Q4 2021 Rivian Automotive Inc Earnings Call
Yeah.
[music].
Thank you for standing by.
And welcome to <unk> fourth quarter fiscal 2021 earnings conference call. At this time, all participants are in a listen only mode.
The speaker's presentation, there will be a question and answer session to ask a question. During this session you will need.
Need to press Star one on your telephone if you're required any further assistance. Please press star zero I would now like to hand, the conference over to <unk>, Vice President of Investor Relations. Please go ahead.
Good afternoon, and thank you for joining us for <unk> fourth quarter 2021 earnings call joining us on today's call. We have RJ syringe, our founder Chairman and Chief Executive Officer to 10 Bell, our Chief growth Officer, and Claire Mcdonald, Our Chief Financial Officer, a copy of today's share.
Holder 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.
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.
<unk> with our business, except as may be required by law <unk> does not have any obligation to update or revise such statements as circumstances change for.
For a discussion of the material risks and other important factors that could impact actual results. Please refer to the cautionary statements and risk factors contained in <unk> SEC filings and today's shareholder letter both of which can be found on our website at <unk> Dot com forward slash investors. During this call we will discuss both GAAP and <unk>.
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 and vision.
Stand by the people of Ukraine.
Humanitarian crisis, resulting from the current development is clearly a focus of governments and companies around the world.
We are inspired by the actions. So many have taken and will continue to evaluate ways. We are reviewing controller 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 would encourage you to read it for additional details around some of the items, we will cover on today's call.
I will touch on our recent achievements production progress in product development.
Before I do that I want to personally address last week's pricing announcements.
Released we released an update to our <unk> product portfolio that included our new dual motor propulsion system as well as extended battery pack.
The dual motor propulsion system consists of a single motor drive axle, where we've integrated the drive unit.
Invertor that gearbox into really power dense package.
And then the dual motor application, we put one of those in the front and one of those and the rear of the vehicle and in total delivers over 600 horsepower.
And achieved 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 and our commercial delivery bids.
Along with that our standard battery pack is leveraging LLP and LSP chemistry.
That chemistry, not only allows us to offer that pocket of lower cost, but it really fits commercial applications as well.
It is first going to be launched in the commercial vehicle platform. Later this year and then we will make its way into our consumer vehicles by late 2023.
Now as we develop these new offerings, we need to make sure that these offerings could fit into our product portfolio.
And to do that we revisited the overall pricing strategy prior.
Prior to the pricing changes are one platform had a price range without options of 67580, 3500, and only included Quad motor variance.
With the addition of these new product offerings. The <unk>. The <unk> platforms price range is now 67590, 5000, including both quad and dual motor configurations as well as the standard range earlier.
LSP battery pack.
On March 1st we announced the dual motor extended battery pack along with this updated pricing model.
And applying the updated pricing to existing printer customers. We failed to appreciate the customers view their configuration.
As price locked and we wrongly assumed for 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 recognize this was a mistake and quickly move to honor the original configured pricing for a pre March 1st Preorders.
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 as one of our most valuable 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 EV visit.
This is a massive shift and one that requires multiple companies to be successful in building interesting products.
Give customers lots of choices.
While the near term industry conditions remain very fluid our path to creating long term value is unchanged where.
We are targeting the most attractive market segments with exceptional products.
In the consumer space, we're building a global brand.
Flyers to a wide range of product sizes of markets and the truck SUV and crossover segments.
In the commercial space, we're targeting with an initial 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.
You are in a unique position to establish significant last mile market share.
Of our Amazon partnership and have the opportunity to capitalize on software and services through fleet Olaf.
Our 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 OTI to motor trend selecting <unk> 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 we had approximately 83000 preorders.
Our pricing model, which encompasses the dual motor drivetrain.
Standard pack has demonstrated continued strong demand with <unk> 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 CFO .
That will be responsible.
We're helping to scale, our production and supply chain.
We've also continued to hire great leadership across the business to keep up with our rapid scaling.
I believe the strength of our team is what determines our ability to execute our vision.
Not surprisingly our highest priority for the remainder of 2022.
Ramping production of our normal, Illinois manufacturing facility.
As of March 8th week.
<unk> 1410 vehicles this quarter in 2000, and 425 vehicles since the start of production late last year.
During the last two weeks, we've averaged a weekly production rate that is approximately two times the rate of the fourth quarter of 2021.
With that I'd like to talk a bit about the <unk> production ramp.
Ramps progressing well across all areas of the <unk> production line.
And we're achieving demonstrated production rates that are in line with our expectations.
And with all this progress the biggest constraints, we now face.
Really lie with the supply chain and it's really a small number of parts for which the supplier isn't ramping at the same rate as our production lines are ramping up.
I wanted to talk just about one specific or previously we talked about battery modules.
And this was a constraint that we saw at various times through Q4.
And as you May remember, we have two module lines module on one module line too.
And module line one is now running at twice the speed at what we saw at the end of 2021 and.
And module line two is ramping up very quickly.
And in line with our expectations.
With line, one and line to now ramping battery modules are no longer a constraint for the plan.
With that I also want to talk about our warehouse and our warehouse is being ramped very methodically, we learned a lot from what we went through in the fourth quarter.
And as we're methodically ramping this up we're balancing component supply for the parts that are different in <unk> relative to <unk>.
We're also managing the fact that that product is coming up behind the <unk> in terms of its level of ramp to maturity to make sure that we're optimizing for overall production output for the line.
Now with that said, we should also talk about EV.
And the <unk> ramp is quite a bit different than what we've been through on our one.
It benefits from all the learnings you would expect from the EDI 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 our one we are gated by number of supplier ramp challenges.
And given that the EBV production lines are capable of ramping faster than what we saw with our one.
Supply constraints feel more pronounced than what we experienced in the initial weeks of ramping our one.
With these supply constraints the evs being built are being used to refine the digital integration of our software systems with Amazon.
To ensure alignment with the standard a standard operating procedures for these vehicles.
Feedback from Amazon and the drivers on the software is quickly being adjusted and we're using that to drive the otas on the platform.
With all of this we expect <unk> production to ramp considerably during Q2.
Now it's worth noting the challenges our suppliers are facing very and include company specific production issues COVID-19 related delays and semiconductor applications, where we.
Working closer with any of these constraints suppliers to identify component challenges early.
We can support the supplier ramp.
And develop alternative solutions if needed.
While 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 configuration.
This higher voltage architecture also includes onboard charger.
Do you see DC converter DC to AC converter.
Where the power stages at the DC AC in the AC DC are bidirectional and Sir 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 <unk> chemistry.
Let P chemistry being used within these stocks.
Now beyond the in vehicle power electronics, we also continued to develop our portfolio of charging in energy products.
Two expanded really beyond what we've already talked about and shown in our DC Chargers to include a bi directional home charger and home energy products.
And 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 cost and complexity.
We're developing a next generation of perception hardware along with that and.
And that perception of hardware is being used with a new one.
Higher compute platform for the autonomous system.
We believe that all of these investments and all of this technology.
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 declare who will provide an update on our financials and business outlook.
Thanks, RJ I want to Echo Rj's feeling of encouraged with the progress we're making at the plant a robust technology roadmap, we have in flight 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 radian as we launched three vehicles across two vehicle platform and initiated our first customer deliveries.
During the fourth quarter, we produced 1003 vehicles and delivered 909 vehicles, which generated $54 million of revenue.
As we've discussed in the past as we ramp our production volumes being produced on our manufacturing lines are a small fraction of our current 150000 units of annual capacity.
In the near term, we expect this dynamic to have high fixed costs associated with operating and running our large scale highly vertically integrated plant amortize over a small but growing number of vehicles produced across the <unk> platform.
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 expedited 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 LC and RV adjustment.
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 stem from our current and future vehicle program as well as cross platform technology as.
As RJ mentioned, we've kicked off our in house motor system.
Third range LSP battery pack.
<unk> cloud architecture, and many other hardware and software technology that will allow us to introduce more accessible price points improved gross margin and enable us to expand our high margin lifetime software and services revenue opportunity.
We realized 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 IPO, resulting in the recognition of our first stock based compensation expense in Q4 of 2021.
SG&A expense for the fourth quarter of 2021 with $682 million.
As compared to $98 million for the fourth quarter of 2020.
Scalar production. It's importantly, also stellar commercial operations, providing a seamless comprehensive consumer solution is part of what customers expect when purchasing Arabian vehicle.
This requires investments in our digital experience customer engagement and delivery team 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 objective.
We realized $277 million in stock based compensation associated with SG&A.
In Q4, 2021 also recorded other expense of $663 million.
It's primarily noncash 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 <unk>, Inc.
Conjunction with our IPO.
Capital expenditures for the fourth quarter were $455 million driven.
Driven by our continued strategic investments in infrastructure.
Capital expenditures were primarily due to expansion of our normal factory as well as investments in corporate facilities service operations and experienced basis.
We've created a tremendous ecosystem, bringing together in house in vehicle technology, the Arabian cloud and our product development and operations infrastructure.
Our launched products and services and build the foundation for growth.
We are at the tipping point of the EV transportation transformation, we play in the fastest growing and most profitable market segments, and we will 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 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 <unk> platform, while we work diligently to alleviate any supply chain challenges, we believe that through 2020 to 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.
<unk> to produce approximately 50000 vehicles across our <unk> and RCB platform in <unk>.
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 that due to the supply chain constraints, which are currently visible to us in 2022, we plan to produce 25000 vehicles across our <unk> platform.
Our estimated adjusted EBITDA for 2022 is negative $4 75 billion.
Primarily due to continued forward investment, we will increase our research and development expense through investments in future vehicle platform vertical integration of shared technology as well as our in vehicle and <unk> cloud technology roadmap, our SG&A expense increased 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 a digital first ownership experience seamless and enjoyable.
We plan to continue investing in our business throughout 2022 and <unk>.
Therefore, I expect an increase in capital expenditures as compared to 2021.
Capital expenditures are expected to be $2 6 billion drill.
Driven by additional investment in our normal factory to expand the capacity of our one line to over 100000 units annually.
In addition, we expect to realize increased capital spend associated with the tooling for current vehicle platform future vehicle manufacturing lines battery technology and supply our service network digital offering 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 target 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.
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.
No doubt experiencing one of the most challenging supply chain environment, the automotive industry has ever seen.
But as we look out 10 years from now.
Our products, our technology and our brand platform.
To 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 and as a reminder to ask a question simply press star one on your telephone and to withdraw your question Christa has or the pankey. Please standby.
First question is from Adam Jonas with Morgan Stanley . Your line is open.
Alright, thanks, everybody, so RJ and clear during your S. One late last year you.
You had at the time 55400 orders for the R. One and you stated that you expect it to deliver those vehicles.
By late 2023 can you confidently reiterate that you could deliver the 55000 <unk>.
One by late 2023 today.
Hi, Adam.
Yes, we can we can confidently say, we'd be able to deliver the 50 550 was at 55000 vehicles by the end of 2023.
And as you heard from Clare and I right now the real constraint for our production is within the supply chain and this has been a major focus for us.
Every morningstar.
We're thinking about with suppliers and 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.
But ultimately our ability to ramp this year will continue to be gated by the supplier ramps in.
It's not all of the bill of materials, It's just a small fraction of the bill of materials, but we're having some of these supplier constraints.
Okay.
Interpreting that as that.
Confidently reiterate that.
Given your visibility on the supply constraints. Just this is hal interpreting that including the <unk> the supply constraints.
Absolutely and greatly.
Thanks, RJ just as a follow up how many evs have you delivered to Amazon to date have actually been delivered and are in service.
So as you heard Adam we're in the process on <unk> of ramping up production and.
The production ramp on that vehicle is actually going a lot smoother than what we've seen on our one and it's really.
Capturing a lot of lessons learned and a lot of the.
A lot of the.
Sort of organizational capabilities that we built on the ramp up of <unk>.
And so as we think about EV. It is outrunning the supply chain by a significant degree today today. So the vehicles that we're producing we're using really to refine as you heard from us some of the software and integration the digital integration within Amazon system.
So we really look to the second quarter to see significant ramp up of BBB.
Okay. Thanks for that Tom Im interpreting that as there really arent any significant numbers in the fleet right now theyre being built and updated and improved and optimized in the factory and we won't expect any.
I don't expect any material amount of Adv deliveries I won't see them in neighborhoods delivering packages for example until sometime in the second quarter or is that incorrect is that correct.
It depends on which neighborhoods youre in but right now we have a number of vehicles will be deployed as part of this.
Testing pilot fleet, yes.
In terms of significant scale Thats right, we wouldn't see significant scale until second quarter of this year.
Thanks RJ.
Thank you. Our next question comes from John Murphy with Bank of America. Your line is open.
Good afternoon guys.
Just to push a little bit harder on this on this volume number I mean RJ as you look at the supply disruption right. Now wondering if you could give us maybe a little bit more color about specific parts of attendees or we've heard just general malaise and snarling in supply chains and into what you think this means ultimately for <unk>.
<unk> patients would get beyond <unk>.
2022% in 2023, so I think generally is that your expectation to do 100000 units plus in.
In 2023, so I mean, yes, I mean I think.
You are talking about capacity to 50000 units right now on a tool basis I mean do you see.
On a tool basis of supply chain gets.
Issues get worked out that you could do something like 100000 units in 2023.
Yes, Thanks, John we're working as hard as we can to get the suppliers ramped in.
As you said certainly the vast majority of our suppliers have been keeping up with the production ramp in the plant.
And the production rates continue to increase within our facility.
Constraints within the supply base become even more apparent and we have resources focused on any of those constraints to make sure. We do everything we possibly can to to expand.
To expand our component supply.
Because ultimately our goal is to deliver as many vehicles as we possibly can this year and as you heard from Claire.
We're not for supplier constraints, we're confident we can achieve in excess of 50000 vehicles. This year.
So what we've what we've done is on these these few areas, where we do have constraints.
We're working very closely meaning we have our teams on site with those suppliers.
Some cases, helping to operate certain shifts and other cases, where we've had third parties that are coming in to help improve the efficiency and the efficacy of those of those operations.
But.
The areas that I, just point to that that we're seeing more challenging as we ramp.
Really are within the semiconductor space.
The wire harness space and within the electronic space and some of the CMS the contract manufacturers that are building.
The printed circuit boards force.
So in each of those are different constraints as you can imagine in the semiconductor space a lot of that is dealing with allocation into harness space for <unk>.
These harnesses are coming out of Mexico.
Number of labor challenges, there many of which have been exacerbated by Covid.
And that's very similar to some of the compute platforms as we start to get to much higher volumes. There was a bit of a ripple effect of some of the component shortages that then feed into the assembly of those components into into printed circuit boards.
Okay. That's very helpful. And then just a second question on the pricing Praful I mean, I think you guys have.
From my personal view underpriced your product, even before supply chain issues and inflation and everything because you have a very very good product. So I think you kind of underestimated your own success here.
Have you <unk>.
Read anything into the folks that you haven't heard.
Play in about the price increases and the people that it still ordered after the price increases and do you think forget about the input cost inflation, but there might be even more opportunity on pricing on your vehicle because I mean from my vantage point, you are high and Jeep wrangler to somewhere where our high end range Rover and I. Thank you.
You really have kind of maybe undershot structurally what you can do on pricing forget about market dynamics.
At the moment just based on the product itself. So I mean one.
What are your red because we haven't heard too to people.
A order post price increases and three do you think there might be more room on pricing just because of the product.
Itself.
Hey, John we spent a lot of time looking at our pricing model and.
<unk> heard from me, a big part of the new pricing model.
Was to make sure we could.
Really ingest, our dual motor and our standard battery pack within our price range as you heard from 67500.
Up through.
90, plus thousand dollars.
So with that now portfolio of three different drivers three different battery packs in two different drive drive configurations.
We have a really nice mix of options for customers and makes it configurations for our customers.
And when you take a step back and look at the product at the new pricing levels. It is very competitively priced if you look at our SUV.
Three row SUV with the large pack and the dual motor it's zero to 60 in under four seconds over 320 miles in range of true proper three row vehicle with a lot of space for storage.
Driving one now for over three months incredibly fund my wife, and I Love It.
Alex themselves as you said are exceptional and we are seeing tremendous demand.
Since announcing the new pricing. We've also seen really no change in the rate in which providers are coming in.
So customers also really see the value proposition and it's really been validated and confirmed.
Over the last week by seeing the continued influx of demand and.
As we like to think about it the continued growing backlog.
<unk> demand.
Okay. That's great Yeah, no I just think there is I think you may even have more room than than you think but that's a high class problem to have thanks, so much for the time.
Thanks, Ron.
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 there. So the suppliers of semi is in wire harnesses and electronics.
There are an issue or are they are they giving you a.
Kind of a high confidence.
Schedule at this point and just give us a sense of that.
What that what that looks like.
Yeah. Thanks Rod.
It really depends on the commodity area and on the supplier.
And something like a wire harness or.
And <unk> Thats being built at a <unk> at our contract manufacturer.
In those situations. We have teams that are on site we are very.
Incredibly high and.
An incredible high level visibility into their operations into the into the way in which they are running their business.
And we are very close and transparent relationships with them.
And on those we're able to essentially build chris' line of sight over the next.
Several quarters of production now.
Now with that said.
The challenge within the semiconductor space is there is a lot more there's a lot more unknowns there and.
It's very different than let's say a wire harness production facility, where we can put numbers on the ground at the wire harness facility, where we can actually help we can actually assess.
We're not able to send folks into foundries or send folks into.
Semiconductor manufacturing sites to be the same type of hands on support <unk>.
So in that regard.
I'm spending a lot of time and the rest of our senior leadership team is spending a lot of time with our semiconductor suppliers and making sure we're securing the right allocation.
And that allocation as we start to get into higher and higher production rates, especially in the back half of this year is where we have.
Where we see risks and it's what's caused us to make the adjustments to what we're guiding to in terms of in terms of production for this year.
I want to be very very clear, we are pushing very hard on those suppliers and if any of those suppliers are listening in here.
We're going to continue to those suppliers will continue to hear from us and we're going to be continuing to push very hard to get those numbers as high as possible because they are constraining us and it's quite painful when we see our production plants.
Really ramping in the lines running as we intend.
To have to throttle production because of those shortages of those parts.
So this is something where we're laser focused on.
Our morning doesn't go by where it's not a topic of conversation for us as a management team.
Okay.
Sure.
And you said that you are now at two X. The 2021 exit rate of production can you just tell us specifically what that means what does the production per day.
What kind of cadence are you expecting over the course of this year. So if I look at 50000 units.
A year it looks like it would correspond eventually to something like 170.
We kind of.
Okay, Andrew 70, a day on a six six to eight week 50 weeks a year do you think you would get there towards the end of this year.
Yes.
Again, ultimately the rate at which we can produce is going to be gated by the number of components that we have one of the things that's given us the confidence around the production ramp is the way we've been validating our production equipment production lines and also making sure we're.
Training our team as well.
Is accumulating enough parts to run the lines at the intended rate.
So we may have we may have not run one day during the week, where it may finish shifts early.
Because we're we're operating lines that add up.
Higher rate.
So because of that.
Our lines are sitting still far far more often than we'd like because we are waiting on components. So that gives us the confidence to state here that we see the ramp continuing to improve but it is growing or the continuing to.
Turning to decline, but it's going to be limited as I said.
Bye bye unlocking some of these key components.
Okay.
But there surely is some schedule that you have in your own mind and embedded in that 25000 unit forecast can you just give us a sense of what that cadence look like looks like just so that we can get a sense of what your expectations are for the ramp of your suppliers.
So.
As you said, we were running at twice the rate of what our exit philosophy was our exit rate was for 2021.
We will continue to climb, but ultimately that 25000 implies.
That we're up against the ceiling of supply if you will but.
But that that feeling is something were working very hard to to remove so that we can continue ramping and continue getting more vehicles to customers.
Okay.
But a little bit more color on that point as well.
As we think through the volumes for the year would expect that those volumes would be more back half weighted as we think about where we are in the S curve today and the trajectory of the manufacturing plant and making sure that our supply chain partners are also ramping their weekly output in lock step with Caribbean So that.
We can hold.
The rate that the production facility can.
Can deliver across the board.
And so as we think about the cadence of <unk>.
Orders for the year I would think about us in this next quarter.
Closing out Q1, and moving into Q2, starting to prioritize more of those are when asked films and so that's.
That's sort of also part and parcel of slope of the curve you could expect as ECS accelerating into the back half of the year and the other important dimension here as well is it really the cadence of the RCB platform as well.
Given some of the seasonality of Amazon and others that have a push for us to really ramp production throughout the course of Q2 and Q3, and then taper as they think about sort of their their high season, which is sort of heading into that holiday period as a very much kind of a big push as we think about building up.
Production into Q3.
To deliver on that 25000 plus units.
Okay, just to clarify two two times your production rate from the exit rate are you talking something like 50 or 60, a day just to put some kind of up a metric on where youre running right now can you share that.
I would just say we are at.
Not going to get into the habit of providing daily production rates and I think as you as you rightfully you have seen on our last earnings call. We gave you numbers and you can you can sort of benchmark until the overall daily production in those last handful of weeks of last.
Last quarter.
Just wanted to make sure we're providing sort of that overall visibility into the progress we're making.
Okay got you. Thank you.
And your next question comes from Ryan Brinkman with Jpmorgan. Your line is open.
Alright, Thanks for taking my question relative.
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 at least in Tulsa.
Such time as you begin selling the <unk>.
New orders that you take at the higher price and 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 or maybe because there is a general inflationary environment, including for battery metals and competitor vehicles to that is that kind of offset the <unk>.
Pact of volume how are you thinking about these different factors.
Sure as you as your question indicates there are many different factors that are driving.
We've both experienced over the last handful of months in regards to the inflationary pressures in the market.
But I think as you heard in John's question as well right. There is still at a phenomenal value proposition for the vehicle even at the revised pricing levels that we put out to the market.
Again, as RJ mentioned and touched upon is really reinforced by the overall demand that we've seen post pricing increase for those vehicles across the board.
And as we think about what's changed since that time of IPO. We have both the largest factor here in these early stages of production is actually volume and rate and so as you think about the fact that we have 150000 units of annualized.
Capacity at our plant in normal, Illinois, and instead of higher volumes as we had indicated we have the ability to produce 50000 units. This year. The fact that we're supply constrained 10 25000 units. This year is actually the most highly sensitive variable as you think about the impact on our.
Gross margin and so the supply chain environment is a key factor in regards to the margin rate that we expect to have inflation.
Inflation also has clearly been a factor here as well <unk> is not alone in regards to the overall.
Raw material input prices that are obviously impacting eds across the board and we will continue to impact the space overall.
The important takeaway here is our long term targets are unchanged.
<unk> have tremendous conviction around our ability to deliver against our 25% long term gross profit margin and we'll continue to see that opportunity and importantly.
As we think about the components of that margin as we've talked about in the past not just the vehicles, we're providing but importantly, it's the software and services and recurring revenue streams that we can earn a post initial purchase that helps us deliver that 25% margin and the opportunity to move over time.
Even beyond those levels so.
Closing I would just say that we feel as though our vehicles are competitively priced today, we see tremendous demand.
In that backdrop and as we look at the long term, we see really no change to the overall margin trajectory and opportunity we have.
Great to hear thanks, so much and then just lastly, what are your thoughts on that battery and by those cost inflation, how do you think the.
Increase in the price of nickel, which seems like it could be hopefully in large part temporary but some of the other metals to how do you think that impacts the competitiveness of evs versus ice vehicles understanding too that ice vehicles have their own palladium and platinum and catalytic converter inflation problem to worry about as well do you have a sense for how these like.
Competing inflationary.
Cost pressures might net out and what the resulting impact could be on EV sales or EV penetration of total industry yourself.
Brian as you said.
We hope the inflation that we've seen with nickel pricing very recently.
Short lived.
But the reality is that there is going to continue to be movements around commodity pricing and.
It's going be across a variety of commodities.
Whether you are looking at some of the commodities that go into catalysts as you said in an ice vehicle versus let's say nickel.
In our battery cell, but I'd also point out and I talked about this earlier that we're developing a portfolio of battery solutions inclusive of both of them iron phosphate MLP pack.
And one of the nice things about having multiple different chemistries across our portfolio as it essentially provides a bit of a hedge around some of the different materials that go into different battery chemistries in this case of course, referring to nickel.
But these are this is something we're paying very close attention to we fully recognize.
<unk> analyzed the implications of some of these different materials.
The pricing of those materials, how that will be translated into a margin structure.
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 maybe.
Can you just give us some color on what you actually saw in terms of cancellations and recouping of those orders from the pricing decision.
Reading message boards can lead you to a dark place, but you probably have better information than the rest of US and then it's good to hear about the good rate of pre on preorders since the pricing.
Change but.
Can you give us some context has that been more for the new dual motors to enter Pac or our customers to also opting for the original Quad loaner.
Yes, absolutely so on on day, one when we announced the new prices we did see.
Increased rate of cancellations and Thats 24 hour period between the.
Price announcement, and when we add all of those spaces back but.
Right after the reversal we got.
Massive reinstatement aggressive and more than half of our customers requested to reinstate.
So what we basically saw was the demand continues to be robust and blood.
Both from a reinstatement point of view as well as from the new.
New orders point of view as Ajay mentioned.
The rate at which the new orders are coming in is very comparable and similar to the rate at which the orders were coming in before the pricing announcements so.
We are.
It sort of validates the pricing model that we had shared with the world and I think we need to be very.
Confident at the competitiveness of our product and how it is going to result in the growth of our backlog and demand going forward.
Joe just to add a bit to that I want to be clear the.
Certainly as you said if you look at some of the online surveys.
You come out with a very different perspective on what the cancellation rate was.
The decision we took was to ultimately.
And are the original configuration pricing wasn't due to any.
Cancellations, but rather it was really big.
Because we have such a focus on our brand and the relationship we have with customers there.
Wasn't driven by this wasn't driven by some mass cancellation, but rather the recognition that the brand we're building.
Is the foundation as the platform upon which ultimately.
We're going to be selling millions of different vehicles per year across different vehicle types and of course across different markets and these early customers are such a critical part of what we're building as an organization.
Yes, I would agree with that sentiment.
As a second question with.
With the with the standard <unk> that you mentioned.
In the opening remarks will those.
B the ribbon produce packs are those still going to be sourced.
So great question, John we've talked about this a bit in the past.
The way, we've approached our battery cells.
I would say broadly our approach to.
Battery packs as you could really look at it across two.
Two arms on one side.
We're developing relationships with cell suppliers, where we co invest in capacity and that may be high nickel sells like what we've launched with.
And the vehicles thus far.
But it also includes <unk> T cells, which is actually what we're going to be launching later this year, but.
But in parallel to that and as your question implied.
Also developing in house battery Chemistries and in house production capability, when I say in house.
Entirely in house, not through a joint venture or through a partnership structure.
But the LLP that's first launching later this year.
That's a cell that we've <unk>.
Sourced through a partner and to sell that we're going to be building in that close partnership.
Okay. Thank you.
Thank you and your next question comes from Alex Potter with Piper Sandler Your line is open.
Okay, great. Thanks, guys.
Maybe first question quick one any chance you'd be willing to give a general idea of the mix breakdown.
One versus.
The Amazon band in that 25000 units.
What I would say is that the overall mix relatively hasnt changed from our original thoughts or forecast overall.
Okay fair enough.
So I hate to harp on this I know, you're probably sick of talking about it and thinking about it but obviously its supply chain.
A pain.
Coming through very clearly.
I'm just wondering.
If you take a step back and think about this.
<unk> philosophically, if you would have known.
Everything that you know today, if you would have known this two years three years ago, and where initially primarily in your supply chain strategy.
What would you have done differently and looking forward to that.
Plant that you have coming up in Georgia.
How will you apply those learnings.
To that future product rollout or maybe you won't maybe you don't have any regrets about the way you approach things that I'd just be interested in hearing how you how do you address that question.
Yes, it's a great question Alex.
We certainly have spent time, saying how do we how do we.
Some of these supplier constraints going forward.
There's a couple of things I'd note here and.
Yes.
In the context of semiconductors, one of the one of the challenges.
As we have a supply demand imbalance as an industry.
And as a result of that suppliers are providing.
Platforms are components.
On an allocation basis, and those allocations are largely being set some multiple of last year's demand.
And of course, what we've seen is.
All of the sources of demand all the Oems in this case are asking largely for more than they need.
And so the semiconductor suppliers are then developing their own allocation models that essentially reference what.
What they believe the real true demand is.
So the challenge we have in this regard as we have to we don't have something to look back to say what was Q1 of 2021, Mike in terms of our demand profile.
And with each of these semiconductor providers, we need to give them the confidence that we are capable of ramping and of course, each semiconductor supplier asks for how semicon.
Chemical semiconductor supplier acts how semiconductor supplier why doing.
And wanting to sort of make sure that.
Their rate of supply in the allocation that they are providing to us as is roughly equal to the rate of allocation that's coming from other semiconductor suppliers.
So it's a bit of.
Almost like a game of scheduled chicken if you will between these different suppliers.
So we've we've taken the approach of being very transparent.
<unk>.
I guess to be explicit being very aggressive with the suppliers to make sure we're driving them and it's why I said earlier.
Those suppliers and happen to be on this call, we're going to continue to push very hard.
And that's that's critical for US as we go into next year and as we think about future launches, we will have the benefit of.
Of having proven <unk>.
<unk> and proven output.
Now with all that said our.
Our next generation network architecture that I referred to before.
Actually helps simplify this problem, where we are consolidating a number of our easy to use and we're doing that.
In close partnership with the semiconductor suppliers where as.
As we source these were basically making sure.
Happen again, so there's the way we are setting up the contracts the way we're negotiating pricing the way we're negotiating the purchase process.
We're ensuring that the things that we previously treated as more of a commodity we now treat as a strategic sourcing agreement and an agreement in which we won't have these kinds of surprises that we've just gone through.
No.
With that said around semiconductors, I'd say the other area that we have as we go forward, but I think we've learned from here.
Sometimes these macro economic environments or are just hard to plan for and.
They need to.
Taken approach of being very hands on and.
If previously you would look at the supply base and say, it's a trust, but verify and maybe.
It was 80% trust, 20% verified I think for the industry at large certainly for ourselves, we're taking a much more heavy handed approach to the supplier ramp up process, where we'll have folks on site much earlier in the process, making sure. The suppliers are hiring teams need to hire setting up their supply chain.
So thats, the tier twos and associated tier threes appropriately.
And being very much more heavy handed in that audit and ramp up process and so we certainly are doing that now and I referred to it before but we have a team of people dedicated.
Being on site and working very closely with the suppliers.
We're going to be increasingly aggressive on that as we go forward because we do view this as a critical core competency to make sure future ramps are as occur as fast as possible.
Thanks, a lot okay. That's super helpful.
Pass it 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 questions, especially hoping to better understand the production outlook of 25001 of the things we.
Seen for the industry broadly is.
Sort of unexpected issues have come off suppliers can't meet.
The forecast that they provided so I'm, hoping to better understand to what extent, you're incorporating additional unexpected disruptions that may occur. This year within that 25000 production target and I guess, if everybody delivered to plan.
The number actually end up being more than 25000.
Yes, thanks Mark.
We're certainly working as hard as we can to two.
To exceed that 25000.
When we put that guidance together, we did it fully contemplating all the constraints that we see today as.
As well as the where we see potential issues over the course of the next year of course, saying that and given.
The large number of unknowns and uncertainty in the system.
It's impossible to predict everything, especially in this environment.
But again, we're very focused on achieving as much as we can and fully utilizing the plant capacity that we have installed in the plant capacity that we've demonstrated thus.
Thus far.
Understood. Thank you for my second question was on the materials inflationary environment, hoping to better understand that as well.
Can you talk about to what extent you've been able to.
Walk into any of any of the pricing either in terms of financial hedges are fixed price contracts I think typically in the industry. There's a lot of commodities pass through and so it sounds like roofing would be exposed to the higher materials costs.
They do in fact stay at it.
Current levels, but hoping to better understand if you've been able to offset any of that thank you.
Okay.
Good question, Mark I think as we think about structuring and she says as we structured.
Our supplier contracts.
Leading into our launches across all three products <unk> <unk> and <unk>.
A lot of those contracts.
Tied to a component or a partner a system at a fixed price. So theres not a raw material pass through of course, there are some contracts that have raw material pass throughs, it's really dependent on the type of contract and the type of component or system.
That component or systems, where a vast majority of the price of that item.
Is carried by the commodity price there may be those factors, but a lot of systems. Most of the price is actually carried into value add on top of the raw material. So take for example, a headlight as an example.
Much of the headlight cost is actually the processing of the materials as opposed to the raw materials themselves now.
Exceptions to that and examples where that's a bit different of course.
We've talked about this already.
Really around the battery cell and so we see this with nickel. It's one of the reasons. We're so focused on nickel and I think I'm sure all of our colleagues across the industry are also very focused on this because those types of contracts typically do have some level of some level of commodity pricing baked in.
Thank you.
Thank you and ladies and gentlemen, this concludes our Q&A session I will pass the call back to <unk> for his final remarks.
Thank you.
I appreciate everybody joining us for this call.
<unk> enjoyed.
The questions and the discussion.
We look forward to future discussions thanks, so much.
And with that we conclude our program. Thank you for your participation and you may now disconnect.
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