. I have a follow-up related to the autonomy platform. It's encouraging to see the profits starting to materialize from it. I want to get your views around Rivian's ability to charge for these future features as you execute AI improvements. We've seen in China that some hands-free products are sold at low prices. What's your perspective about monetizing this, especially as you reach Level 3 and people gain back time?

Yes. Thanks, Mark. This is an area we spend a lot of time on internally as well. We need to distinguish the short to medium term from the very long term. In the short to medium term, we see opportunities to price some Level 3 features. However, over time, it depends a lot on the competitive landscape and what others charge for similar features. It could become either a checkbox upgrade or be embedded in vehicle pricing. Regardless, we believe economic value will derive from these features. We've invested significantly, and we’re excited about the progress. As we start to unveil the nonlinear benefits, I previously mentioned, from a vertically integrated stack, it will create noticeable advantages in the market for consumers and us as a business.

Very helpful, R.J. My second question concerned the $1.96 billion of proceeds from the joint venture you will recognize over about four years. Can you clarify the gross profit implications of that incremental revenue as it flows through?

You can consider that as pure profit, as we go through the flow of that deferred revenue stream over the next four years. It's important to note that it won't be effectively straight-lined. Recognition will be based on the ongoing development of the joint venture, so it will be more back-end weighted.

Our next question will come from George Gianarikas with Canaccord Genuity. Please go ahead.

Hi, everyone. Thank you for taking my questions. I want to understand the quarterly cadence you expect around deliveries in 2025. You mentioned the first quarter would be about 8,000. Can you give any insight into when you plan to ramp up? Is it in Q3 or Q4? How do you expect the year to progress?

Thanks, George. Javier mentioned this briefly earlier, but we’re expanding our plant significantly to house R2's general assembly and body shop. A picture of that is included in our Q4 shareholder letter. We're excited about the progress on that. Our Illinois plant will need to be shared across R1, R2, and our commercial vans, with a critical shared area being our paint shop. We'll shut down our overall plant to integrate the R2 line within the paint shop and stamping operation. This intentional plan has been reflected in our guidance. The production volumes you will see from us will account for that shutdown, so we can maintain a sufficient supply of vehicles.

Thank you. And as a follow-up, do you have any comments about the Department of Energy loan and the uncertainty around the potential for those funds?

Thanks, George. We're looking forward to working with the new administration and the Department of Energy regarding our loan. We share in the President's desire to bring jobs back to the U.S.; our loan would enable 7,500 new manufacturing jobs, in addition to the more than 10,000 jobs we as Rivian have created across our enterprise in the last three years. We're also helping to advance American innovation in the transportation sector, which we believe is strategically important as a global industry. We maintain alignment with the administration on this course of action. The loan will continue to provide vital capital for us as we scale the business and increase Rivian's capacity from 215,000 units in Normal to an additional 400,000 units over time.

The scale of change in transportation and energy systems requires a mosaic of companies producing compelling products. The U.S. must retain its leadership in this space. Our investment in electrification, software, autonomy, and AI captures that leadership position.

Our next question will come from John Murphy with Bank of America. Your line is open; please go ahead.

Good evening, everyone. Claire, I would like to inquire about the year-over-year gross profit. I'm looking for clarity on other contributing factors. Starting with a negative $1.2 billion in 2024, along with flat to declining volumes, I anticipate you'll experience a slight impact. It appears that software and services revenue may increase by about $800 million. This suggests a gross margin increase of approximately 2.24 percent. That leaves around $1 billion. Is most of this additional billion originating from that area, or are there other factors we should take into account?

From 2024’s baseline, keep in mind our joint venture included. We reported around $484 million in software and services revenue in aggregate or about $100 million a quarter beforehand. For the overall gross profit composition, significant benefits will arise from software and services gross profit as projected but also from ongoing efficiencies we discussed. Meanwhile, some factors, such as policy impacts, have potential offsets. We anticipate adjusted EBITDA losses from the automobile segment, but expect to make theoretical profits by adjusting non-cash items like depreciation or stock-based compensation. This will lead to the anticipated approximately $800 million to $1 billion improvement in adjusted EBITDA.

That’s helpful. Regarding 2025, with volumes flat to down, driven partially by capacity constraints and changes, for 2026, do you think R1 and the commercial van can increase volumes? Or are those products at their run rate levels, with growth only coming from R2 and R3?

Thanks, John. When we opted to launch R2, a lot of our focus was on CapEx and operational efficiency with one leadership team managing R1, R2, and our commercial vans. By having these product lines in a single plant, it allows some flexibility in production. The R1 remains our flagship product, while the R2 aims at a broader market segment with a significantly lower starting price of $45,000. This flexibility is advantageous because we don't need exact figures for R1 or R2, creating built-in resilience with R1's sales. Our plant is designed to adapt to whichever model customers choose, serving our overall objectives.

Thank you. Looking forward to hearing more.

Hey, thanks for taking my question. Regarding the software and services business, can you give insights into revenue opportunities excluding the BW agreement—perhaps with Connect+, and the adoption of the ADAS platform?

We made the decision to vertically integrate the electronic stack within the vehicle. This allowed us to consolidate compute platforms, creating a desirable brand experience. Our customers enjoy enhancing features with over-the-air updates. This creates expectations for revenue from features like Connect+. It’s important these technologies consistently improve, and our strength in this area is growing. In terms of margins for software and services, the mix of revenue streams varies, creating a diverse long-term opportunity.

Regarding long-term margins, it’s challenging due to diverse stream profiles in software and services, influenced by things like maintenance services versus high-margin subscription revenues. While immediate margins vary, we believe in software and services' long-term potential.

Thanks for that. Just as a follow-up, regarding the 2027 targets discussed at the Analyst Day, those numbers did not include benefits from the Volkswagen deal, right? Furthermore, how will the $7,500 credit factor into the R2 pricing?

In terms of IRA, we designed our products so that their underlying cost structures are independent of the IRA's $7,500 tax credit. While it certainly helps, we developed the designs considering both scenarios. As for the 2027 targets, there are both benefits and potential detractors from policies impacting overall targets. We believe a path to EBITDA positive exists then, provided joint venture revenues and software and services contribute significantly.

This concludes the Q&A section of the call. I would now like to turn the call back to RJ Scaringe for closing remarks.

Thank you, everyone, for joining us today on the call. Hopefully, as you heard, we're really proud of the work the team has done to drive the strong performance you saw in Q4. The $31,000 in cost reduction per vehicle reflects a significant effort from all our teams across operations, product development, and the broader company. We are excited about the opportunity with R2, which will provide the market with a choice at a compelling price point, targeting a substantial number of buyers in the U.S. and Europe. This choice will come with a much lower cost structure and we're focused on delivering that effectively. We are enhancing business operations to support a significant scale increase that R2 will facilitate, including infrastructure for customer support, service operations, and delivery systems. Despite our growth, we have managed to reduce our operating expenses, showing that we can add scale while driving efficiencies and removing costs from the business. We are focused on these goals through R2's launch, and I eagerly await seeing R2s delivered to customers and rolling off the lines in Normal. Thank you, everyone, for your participation, and we look forward to the next call.