Q2 2022 Rivian Automotive Inc Earnings Call
Good day, and thank you for standing by and welcome to present second quarter 2022, earning conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the.
Session, you will need to press star one on your telephone.
Please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker today, Tim Day, Vice President Investor Relations and strategic Finance. Please go ahead.
Good afternoon, and thank you for joining us for Radian second quarter 2022 earnings call joining us on today's call. We have <unk>, our founder Chairman and Chief Executive Officer, and Claire Mcdonagh, our chief financial.
Sir a copy of today's shareholder letter is available on our Investor Relations website before.
Before we begin I would like to remind you that during the course of this conference call our comments and responses to your questions reflect management's views as of today only and will include statements related to our business that are forward looking statements under federal securities laws, including without limitation statements regarding our market opportunity industry.
Trends business operations strategy and goals, our second domestic manufacturing facility, our future products, including our <unk> and our expectations regarding vehicle deliveries actual results may differ materially from those contained in or implied by these forward looking statements due to risks and uncertainties associated with our business.
Which are described in our SEC filings and today's shareholder letter during.
During this call we will discuss both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP financial measures is provided in today's shareholder letter with that I'll turn the call over to RJ, who will begin with a few opening remarks.
Thanks, Tim and Hello, everyone and thanks for joining US today, 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 will cover on today's call.
The <unk> team delivered strong second quarter results, despite the challenging supply chain environment.
We produced and delivered over 4400 vehicles across the RMT our warehouse in <unk> 700.
We have also recently started production validation builds of our Edp 500, which is a narrower and shorter version of the EBV and well positioned for markets and applications, where smaller form factors are needed.
Our key focus remains ramping our normal facility to its full 150000 units of installed capacity.
While we continue to manage supply chain constraints. We are encouraged by the progress, we're making which is important for us to be able to add a second shift for general assembly towards the end of this quarter.
Equally as important is the continued strong demand for our products as of June 30, we had about 98000 net promoters and reservations for our one vehicles.
Our daily Porretto rate accelerated in the second quarter compared to the first quarter.
And as a reminder, these orders are for the United States, and Canada, only and are net of deliveries and cancellations and.
In June we hosted a media event to showcase the capabilities of our <unk> and both on and off road settings has been great to see the feedback from various media sources and customers as more of our one as vehicles get out on the road.
Regarding our commercial business in July we hosted an event in partnership with Amazon to announce the formal rollout of <unk> to locations across the country.
Since early 2021, we've been operating pilot deployments to capture direct feedback from drivers. This partnership was critical to the refinement of the EV products over the last 18 months.
In addition to the set of unique features to the van we developed a comprehensive fleet management system, which we call fleet of loss that provides end to end centralized fleet management, including vehicle distribution service telematics charging connectivity management and lifecycle management.
Previously discussed every vehicle delivered to Amazon comes with a fleet of less subscription, which represents a monthly recurring revenue stream for us we.
We are now ramping the build out of our DC fast charging network. The Ribena venture network. We believe it is critical for our brand to ensure our customers have a seamless charging experience that enables freedom to go anywhere without concern around charging access.
In June we launched our first locations using our DC Chargers, which we manufacture and normal Illinois. These.
These charges have been developed from a clean sheet to operate it up to 900 volts, which is important for our future product roadmap.
With a number of key sites underway, we are working to rapidly expand our network alone popular routes targeted destination areas and major highways initially across the U S and Canada. We believe this will be an important point of differentiation for us.
We've also started preproduction of validation units for a single motor Enduro drive units.
Two of these enduro drive units will be used in a dual motor configuration and the <unk> platform and a single Enduro drive unit will be used for the commercial vans.
This is the first of a family of drive units, we are developing that will deliver greater efficiency and performance, while creating meaningful cost savings.
I am very excited for the dual motor or one having spent a lot of time driving this I can say is the base configuration with with over 600 horsepower.
Very exciting package.
I also want to comment on the inflation reduction Act.
This just recently passed the Senate and is likely to be signed into law over the next week.
We're incredibly happy to see policy that helps drive more rapid adoption of electric vehicles as well as the important investments and building domestic battery cell production for.
For the world to quickly shift towards a carbon free economy. This type of legislation creates the needed tailwind for both consumers and industry.
The commercial segment in particular will benefit from the strong incentives for fleet operators to electrifying.
And our TV platform has been developed for a wide range of applications.
While many of our one configurations won't meet the bills pricing requirements are our two product line and associated cell roadmap are being developed to allow our customers to capture the value of these incentives.
We have plenty of work ahead of us, but I couldnt be more excited about the work. Our teams are doing for the ramp of the <unk> vehicles as well as the products services and technologies, we have in the pipeline.
Want to thank our dedicated team members suppliers and importantly, our customers and communities for the tremendous support you continue to show us with that I'll pass the call over to Claire.
Thanks R. J I want to Echo your excitement around the second quarter results and the progress the team is making.
The second quarter, we produced and delivered over 4400 vehicles, which was the primary driver at the $364 million of revenue we generated.
During the quarter, we recorded negative gross profit of $704 million Simon.
Simultaneously launching two vehicle platforms and production lines is a complex process with high fixed costs associated with the labor and overhead required to run our large scale plant, which can support 150000 units of annual capacity.
Our gross profit for the quarter was also impacted by the inflation of our materials as well as supply chain challenges, which caused the need for expedited shipping.
In addition, we recorded a $301 million accounting adjustment in the second quarter related to LC and RV.
As discussed on prior calls the LC and RV adjustment rates down the value of certain inventory to the amount we anticipate receiving upon vehicle sale after considering the future costs necessary to ready to inventory for sale.
On the research and development side, our team continues to pursue ongoing cost down efforts associated with the <unk> RCD platforms as well as the development of our next generation vehicle technologies, which we expect to leverage across our current and future vehicle platforms.
Our adjusted EBITDA for the second quarter was negative $1 3 billion.
Given the economic outlook, we remain focused on optimizing our product roadmap and associated operating expenses and capital expenditures.
We ended the second quarter with over $15 billion of cash and remain confident in our path to launch the <unk> vehicle platform with our cash on hand.
Now turning to guidance, we are reaffirming our 2020 guidance of 25000 units of production.
By chain continues to be the limiting factor in our production rates, but we remain confident in our ability to achieve our target.
On the delivery side in July we started a larger effort to move from truck to rail for our outbound freight which should provide additional cost savings as we scale. Our operation. This transition will cause a larger discrepancy between production and deliveries in the coming quarters as we ramp production.
As a result of the impacts from the ramp up of our normal factory recent cost pressures associated with the installation of our materials.
Associated LC and RV adjustments and expedited freight expenses, we are lowering our 2022 adjusted EBITDA guidance to negative five $4 5 billion.
Importantly, we are lowering our annual capital expenditure guidance from $2 6 billion.
$2 billion.
Primarily due to our more focused product roadmap.
In aggregate, we expect our ending cash position for 2022 to be in line with our initial expectations.
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.
Teens, EBITDA target and approximately 10% free cash flow target with that let me turn the call back to the operator to open the line for Q&A.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone. Please standby, we compile the Q&A roster and we ask that you limit yourself to one question and one follow up again, we ask that you limit yourself to one question and one follow up and one moment for questions.
And our first question comes from Rod, Let's say from Wolfe Research. Your line is now open.
Hi, everybody.
<unk>.
I'd like to ask two questions one is.
For Claire.
A lot has obviously happened financially over.
Over the past year, or so with inflation and supply chain issues.
Could you maybe take a minute and.
Maybe just take a step back and talk to us about that.
The bridge to achieving.
Positive gross margin from where we're at right now we know that it consists of pricing and cost and volume, but if you could give us.
Some thoughts on.
The components of that and the timing.
And then secondly.
RJ.
I was hoping you could maybe elaborate a little bit on the longer term implications of the inflation reduction Act.
For the competitive landscape.
And.
And for <unk>, specifically, and whether you see a path to achieving the material sourcing.
Acquirements that are in there and the value requirements and a little bit more on the commercial side, which sounds like it could be really meaningful up to I think $40 on <unk>.
Certain gross vehicle weight vehicles does that sort of changed the outlook for Vivian.
Thanks, Rod this is Claire speaking and wanted to hit on your first question in terms of what that path to positive gross profit and positive unit economic looks like for Radian in particular as you called out we've seen unprecedented levels and.
Inflation, especially across our raw material inputs in lithium prices that have gone up north of a 115% over since the start of this year in particular, coupled with Covid and other factors that have driven a challenging supply chain in an inflationary environment as well as target.
But as we look out to the future as I mentioned in my prepared remarks, we have significant confidence in the long term.
Gross profit margin targets that we've set out for ourselves approximately 25% and I'll give you a little bit of that path as we see from today going from our current stage to that future state of a positive unit economics.
C 2024 is really that pivotal quiet pivotal year for us.
And driving a step change in terms of the underlying gross margin expectations within the business as we have a couple of significant factors that are starting to impact our underlying unit economics first and foremost, it's really driven by us ramping our plants and our productivity within our 150000 units.
Installed capacity within the within normal that allows us to really leverage all of those fixed overheads and costs associated with our large scale production facility.
It's also our ability to introduce our next generation technologies into our vehicles first in our <unk> products as well as in our <unk>. So those are things like in sourcing of our motors.
The introduction of our <unk> Park, which will be introduced first and in our commercial vehicles that allow us to really drive a step change in terms of a vehicle performance in that timeframe, which enables us to increase pricing on the vehicle given the fact, we will have a vehicle with.
Added range and added performance and capabilities, but they also importantly drive significant cost down within our bill of materials as we look at that roadmap ahead, and then finally, the other core factor as we think about that steps down.
From a gross profit perspective. It is also really B b.
The anniversarying or moving beyond those pre March 1st preorders as well that allow us to move into our current asps.
We reiterated our last earnings call, we've seen $93000 plus asp's with the preorders that we've had post pricing change.
Thanks Claire.
Rod I appreciate the question I think with regards to your inflation reduction Act. This is.
As I commented earlier this is a really important step and I think it's great.
The acceleration of electrification and really providing a path.
Carbon neutral economy.
Now in terms of what that represents for us.
It's certainly a powerful tailwind as you commented in the commercial space.
G VW classes to be in the.
The realm of what we call our Edp 900, which is the largest version of our <unk> platform.
So <unk> gross vehicle weight above 14000 pounds. The incentives are quite strong the consumer facing incentives at over $40000.
We see this as really helping to drive a rapid transition to electric vehicles in the commercial space and then.
In a similar way on the consumer side, certainly, creating tailwind around localization of the supply chain.
And particularly with battery cell.
And we've designed not just the product, but also the way we think about our supply chain and our battery cell strategy, it's really be consistent with the intent of what we've seen in inflation reduction right.
So I think this is this is great news for electrification, it's certainly something we're very excited about.
And it's going to have long range implications for the whole industry.
Great. Thank you.
And thank you.
And one moment for our next question.
And our next question comes from John Murphy from Bank of America. Your line is now open.
Good afternoon, and good evening guys.
Maybe maybe just to follow up on Brad's question Jeremy.
The mix seems like it may ultimately be less.
Stronger than you were expecting and I think one of the interesting comments from one of your viewers in.
In.
In your shareholder letter RJ was at Baird.
<unk> to the range Rover Mercedes go onto Biogen in euros.
Just curious if you think about the retail side of it as an opportunity to keep makes incredibly strong.
And push maybe to the higher end of the range.
And then also grow the commercial vehicle side of the business kind of to those credits that Rob is just going over with you and sort of that mix may be just far superior to anything you were expecting mix and pricing.
In the past and that's really what helps offsets offsetting inflation and maybe you hit your margin targets or maybe something better I mean, how do you. How do you think about these early days of the reviews and what Youre actually getting on a mix from retail and commercial.
Syed.
Yes, Thanks John .
We talked about this in our last call we certainly.
<unk> been really pleased with the reaction to the product and how it is that the consumers are.
And with that we do believe there's a lot of pricing power embedded into vehicles and embedded in what we're creating as a brand.
And.
With that.
The the demand that we continue to see growing and accelerating really speaks to that so for us looking at the consumer side.
We're certainly thinking about it in the context of some of our future packages and some of the configurations that will offer over time.
But it is stronger than what we expected and it does certainly offset some of the increased costs we're seeing.
With regards to the commercial.
In a very similar way we see.
The demand for commercial expectation being very strong across all different segments not just last mile.
And the platform, we have with RCB.
Caribbean commercial van is really set up well for that of course, we're initially focusing on the delivery space.
But across cargo across works and there's a whole host of applications, where we see very strong demand and that's of course going to be amplified by the inflationary reduction Act.
Okay, and then just going to ask a quick quick follow up that's helpful Art.
On the EBITDA guide.
It looks like there's a pretty meaningful deterioration through the second half versus the first half.
<unk> is ramping up some of these fixed costs covered.
Is it just simply cost inflation.
It's eroding that second half versus the first half or what's the key driver there.
The key drivers that we've experienced are both our expectation that there'll be higher anticipated cost of goods sold and partially offset by lower operating expenses within the business and I'll unpack a little bit of the higher Cogs outlook, which includes the fact that we've seen.
Higher startup costs or inefficiencies associated with ramping for vehicles across two production lines at our plant in normal we've also seen higher levels of inflation, especially around.
Raw material inflation and some of those while we have seen.
Spike in terms of where the spot market is for some of those inflationary raw material factors at.
Some of those are also a second half impact that that will experience just given the contracts that we have with some of our suppliers and then beyond that we've also experienced increased costs in regard to our expedited freight expenses, which are really the result of the challenging supply chain.
Environment that we've been navigating it well.
Then one last point on it is also the fact that we do expect to also incur higher levels of LC and RV over the course of the remainder of the year, which are really the result of many of these increases across our startup costs as well as inflation.
For example, every every additional dollar of inflation also impacts the <unk> adjustment that we make on our inventory and firm commitments at the end of each quarter and so it really hasn't and amplifying or multiplying effect given the factors that I walked through that have driven some of this headwind.
Cost of goods sold perspective, as we look out over the course of the second half of the year, but I do want to just reiterate the fact that we do still expect that our our year ending cash balance will be unchanged relative to our initial expectation given the fact, we've also reduced our capex guidance and due to our.
Our focused product roadmap and the push out of certain Capex spend is 2023.
That's very helpful. Thank you very much guys.
Thank you and more moment for our next question.
And our next question comes from Mark Delaney from Goldman Sachs. Your line is now open.
Yes. Good afternoon. Thank you very much for taking the questions. I was hoping first you could talk a little bit more on the supply chain issues that youre seeing what are some of the biggest constraints currently in.
You speak to.
Adding a third shift or excuse me a second shift later in the third quarter.
Needs to happen in order to enable that the pick up in production.
Thanks Mark.
Yes.
Certainly seeing some of the supply chain challenges, we've talked about in previous calls.
To really shift and.
This was embedded.
Into our into our overall projections and our guidance and confidence around our guidance for 25000 vehicles for the year.
The second quarter saw a.
Number of challenges in terms of.
The semiconductor space as well as just overall ramping with volumes within our supply base.
But.
As we look out for the remainder of the year through Q3, and Q4, we have a lot of confidence that both the suppliers really leaning in with us but also.
We see the demonstrated performance to be able to hit the hit the continued ramp and this is what's enabling us to plan for the second shifts to come online here later this quarter.
That's helpful and my second question is the company announced some targeted cost reductions recently, how much cost do you expect that to say when fully implemented and what do you think you'll be at that full run rate of savings. Thanks.
From a cost perspective, ultimately as I mentioned as I walk through some of the levers of of <unk>.
The adjustments to our underlying EBITDA guidance, while we do expect there to be an underlying opex savings throughout the course of this year given the reductions in force that we have made most of that.
Payroll savings, we don't expect to really take full effect until 2023, but it is also important to note that as we think about our roadmap forward. We're also investing in a lot of the key areas of growth within the business.
So we've really tried to allocate that resource and investment in those critical next generation technologies and the build out of our customer service and customer support efforts from a transaction perspective as well so in aggregate you'll see more of.
Flattening of our operating expenses.
We will start with a reduction in in Q4, and then build up throughout the course of 2023 that the changes that we've made and the optimization from an operating expense perspective allows us to continue to.
<unk> invested in these critical areas of the business.
Thank you.
Thank you.
And one moment our next question.
And our next question comes from Joe Spak from BBC Capital. Your line is now open.
Okay.
Thanks, so much everyone.
I was wondering if you could just provide a little bit more color on second shift that you expect to sort of come on here at the end of this this quarter right. It's not another line. It's a shift so if you have that first.
Shift running at right now how much more rate does that that second shift give you I imagine it would it be to ask but some framing would be helpful.
Thanks, Joe the bringing on a second shift as it involves both making sure the supply chain capable of supporting it as we've talked about before it wouldn't make any sense for us to have to.
To hire a whole second shifts and then to have the Ryan lines, that's still waiting for waiting for parts.
So first and foremost we've been very very much emphasizing supplier readiness to support this.
<unk>.
We have worked very closely to look at any parts that we think are constrained or may be constrained.
But with that the other big element is of course, making sure the organization ready for that and this really ties to the shop floor leadership, so making sure our team leaders our group leaders prepared we've got the training programs in place.
In fact, we had a great.
Leadership Offsite read all the group leaders from across the plant a couple of weeks ago, and really getting the whole organization ready to go to a second shift to making sure. We have leaders that have experience running in the first shift as you said an alignment.
Fairly stable.
Such that we bring on the second shifts that we get as much output out of the second ship was possible.
Now, it's not a binary stuff there is a there is a process of ramping the second ship much like we have with the first shift but in terms of equipment readiness.
Robotics and automation controls those items of course are already been worked out through the running of the first shifts we expect to bring on and ramp up of the second ship pretty much very rapid.
And we've begun hiring for that so the hiring has been underway and it's working we're working towards bringing that second shift as I said before online by the end of this quarter.
Okay.
I guess the second question is.
It relates to fleet I'll ask switch you detailed in the shareholder letter.
<unk>.
Is that exclusively what Amazon is using or are they using a layer of their own software.
On top of what you provide them.
Then since you.
<unk>.
Indicated that there is an element of recurring revenue here.
Is it is it possible to sort of break out.
How many <unk> are in the quarter and I know theres been some some numbers reported in the press is sort of what you expected for the year, but maybe maybe you could sort of just clear that up on what you think you could deliver to Amazon for the year.
One of the things that's really exciting about the <unk> program is on the surface. If you look at it and we see the band.
This large very friendly looking commercial van.
But it.
Whats youre not necessarily seeing as the amount of work and effort that went into really deeply integrating the vehicle into amazon's ecosystem and so when you get into the vehicle, which you see on the screen the way it integrates within the routing platform took.
Took a lot of close partnership and collaboration a lot of feedback.
In iteration working with with drivers now above and beyond that of course fleet OS is a platform we used to effectively.
Utilize and manage the fleet. So that's looking at prognostics around maintenance and service.
Of course looking at the data around how the vehicles are being used where we can predictably assess issues that may come up.
Fleet management in terms of how do we think about aging of the vehicles and then of course some of the bigger items that really affect day in day out operations like charging.
So this is something that we developed with the benefit of a lot of iteration and visit iteration with with Amazon, but also with a lot of visibility to exactly how an electric fleet at scale.
And to be used in the benefits that can be derived.
From centralized deterministic decision, making around how efficiently and effectively the fleet you deployed.
Okay.
Okay.
Any chance that the number of Atvs.
Oh, yes.
We haven't announced the specific number of <unk> that are being built.
I would say as we've talked about you referenced that publicly.
We're really excited to start seeing a lot more of these on the road. We had launch event several weeks ago in partnership with Amazon and the thing that is perhaps the most motivating to US is just getting a chance to meet with drivers and seeing.
How excited they are to be in the vehicles and all the little details that.
We worked through and thought about whether it's the.
The powered bulkhead door, the step Hyatt to grab handles even the sulfur futures I talked about before our cooled seats each of those features.
Lights up a driver's day. It makes the makes their office so to speak in more enjoyable and better place to be and so we are very very motivated to deliver as many as possible and certainly Amazon is pushing for that as well. This is a key part of their climate pledge.
<unk>.
We'll start seeing a lot more of these on the reverse.
Thank you.
Thank you.
And one moment for our next question.
And our next question comes from Charles <unk> from Redburn. Your line is now open.
Hi, guys. Thanks for taking my questions.
My first one on production.
I wondered if you'd be willing to comment on the weekly production rates that you exited Q2 with and.
Give us an idea of where it is today.
Or at least maybe also some sort of idea about how we should think about Q3 versus Q4 for the remainder of your production guidance.
Sure Charles one of the interesting things.
One tries to average our output over over the second quarter.
It's somewhat misleading because it hides the signal so to speak in the sense that there was a lot of second quarter, where we weren't able to fully utilize our line we weren't I believe in run a full single shifts because of component supply.
And so as you look at the exit rate or I think even more importantly, the unconstrained production rate, where we had components.
Component supply to support fully the full utilization of the lines. It was considerably higher than what the average was over the course of the quarter.
Knowing.
The state of the supply chain and knowing the and having the confidence around.
Component supply throughout quarter three into quarter four allows us kind.
Kind of confidence and an expansion and level of volume, we're going to be delivering this quarter and then certainly into Q4 as we move to a.
Fully utilizing two shifts.
So Phil ultimately again, we continue to have confidence in our guidance for the year.
And that's borne out of the demonstrated performance in terms of line operations through quarter two.
Through the deep relationships and the confidence we have with our suppliers.
Okay. Thank you and then just on the order intake. So it seems like it accelerates. It at the end of Q2 can you talk a bit about maybe why you think that was perhaps.
Chefs in detail.
<unk> trends, but what most popular.
Okay.
For sure.
<unk>.
We've been able to spend a good deal time interacting with customers and one of the things that we continue to hear back from customers is how often they get asked about their vehicle.
And if.
If you take a trip to the beach or if you are in the shopping plaza.
People are naturally drawn to the vehicle has lots of questions and excited to see it.
And that is creating.
Ever greater awareness so the more vehicles that are on the road the more.
People are learning about them hearing about them.
And we certainly think thats, leading to some of the accelerated demand that.
We are now witnessing.
But this was referenced earlier on the call. We're also continuing to see very positive reviews. So.
Journalists influencers, having a chance to get exposure to the vehicle are seeing that this is such a unique combination of extremely high onward performance incredibly capable off road performance.
Really nice everyday usability.
Within a package that from a technology point of view and a connectivity point of view.
Is wonderfully fun to use so that's that's creating echoes I think with throughout.
Throughout the customer base, where people are sharing about the vehicle and getting very excited about it now.
Now with that said.
And Claire mentioned this we also see strong preference for some of our highest trip.
Colin getting very excited about it now.
Now with that said and Claire mentioned this we also see strong preference for some of our highest trends. So both in terms of the content on the interior of the vehicle, but also our drivetrain configurations.
And so the trends are for the more expensive trends is very high in fact higher than we had expected as well and it's in many ways capturing.
<unk>.
But really strong pricing power.
Vehicles in the brand represents and what gives us a lot of confidence as we talked about before around our margin structure long term.
Alright, thanks, guys.
Thank you.
And one moment for our next question.
And our next question comes from George generic.
From Canaccord. Your line is now open.
Hey, everyone. Good evening and thanks for taking my question.
I'd love to hear about what the cars that you have on the road what kind of data, they're sharing with you so far how the data that you've collected.
And form future product design or what its telling you about your product performance to date. Thanks.
Thanks George.
One of the really exciting things that.
Probably the one of the things I think our team enjoys the most just to see how all of our vehicles get used and to hear the stories from customers in to see the everyday use cases in the extreme use cases.
I get E mails and notes all the time with pictures of the vehicles that the.
At the top of mountains or driving through <unk>.
Driving through off road trails, and then we also see them still full of kids and gear on the way to Disneyworld. So it is really.
It's rewarding for not just myself, but for the full team to see people really using our vehicles as we intended.
So both enable but also inspire people.
To go do the kinds of things they want to take photographs of him.
So that that really is echoing through through the organization as we now think about our two and some of the features that go into it and how do we make sure we continue to capture the essence of the brand.
The desire to.
The brand essence, driving the desire to go explore and see new things.
Now in terms of the specific data coming off the vehicles of course, we're using.
The data off of our self driving platform to continue to improve and refine features.
And we're seeing that.
Every couple of weeks with our over their updates that provide enhancements on on everything from self driving to new drive modes to we just recently out of the pet mode.
Soon we're going to be adding a camp mode. It's a very exciting mode. So that the feedback loop as well as how we're realizing the vehicles are going to use informs a lot of the digital feature set that we continually add to the vehicle over time.
I'd like to ask just one follow up on that reportedly VW CEO losses job because the company wasn't pivoting quickly enough to developing its own internal software.
How successful you guys are continuing to hire the right software talent and if you can just remind us how much third party software do you still your vehicle and how much have you developed in Europe . Thank you.
Yes.
So our vehicle architecture was really designed.
At its core.
As being really a software focus for software first platform. So.
The compute platforms of ECS across the vehicle. The network architecture. These are developed in house. So those are everything from the experienced module to the autonomous control module to the vehicle dynamics module. These these compute platforms developed in house and of course, the software stacks that sit on top of those.
Are developed in house.
And we deeply believe that control of not just the electronics, but also the software.
That runs across all those platforms is incredibly important in terms of creating differentiated customer experiences and experiences better enhanced over time and when I say enhanced over time I'm not measuring time in months or years, but measuring time in weeks. So the vehicle gets better week over week month after month.
And it's one of the things, we're finding with our early customers.
It really love their feedback on something we can address it if there is an idea for future we can create it.
And so from the very early days of forming review and it was we always had a very heavy focus on knowing the vertical integration and control of our electronics and software stack was going to be critical for creating these highly differentiated customer experiences.
And thank you.
And one moment for our next question.
And our next question comes from Alexander Potter from Piper Sandler Your line is now open.
Great. Thanks, guys.
Couple of questions on RCV.
<unk> fleet OS. So first of all on you mentioned Theres a lot of demand.
For vans did these types of applications cargo outside of e-commerce and last mile delivery.
But I'm also interested.
And to which you actually have the bandwidth to.
To entertain in bound questions or inquiries from big fleets that are outside those initial markets that you're focusing on do you have the ability to start talking through I don't know if its telco or some of these other commercial band speeds. How you would integrate as closely as you have with Amazon I mean, it's not something you do on <unk>.
So.
Yes, I guess, that's the first question.
Alex It's a great question and.
As you noted for these very large fleets.
The sales cycle, so to speak it takes a long time, so building relationships understanding the needs of the fleet.
Determining what adjustments to the vehicle or specific attributes of the vehicle need to be.
Sort of thought about in the context of how the used within these larger fleets. It just simply takes time.
And so while the production our production lines are ramping and we are delivering as many vehicles as we can to Amazon.
We've started those long.
Sort of long cycle discussions with some of the very large fleets and are certainly making sure that as these larger fleets.
Beyond the last mile as well as they start to plan their path to being fully electrified.
We're supporting that planning, but also of course embedding ourselves into that planning.
And as I said I think the inflationary reduction act certainly creates.
A very large amplification of the demand here and it's certainly a very strong tailwind for us as we have those discussions.
Okay, Yes inflation reduction Act you mentioned that.
Find me at the other question I wanted to ask.
How feasible is it.
You'll get a lot of people, saying that.
It's well intentioned and everybody sort of onboard with the objective, but can take whatever 710 years to get.
Production refining mining permitted in the U S. So.
Do we need to break bottlenecks on that I guess, they are cut red tape in order for this.
This bill to actually ended up.
Having any impact.
Yeah in terms of battery domestic battery production Youre right. These are some of these items do take time, whether it's a cell plant or.
Material processing, let's say of lithium hydroxide processing facility.
It is important to note that in the commercial space the requirements for localization or are not as aggressive as they are in the consumer space. So that's an important distinction for us that the the full localization of supply chain.
Is not does not have the same tight requirements that were seeing that we have in the consumer vehicles.
Now in the consumer vehicle side for our two this is something that we've been working on for walnuts talked about previously.
But really designing a supply chain that is addressing some of the geopolitical risks above and beyond what's now.
<unk> sort of being driven by the inflation reduction act, but thats been something thats been work underway for quite some time and as we've contemplated and plan for the long term supply chain for our two <unk>.
We've always looked at it through the lens of making sure we had domestic supply chain.
To support the ramp up of that product.
Very good thanks, guys.
And thank you.
One moment for our next question.
And our next question comes from Emmanuel Rosner from Deutsche Bank. Your line is now open.
Thank you very much.
Our first question is on the.
Evs and deliveries to Amazon I think in the past.
At least some full year target.
The split in the 25000 units between.
<unk> and <unk> can you just remind us what that is and whether you're tracking.
In line with those targets, so far and then related to surge like this.
Amazon business can you also remind us of either the pricing or economics of the.
<unk>.
Sure Emanuel as RJ mentioned.
We're working hard to build in as many <unk> as possible. This year. One quick callout is also the seasonality impacts that we have with Amazon key for US is really Amazon peak holiday period, and so for US we're really trying to charge ahead and build as many as we can after the fall.
To get as many of those vehicles out on the road to service customers throughout that peak holiday period over the next handful of months overall.
We're not providing a specific target at this time and in terms of the overall penetration of <unk> that we expect to produce this year, but as already mentioned we are working through some of the supply chain bottlenecks as we seek to make sure that we're <unk>.
Uhm ramping our production output.
The <unk> and we've seen really significant progress on the line to our lines are capable of producing foreign acceptance of the underlying.
Weekly output from a production perspective that we've seen to date.
And we are.
As we've talked about in the past, we're not providing specifics around that definitely the last pricing that we're providing for Amazon, but we specifically see this as a significant long term margin accretive a piece of our business as we think about our broader service opportunity that <unk> can add.
<unk> and <unk> is really that first example of that long term opportunity.
A proposition that we can we can offer to many other fleet customers as well I think that's one of the key advantages is just the flexibility that the platform.
Until for both Amazon, but also importantly for other potential commercial fleet.
Managers as well.
We can address it.
Thank you and then my second question is on.
The capex outlook.
<unk>.
But this year's planned spending from two $6 billion to $2 billion.
Can you talk about the implications for the outlook beyond this year I think desktop.
Let's start with last quarter's update I think this with Jamie lower low $2 billion or so.
Look per year through mid decade.
Just to catch up on some of the delayed spending from this year into next year is $2 billion in your run rate on a go forward basis, how should we think about that.
Sure. So as we think about the Capex road map for the coming years, we still expect to be spending in that low $2 billion area through 2025, which allows us to continue to invest in the expansion of our plant in normal, Illinois, where right now where we're adding are in sourced.
Motor production line. It also entails us the opportunity to invest in the first 200000 units of capacity for our <unk> in Georgia, and so that the timing some of the timing changes definitely do fluctuate one one year to the next but in total our expectation remains unchanged around.
Continuing to spend in that low $2 billion area from a capex perspective.
And that's really been driven by the focused product roadmap that we've set out and we've talked about throughout the course of the last quarter as well.
Okay. Thank you.
And thank you.
And one moment for our next question.
And our next question comes from Ryan Brinkman from Jpmorgan. Your line is now open.
Hi, Thanks for taking my question I realize youre vehicles have not been on the road all that long, but I'm curious how many miles you estimate your customers may have driven thus far I think you may have good data around that how warranty and service claims might be tracking relative to your initial expectations either in terms of frequency or severity or expense.
For that given mileage amount and then when the vehicles are subject to service or repair are they more coming into your service centers and maybe remind us how many are up to now I think over 'twenty or are you more frequently sending mechanics out to your customers' homes and how is the customer experience been tracking to date in either case.
Yeah Ryan.
Great points of your question, so just to sort of start with the service question.
We have 24 brick and mortar service locations today.
<unk> handle the.
Larger service activities. They also handle pre delivery inspection force.
But as you indicated in your question a lot of our service is actually done through our mobile fleet. So we have a fleet of <unk>.
<unk> and <unk> or <unk> that go to a customer's home or go to a customer's place of business and can service vehicle there.
And that will.
Over time, that's going to make up the vast majority of our service events today. It's.
On the order of about 50%, but growing very quickly.
With that said.
There are a lot of miles driven and a lot of miles driven on different trains.
We haven't published a number on total number of miles driven.
And with regards to warranty or service. We also haven't provided guidance on warranty service numbers, but what we can say certainly that it's been great to see the vehicles being used across so many different environments and seeing what we've really enjoyed is seeing people take very long road trips, we've had lots of trips growing across the country. We are.
We actually have some.
Just got some note some vehicles that drove from <unk>.
California up to Alaska.
So there is a lot of really long trips a lot of really.
Strenuous trips that are being taken into vehicles, which is fun to see.
Very helpful. Thank you.
And thank you.
And I am showing no further questions I would now like to turn the call back over to RJ Scarlett for closing remarks.
Well, thank you everyone for joining the call.
We're really excited about the path ahead.
The continued ramp of our one product line and of course the Evs.
From a normal facility as well as the technologies that are clear and I both spoke to today.
And that we're developing across our cross our propulsion platform our network architecture, our self driving and of course software and our full software stack.
Looking forward to seeing a lot more vehicles on the road and thank you again for the time.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
Disconnect.
The conference will begin shortly to raise Johan during Q&A you can dial one one.
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