Q4 2022 Rivian Automotive Inc Earnings Call
Speaker 1: Good day and thank you for standing by.
Speaker 1: Welcome to Rivians 4th quarter in 4th year 2022 earnings conference call. At this time all participants are in a listenly mode.
Speaker 1: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again.
Speaker 2: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tim Bay, Vice President of Investor Relations. Please go ahead. Good afternoon and thank you for joining us for Rivian's fourth quarter 2022 earnings call. Joining us on today's call, we have RJ Scringe, our founder, chairman, and chief executive officer and Claire McDonough, our chief financial officer. A copy of today's shareholder letter is available on our investor relations website. Before we begin, I would like to remind you that during the course of this conference call, our comments and responses to your questions reflect management's views as of today only and will include statements related to our business that are forward-looking statements under federal securities laws, including without limitation.
Speaker 2: Statements regarding our market opportunity, industry trends, business operations, strategy and goals, our production ramp, and manufacturing capacity expansion, our future products and product enhancements, including R2, and our expectations regarding vehicle production and deliveries. Actual results meet different 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 FCC filing and today's shareholder letter. During this call, we will discuss both GAP and non- GAAP financial measures. A reconciliation of GAP to non- GAAP financial measures is provided in today's shareholder letter. Just before the call, we published our shareholder letter, which includes an overview of our progress over the recent months. I encourage you to read it for additional details around some of the items we'll cover on today's call.
Speaker 3: With that, I'll turn the call over to RJ who will begin with a few opening remarks. Thanks, Tim. Hello, everyone, and thank you for joining us. 2022 is a transformational year for us. We fought through a difficult operating environment to ramp the R1T, the R1S, and the EDD with total production of 24,337 vehicles for the year. Beyond ramp, we focused our product teams on our next generation of in-vehicle technologies and the R2 platform. I want to thank our team, suppliers, and partners for their grit and determination in helping Rivian achieve its targets. In the fourth quarter, we increased production to over 10,000 units. This represents a 36% increase over the third quarter of 2022. We maintain a vehicle backlog that provides clear demand visibility well into 2024.
Speaker 3: We launched our adventure network, which gives customers a smoother charging experience. We expanded our service infrastructure to 28 physical service locations, in addition to nearly 200 mobile service vans, and we pushed a range of major software updates to our customers. Our core priorities for 2023 are ramping production of our R1 and RCD platforms, driving cost reductions, developing the R2 platform and its future technologies, and delivering an outstanding end-to-end customer experience. In my role as CEO , my most important responsibility is to make sure we have the right leaders and the right organizational design in place to drive focus and execute on our priorities. It's great to see the very capable and experienced leaders we've added over the last year. Equally important to ramping production is our drive towards profitability. We are focused on reducing our bill of materials, conversion costs, logistics costs, and overall operating expenses. A quarter of this is our close work with our supplier partners to lower our material costs through new engineering solutions, as well as revisiting some of the customer commercial negotiations that were agreed to years ago when RIBN was still pre-launch.
Speaker 3: In support of these efforts, we held a supplier day at the end of 2022 where we hosted over 400 members of our supply chain at the plant to demonstrate the growth and the scale of what we're building. Our supplier partners are engaged and fully understand the benefits of us achieving profitability as quickly as possible. One of the enablers to reduce our material costs is the introduction of our future technologies. Earlier this month, we started producing saleable units of our in-house Enduro Drive unit. Enduro is our single motor drive unit and in our commercial van platform, we use it in our front drive application and in the R1 platform as a dual motor setup, we use it for all wheel drive application. The Enduro drive units are also accompanied by our new lithium iron phosphate battery packs for our commercial van line. These LFP packs are daily suited for commercial use cases due to their low cost and really the durability of this chemistry. Another important example of our technology development that I'm excited to introduce is the 390-mile R1S Max Pack variant. We begin deliveries on this vehicle this fall and we expect high demand for this new offering. The R1S Max Pack will launch with the dual motor configuration leveraging our Enduro drive unit.
Speaker 3: and will deliver 0 to 60 acceleration in around 3.5 seconds, and when we couple that with our full air suspension and electro-hydraulic damping system, it will really deliver incredible on-road and off-road performance. The purpose of our investments in software, electronics, drive units and batteries is to improve performance and to create long-term structural cost advantages. These technologies will serve as the foundation for our R2 platform. Our production ramp and introduction of multiple vehicle platforms has equipped our team with valuable manufacturing, operations and product development experience in a short period of time. We're taking advantage of these learnings and are aggressively applying this experience to our first mass market vehicle, the R2, as well as to our new manufacturing facility in which we'll build the R2, located in Georgia, with the goal of establishing a considerably lower cost structure. Speaking of R2, we're really at an exciting and defining moment for the program. We have members across our organization, from design to engineering to manufacturing, coming together to develop what we believe is a true category-defining platform. Over the next six months, we'll be finalizing the majority of the core engineering and sourcing decisions that will drive how the R2 product line is built and the speed at which we can ramp production to profitability. We spent years creating our brand and an award-winning set of products that drive excitement and attract new customers to what we're doing. The validation we receive from our customers and media continues to be strong. In fact, the R1T received several new accolades, including being named Best Ownership Experience Among Premium Battery Electric Vehicles by GD Power.
Speaker 3: In addition to its Editor's Choice Award, the R1T was also included in Car and Driver's coveted 10 Best Award for 2023. And along with that, it was praised as being the best driving pickup car driver has ever tested. In Consumer Reports, customer satisfaction survey review was rated among the highest across all categories with our R1T being the highest rated truck. We've also received the highest safety rating of Top Safety Pick Plus from IHS and that's passing IHS's new tougher standards for 2023 across all categories. On our go-to-market side of the business, which includes our customer engagement, service, delivery, and demand generation teams, we've experienced rapid growth over the past year as we've built a foundation for our end-to-end customer experience and software and service offerings. We need to execute against our robust customer backlog and remain focused on our customers as we scale our 150,000 units of annual capacity and normal into ultimately multiple production plants around the world. The enthusiasm for our products and our brand combined with the progress we're making on our future vehicles and technologies along with the strong team that we built.
Speaker 4: concentrated, leading into our starter production in normal. We're encouraged by this progress and recognize there is an additional opportunity to drive greater efficiency. We are concentrating our investments and resources on growing the consumer business while continuing to leverage our existing commercial platform.
Speaker 4: our team was able to achieve meaningful milestones. During the fourth quarter, we produced 10,020 vehicles and delivered 8,054 vehicles, which generated $663 million of revenue. We generated negative gross profit of $1 billion for the fourth quarter of 2022. Gross profit for the fourth quarter was impacted by a lower of cost or net realizable value.
Speaker 4: In addition to LCNRV, there were factors which negatively impacted our cost of goods sold that we do not believe are reflective of our long-term cost structure. The most significant driver continues to be our production levels. Producing highly vertically integrated vehicles at low volumes on lines designed for higher volumes.
Speaker 4: means we currently carry more overhead per vehicle produced. This impact has and will continue to be magnified during the ramp of our second shift of production as we introduce new technologies like our LFP battery pack and Enduro motor for which we stop the commercial production line for the majority of the first quarter of 2023.
Speaker 4: Additionally, because we are in an LCNRV position, we do not fully capitalize our logistics and conversion costs into inventory, which can lead to volatility in our cost of goods sold based on the amount of inbound materials we receive in a particular quarter or the difference between our vehicle production and deliveries as we saw in Q4 2022. Costing expenses in the fourth quarter of 2022 fell $1.3 billion as compared to the same period last year. Approximately $1.1 billion of this difference was due to higher non-cash expenses in the fourth quarter of 2021, including a donation to Forever by Rivian and stock-based compensation in conjunction with the IPO. The remaining reduction of approximately $200 million was due to lower cash expenses associated with the operations of our business. We continue to prioritize investments in our core in-vehicle technologies and customer experience while also driving additional focus and cost optimization across the business. Our adjusted EBITDA for the fourth quarter of 2022 was negative $1.5 billion, which compares to negative $1.1 billion for the fourth quarter of 2021. We ended the fourth quarter of 2022 with $12 billion in cash.
Speaker 4: cash equivalents, and restricted cash. This excludes the capacity under our $750 million asset-based revolving credit facility. We continue to monitor the economic environment and believe we have a high level of flexibility regarding the cadence of our growth investments. I want to take this opportunity to highlight important operational changes we're making in Normal. In addition to the commercial van line shutdown during the first quarter of 2023, which we expect to result in a drop in overall production and deliveries relative to Q4 2022, we also expect to be taking both the R1 and EDV production lines down for a week during the fourth quarter of 2023 to prepare for a capacity change which will happen in 2024. In the first half of 2024, we intend to take production of the plant down for a few weeks to implement new technologies into our vehicles and shift the overall capacity of the plant to be about 55% R1. While the incorporation of these new technologies temporarily impacts production,
Speaker 4: For 2023, total operating expenses are expected to modestly increase as compared to 2022. As a result of these factors, adjusted EBITDA is expected to be negative $4.3 billion in 2023, an improvement of $900 million versus 2022. We continue to rationalize our capital expenditures due to a greater focus on our core business. Capital expenditures in 2023 are expected to be $2 billion.
Speaker 4: driven by additional investment in our normal and Georgia facilities, next generation technologies, and the continued build-out of our go-to-market operations. In addition to our 2023 guidance, I wanted to address the capital needs of the business over the medium term. The largest lever in our forecast is the swing from $1 billion of gross profit in Q4 2022 to a step change in positive gross margin in 2024. There are three key levers that enable this improvement. First, the most impactful driver is the per-unit reduction of labor, overhead, and ramp expenses.
Speaker 4: as our large scale plant produces a greater number of units. With the addition of our second shift, the plant in normal is currently staff to produce a significantly higher number of units than our current run rate. For context, these expenses represent two thirds of the bridge from our current COGS per unit to what we expect by the end of 2024. The second area is our material cost.
Speaker 4: We have a detailed roadmap of both engineering and commercial cost downs. As RJ mentioned, our recent supplier day demonstrated the win-win opportunity for our suppliers to participate in Rivian's growth. The final bucket is price. The implementation of our reservation system in early 2022 provides us the pricing flexibility to accommodate the introduction of new products, technologies, and inflationary pressures. While most of our deliveries today are based on pre-March 1, 2022 pricing, we are also
Speaker 4: of capital expenditures in the low $2 billion area over this time frame.
Speaker 4: Our objective continues to be driving towards profitability and our prudent deployment of capital.
Speaker 4: From a cash burn perspective, we expect 2024 to improve versus 2023 by approximately 40% enabled by the step change we see in gross profit.
Speaker 4: In 2025, we expect our cash burn to improve meaningfully versus 2024 as we have a full year of production at our new price points and the incorporation of our next generation technologies. We remain confident that our cash and cash equivalents can fund our operations through 2025. We continue to evaluate a variety of capital markets available to Rivian ranging across the capital structure. We plan to employ a portfolio based approach as we look to maintain a strong balance sheet position. In closing, I want to reiterate our confidence in our long-term financial targets.
Speaker 4: we see a clear path to our approximately 25% gross margin target, high teens EBITDA margin 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, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Thank you.
Speaker 2: Please stand by while we compile the Q&A roster. Our first question comes from the line of Rod Lash with Wolf Research. Your line is now open. Hi, everybody. Can you hear me? Yes. Okay. Just a couple things, maybe just to kick things off. Do you have an estimate for the magnitude of the LSC&RB losses that you expect in 2023? Thanks, Rod.
Speaker 4: As we think about the LCNRV, as I mentioned in my prepared remarks, right, today we sit with a $920 million charge, and we expect that charge to be fully offset or out of our P&L in effect as we approach positive unit economics in that 2024 timeframe as outlined. And so what the guidance that I would provide for you as you think about the cadence of that $920 million going to zero is it won't necessarily be a linear path over the course of the next several quarters, but we will start to see those impacts.
Speaker 4: Even as early as Q1 as we start to reduce the material costs within our vehicles and importantly as we think about the technology introductions that we have in the EDV, for example, where we introduce the LFP pack and Enduro drive unit that drives a material step change in the material cost there. So, for example, the marginal unit that we're producing today for that EDV is now profitable due to some of those changes that we've had from a technology introduction perspective. But we'll continue to see what's been a headwind throughout the course of 2022 become a tailwind as we look at 23 and 24. Okay, so it's actually going to decline. So it would be a subtraction from your cost of goods sold just to clarify that in 2023.
Speaker 2: That's correct. Okay. And, you know, RJ, I was just hoping maybe you can give us some preliminary thoughts on how different the R2 cost structure will need to be compared to R1 to be competitive when that vehicle comes out. And, what's your visibility into achieving those?
Speaker 2: Maybe talk a little bit about we think about batteries. Primarily when we think about that, but what are the some of the non. Battery opportunities that you see, are there any unconventional design or manufacturing innovations that you're looking to implement for that vehicle?
Speaker 3: Thanks, Rod. As we think about the R2 platform, it's leveraging a lot of some of the technologies we're going to be introducing into R1 in terms of our updated electronics architecture and network architecture, where we work to really consolidate a lot of compute functions into a smaller number of VCUs, which simplifies the harness, simplifies the number of compute platforms we have across the vehicle. As Claire mentioned, our Enduro drive units...
Speaker 3: and that the really focus on vertically integrating our propulsion platform from a drive unit point of view, drive conservative cost changes into R1, but we take those improvements and we leverage those heavily for R2. And then the case of the vehicle, as you think about body, interior chassis system, we've really learned a lot in developing and launching R1 and the EDD program. And so the way we've looked at the design of the product is really through the lens of where we can see opportunities to consolidate parts. So larger, single-p-stampings, use of...
Speaker 3: because part consolidation through extrusions or castings and That part consolidation not only reduces number of parts of the vehicle, but but as a result, there's less joints There's less things that need to be attached to one another it simplifies the assembly process It simplifies the sourcing process. And so that's a major major focus for us with the r2 product and Really the the magic of it or the core of it is to ensure that the brand essence and the excitement of what we build Is still fully captured in the r2 product line, but but of course achieving it with with a meaningfully lower cost structure The other thing I just point out is and I noted this my opening remarks We're in a very different position with our supply chain today Than we were when we were sourcing a lot of our supply components for r1
Speaker 3: You know, a lot of the components are vast majority of them were sourced in 2018-2019, well before we launched the product, well before we saw the incredible response from customers around the brand. So today's we're now making the supplier selections, negotiating the supplier contracts in R2. We're not only using the R2 contracts to help drive better costs into R1, but we're achieving...
Speaker 3: much, much more aggressive cost and much more aggressive pricing with all the various components across the vehicle. So in aggregate, we are going to see a maturely lower cost structure for R2 and that's, as I said, that's foundational to how we think about that product. It sounds like, RJ, you're thinking about things like digacasting and a lot of innovations in reducing the number of parts in the structure of a vehicle. Do you at this point have visibility into that and are you starting to get visibility into what the component cost structure will be for the R2? And just lastly, do you have any color on, as we're sort of bridging to profitability, for gross profit profitability, what kind of volume targets are you thinking about as you look out to 2024? You mentioned 150,000 units of capacity, but do you think you can get to at least 100,000? In that time frame? Well, just to your first point on how we're thinking about component design or system design, we decided that there were some not too great things and, in that sense, toi
Speaker 3: that we carry into every design review. It's part of the design criteria that we approach the vehicle with. And it's one of the big enablers that we have because we vertically integrated so much of the technology. I mentioned it before, but the ability to dramatically reduce the number of computers in the vehicle, and the number of ECUs.
Speaker 3: through a zonal architecture. We have a computer in the front, a computer in the back, a computer in the middle, so to speak, rather than separate domain-based or function-based computers, which is historically how you've seen vehicles done today, and it's largely a result of an outsourced model around electronics.
Speaker 4: So these are these are some of the core focus areas where we're leveraging what we built in terms of capability, what we built in terms of technology as we go into R2. And the volume question that you have there as well. As I talked about in my prepared remarks today, we have 65,000 units of our one capacity in the plant in normal.
Speaker 4: And we're increasing that capacity so that 55% or call it 85,000 units will become R1 capacity as we rewrite the lines mid-year next year. And so next year, we'll have both the impact of having a multi-week shutdown as we rewrite the plant to add that incremental R1 capacity. And at that same time, we'll be introducing a number of the next generation technologies that RJ just talked about as well. And so we'll still be in a period whereby we'll be continuing to ramp out of that shutdown in mid-year to produce more units in the back half of the year. But it really won't be till full year 2025 where we'll be.
Speaker 5: Okay.
Speaker 3: But despite that, you're you're still thinking that you can get to gross profit. Um, in 2024, that's right. Okay, just just to clarify that that's that's. I could see it looks like you're going to have something like a 2Billion dollar gross profit loss. In 2023, maybe there's. Half of the LC and RV benefit left. From 2023 to 2024 that that gives you maybe a 2Billion five and.
Speaker 2: And you have a 13,000-dollar price increase that was applied this year. That would have been 650 million better. So that would have gotten you to maybe an $850 million gross profit loss. I guess the rest of it is whatever volume you're expecting plus lower component costs. Is that fair as we think about the bridge next year? Great. As we think about that 2024 bridge, it's a combination of increased volumes that are driving significant fixed cost leverage within the business. As we're continuing to ramp up production levels in the plant in normal. And then the next.
Speaker 4: two core drivers for us is the reduction in our material costs, which you heard RJ talk a bit about is really delivered through both the combination of engineering design changes in the vehicle through the introduction of these next generation technologies and then the commercial cost down efforts that we have underway overall. So I would guide you to about a 50-50 split as we think about the core drivers between commercial cost downs and engineering changes to drive the material cost reduction. And then at the same time, we have both of the step change in pricing as we move past the pre-March 1st 2022 pre-orders. And then we also introduced some of the newer higher price variants.
Speaker 3: into the folders as well that also further improves or increases ASP in 2024. Thank you. Our next question comes from the line of John Murphy with Bank of America. Your line is now open. Good evening guys. Just a first question around what's going on with suppliers. It sounds like there's still a fair amount of bottlenecks there. I'm just curious if you could sort of elucidate where those specifically are, how much they're holding you back. And you know, I mean I kind of applaud you RJ for having that supplier day. It sounds like it's a good thing to build those relationships, but it sounds like you felt like you needed to do that both for
Sort of comfort on their part, but also for you to get maybe closer to them and pull them along. So I'm just trying to understand what those constraints are at the moment. How much they're holding you back in 2023. And why you need to kind of get in there and kind of do that bear hug on that supplier day. Yeah, thanks John . As we look at 2022. There was a lot of challenges just with the, the, some of the surprises and the things that we didn't expect in terms of supply interruptions.
and component availability. Now, as we look at 2023, we have much better visibility and a much clearer picture of access to supply and where there are going to be challenges or constraints. And very different than where we were last year, that visibility allows us to focus on exactly what will go wrong or what will be a gap. And as it stands today in the numbers that Claire referenced earlier in terms of guidance, it really reflects the supply constraint, in our case, around power semiconductors. And this is being addressed through working hard with suppliers, but also, as I talked about, bringing up the new drive unit, the Enduro drive unit. We've sourced the power semiconductors for this.
in a way that allows us to have multiple paths to continue to ramp. So we have a different set of power semiconductor suppliers for our existing drive units, a quad motor from what we have in the dual motor and in the single motor for the commercial van. So those changes of the new technology along with the supply relationships we built allow us to alleviate some of that constraint, but it will be the ultimate limiting factor for us this year. And fortunately, unlike last year, we can plan around it. We have visibility into what those constraints look like. So it's not going to be a surprise, which is why we're wanting to be thoughtful in how we guide here.
I guess there's a lot of people that want to understand what is sort of, I mean, it's certainly not one time because this is not going to ease that quickly. What's happening because of the supply chain side and what's happening because of what is not getting done sort of internally on a micro basis. So is there a way to tease that out and say, hey, listen, if we had all the semis that we could get, we could actually be 100,000 units as opposed to 50,000 this year, I mean, is there a way to tease that out or is that getting too cute? Well, I think the
The issue we have is that the supply constraint is by far the way the biggest constraint. You know, we talked about our second shift coming online and the ramp of our second shift. We didn't really talk about why it's, you know, what's what's constraining that ramp, but it's ultimately, it is component supply. And that's on the R1 line today. If you think about the commercial vehicle line, we're still running a single shift there. So it's, you know, we wish we could have the components built a fully run the plant across all lines across multiple shifts, but that's not the case.
And as I think about power semiconductors, in addition to having multiple sources of supply, we also have different types of technologies. So we use both silicon carbide and silicon IGBTs. And we have some level of fungibility in how we apply those across the vehicle sets. But I think you understand very well that some of the constraints that exist in silicon carbide are going to be challenging over the next year. And so we've worked really hard to set up our supply chains as we come out of this year and into 2024, we're positioned to really grow. And of course, as we think about R2, this is a major consideration from a power module point of view. Okay. And then just lastly, real quick, CapEx at 2 billion is a little bit…
Lower than we were expected, you know, clear is that the kind of thing that you can kind of run with is you're launching you're launching Georgia and the R2 and and ultimately maybe the, the R T at some point or or. Could there be a significant step up is that plants. Ramps in 2425 and we see the come on there as well. Sure, John , as I talked about our expectation is that we'll maintain our capex in the low 2Billion area over the next couple of years. And the guidance reflects the continued build out of our facility in Georgia, continued investment in our plants in normal. And then the continued investments that we have across our go to market operations as well as across the business in aggregate.
So, the way I would characterize it is that the 2 billion per year certainly set this up in position to launch R2 in Georgia in 2026, as we've talked about in the past. Thank you. Our next question comes from the line of Doug Dutton with Evercore ISI. Your line is now open. Hi, RJ. Hi, Claire. So, given the target for positive gross margins in 24, and what we've heard about the road to reach this goal with the LCNR phase-outs and re-rates, the factory, in your mind, can 25 approach a normalized gross margin profile assuming full capacity at normal and pricing normalization on the R1?
come together and we have our first full-year production with the integration of our next generation technologies and price points as well. So I have a lot of confidence around the cash flow generation that normal can provide RIVAN and believe that normal can support our operating expenses as a company and as we continue to invest in the build-out of the RIVAN platform.
and get ready to start to launch that platform in Georgia in 26. Okay, that's helpful. And then just an accounting question from me. Could we have a brief description or explainer on the CapEx and liabilities bucket at the bottom of the cash flow statement? Thank you guys. We can follow up with you with some details there. Okay, thank you. Thank you. Our next question comes from the line of Dan Levy.
with Barclaysha on its open. Hi, good evening. Thank you for taking the question. I wanted to ask about the commentary on the pre-orders. And I see the comment that lasts into 2024. Maybe you can provide any additional voiceover, you know, how pre-orders trended year-to-date, and specifically maybe you can, you mentioned pricing.
Is it tailwind? You have the higher pricing flowing through eventually. But given the price cut that we saw from one of your large EV competitors, how does potential for price cuts eventually factor into your calculus? Thanks Dan. As we think about the R1 product line, this is really our flagship product line. We've built it and launched it to establish a brand as part of that.
The pricing levels and the segments through which these products are going to compete in, you know, it's a larger set of vehicles, the 3-RUSH EV and 2-ROM pickup. The pricing levels really need to be compared to things that are in those segments. And we feel very strong about where we position the products. The R1T, we bring online our standard pack. We'll start at $73,000 in the R1S, it's just around $80,000. We're a 3-RUSH EV with very, very strong performance. So the positioning there, we feel confident. We made pricing adjustments in 2022. And we haven't further adjusted from there. Certainly, as Claire noted, our reservation process now gives us more flexibility to make adjustments to pricing.
over time, but we do see the introduction of some of the new technologies and some of the new features to allow us to actually grow ASP as Claire said with not only the new prices coming on for post March 1 orders, but also to reflect some of the new technologies are going to be in the vehicle. Great, thank you. And as a follow-up, I wanted to ask about the direction of some of the material costs, and I know you mentioned on your end some initiatives to drive costs down, but I want to just ask about the raws because we've seen some cost moderation.
on the laws. So maybe you can just talk about whether some of the raw material costs are coming down or I know there's a dynamic of contract reset. And so those might be higher, higher year year. So maybe you could just talk about the underlying bomb given the movement in some of the raw material costs. Sure. Today we haven't seen those actually hit our financial statements because many of our contracts are actually backwards looking as it pertains to inflation index prices that are embedded within those contracts.
And so we'll begin to see some of those benefits as we progress throughout the course of 2023 itself. I would also say that, you know, embedded within our guidance. We've been a bit conservative of not forecasting really significant reductions in those material costs overall. So much more projecting more of the status quo of what we're seeing today on a go forward basis.
begin to see some of those benefits as we progress throughout the course of 2023 itself. I would also say that, you know, embedded within our guidance, we've been a bit conservative of not forecasting really significant reductions in those material costs overall. So much more projecting, you know, more of the status quo of what we're seeing today on a go-forward basis. Great. Thank you.
Thank you. Our next question comes from the line of George Gionarcus with Canaccord Genuity. Your line is now open. Hi, good afternoon. Thanks for taking my question. I'd just like to piggyback on the previous demand question, net pre-order question. I know you're not disclosing that pre-orders, but given there have been so many high-profile admissions of a weakening environment for particularly for EVs, I'm curious as to whether you could shed any light or color as to how your net pre-orders have been tracking. Thank you. Yeah, certainly what we're witnessing in the macro and what we're seeing in terms of interest rate is I think across the industry having an effect of monitoring overall demand.
What we would say is, and as we think about it, the demand backlog we have is very robust. It gives us a clear line of sight well into 2024. And with that, it really focuses the attention of the organization on satisfying this large backlog and ensuring that we can get customers vehicles. One of the biggest complaints, in fact, our customer team tells me this every week, is around deliver timing. How can I get my vehicle sooner is our way to get ahead in the line. So this is our core challenge today.
Now with that said, it's really important to note with the R2 program, we made comments on this earlier, the focus on cost and the focus on engineering the vehicles really to achieve a materially lower price point is key. And as we look out into the middle of the decade, you know 2026 and beyond, this cost structure we believe is going to be really important and some of the areas we've invested in terms of vertical integration.
we think will be foundational for delivering on this cost. This is a great segue into my question about vertical integration. I mean, I'm sure you've read the same press releases that I have that some of your peers are getting incredibly deep into that. I mean, they're partnering with mines, buying mines, buying stakes in mines, doing things that seem to be a little bit far afield. I'm curious as to how much vertical integration, in your opinion, is too much vertical integration? Do you think that longer term that might be something that you might explore as well? Thank you. Yeah, well, George, I think the core of the question is pointing towards lithium. Pointing towards lithium, in the previous question,
talked about raw material costs and this has certainly had the most outside, the outside impact across the EV industry with, you know, Lecim hydroxide, the spot market price, you know, hovering around $80 a kilogram, you know, up four or five times relative to what it was, you know, a year, year and a half ago. So this is, this is a real consideration has everyone certainly ourselves included thinking about what's the right sourcing relationships for Lecim. You know, Lecim hydroxide Lecim carbonate. And we're certainly in midst of a lot of those discussions and I think it's causing.
the material sources and in our case the manufacturers, the OEMs, to think about the yield structures that are very different than what existed two years ago, three years ago, four years ago, that could involve ownership positions, but I think for the most part, the opportunity line is just more unique structuring. And so we haven't announced anything on that front, but it's something I spend an enormous amount of time on and work very closely with some of the very large players in this space.
Thank you. Our next question comes from the line of Colin Langan with Wells Fargo. Your line is now open. Oh, great. Thanks for taking my questions. You're burning through, this year you burned through over $6 billion in cash. You have $12 billion. You have a couple more years of cash burn at this rate. If I look at the guidance adjusted, you thought it was supposed to improve a bit, but CapEx is higher, so it sounds like for cash it may be modestly better this year.
across the entirety of the capital structure. And as I mentioned in my prepared remarks as well, we expect to see pretty significant moderation from a cash-burn perspective in 2024 relative to 2023 as gross profit or sort of the movement from negative gross profit to positive gross profit.
is a key lever in that walk of improvement. And then as we talked a bit about as well, 2025 is significant improvement from theirs as well. Got it. I think the last call you mentioned, you're planning an LFP plan. That's not actually in the dinner term horizon. Any thoughts on raising capital to accelerate that, given the health at higher rate?
of structures and arrangements to achieve that dedicated.
capacity, there's lots of different ways to look at that. That's something certainly that's part of our plan and something that we're spending time on. We haven't announced anything on that front either, but it is a very important aspect of what we're doing in terms of creating new supply, creating supply that's irate compliant, both in terms of raw material, but also in terms of...
So production. And you have your own LFP chemistry or do you have a partner for it? So when we think about the build out of our battery, overall battery portfolio, we have an internal team that's developing chemistry and it's working to really understand across of radiate trade offs, how we think about what's the right cell for different duty cycles and for different applications.
And that internal team also works very closely with some of our key partners to make sure that we can achieve this scale very quickly that we need to. So in the case of what's in our vehicles today, it's a it's a high nickel chemistry that's something we've worked very close to with our supplier partner to develop that and to refine that to achieve the performance in our vehicles today. But the LFP that we're going to be launching shortly, person and commercial vans that's that's in the close partnership that we haven't yet announced, although those vehicles in the form of the vans will be on the road here very soon. And then as we look forward, there's going to be.
portfolio of different partners and different approaches to achieve the scale we need across different cell form factors and cell chemistries, both high nickel and lithium-ion phosphate. Got it. All right. Thanks for taking my question. Thank you. Our next question comes from the line of Ryan Brinkman with JP Morgan. Your line is now open.
Hi, great. Thanks for taking my question. Wanted to get your thoughts on any impact to Rivian UC from the Inflation Reduction Act. Bill was being written. It was speculated it could have been various different proposals. But in the end, it only subsidized the lower price of vehicles. And benefits those manufacturers that are making the batteries or that have vertically integrated or partnered, which you have yet to do. So, do you see any?
benefit, and charging, or other tailwinds, and how do you expect or hope to or plan to position the company to better benefit from that act as the next several years play out? Yes, so I think the IRA bill, I've said this before, I think it's an incredibly aggressive and appropriate to drive broad scale shift towards electrification and to build out a supply chain within the US.
And with that in the case of our R1 product line, there's some tail and some benefits that it provides largely in the form of because we build modules in the US, we have a $10 per kilowatt-hour benefit that's derived from IRA on the R1 platform. That's a manufacturing facing benefit. But in terms of the consumer facing credit, the R1 is a
that our vehicles aren't really applicable on the R1 platform. Now, in the case of R2, it's a very different story. In the case of R2, it's alluded to in previous questions. It's really important that we ensure the vehicle and the way we manufacture the vehicle and the batteries in the vehicle ensures IRA compliance. The price points to be considerably lower and fall really right into the sweet spot as contemplated by IRA. And the sourcing of the critical materials plus the build of the cells, manufacturing of the cells needs to be done such that we qualify for the $7,500, $7,000 credit.
that is consumer facing. So that's foundational to how we're thinking about the R2 program and platform, and certainly plays into sourcing decisions and engineering decisions. OK, great. Then also just to follow up on that earlier Q&A around pricing, the up to 20% price cut on from the Tesla models, Lester, Ford, and some of the others, et cetera. But I'm sure there's passing along of lower input costs and all that, the battery metals. But is there anything else? It just seems like a large reduction, right? So how are you feeling about the demand, the new order intake level, or whatnot for
the prices that you're currently charging. I think as I was describing before, in the case of R1, we feel confident in the value proposition of what we're delivering at our pricing levels today. And if you were to compare, take for example, the R1S to other three-row SUVs that offer the level of range and performance that the R1S is delivering, it's a really, we think of it as a really good deal, of course, but by a steer, but you're 0 to 60 in three seconds, well over 3 miles of range. As we just announced today, we have a...
max pack variant with 390 miles of range, which when coupled with the Enduro dual motor configuration delivers 0 to 60 and 3.5 seconds and to be able to deliver that at the types of pricing that we're talking about relative to the competitive set, it's positioned quite well. Now, as you said, there's been price reductions that we've seen on the order of 20% in vehicles that are more in the R2 market basket, if you will. And a lot of that segment had seen significant price inflation in the first half of 2022.
And I think we saw the prices go up very rapidly and we, of course, saw the other side of that, which is the prices come down very rapidly. I think what we're seeing today is reflective of a more stable and sustainable long-term pricing model for vehicles that are in the sort of mid-size crossover and SUV segment versus what we were seeing in the mid-early parts of 2022 into middle-late part of 2022. Very helpful. Thank you. Thank you. Our last question comes from the line of Mark Delaney with Goldman Sachs. Your line is now open.
Yes, good afternoon. Thanks for taking the question. 1 for me, please was about the re, rating discussion and specifically around the timing and how much of the capacity is being shifted toward our 1. I had thought that our 1 capacity might be adjusted to something like 2 thirds of the facility and perhaps that might be taking place later in 2023. so maybe conducted us on what may have changed in terms of.
units of installed capacity in normal, but just slightly tweak that more towards the consumer side of the business today. And so that was really the way that we calibrated around the trade offs on how deeply we would have to disrupt the line or the level of downtime that would be required to make a more material increase.
in the production capacity of the R1 line as we thought about this re-rate process itself. So those are some of the core considerations that we went through as we evaluated the re-rate opportunity for us. After we sort of go through this re-rate, we'll obviously think through additional opportunities to increase that potentially over time as well.
That's helpful, Claire. Again, on the IRA, it takes for all the comments you made already so far, but in terms of demand from commercial customers, including for the delivery van. Have you seen any change in terms of customer interest levels and when they may be able to or maybe interested in taking vehicles. Thanks. Thanks, Mark. I should have actually commented on that in the context by a.
Just to be clear that for commercial vehicles, the requirements of domestic cell production are much different. In the case of our commercial vans, they're applicable and in the case of our R1T for commercial applications, it's also applicable.
For commercial vehicles, the requirements of domestic cell production are much different. And so in the case of our commercial vans, they're applicable. And in the case of our R1T for commercial applications, it's also applicable. So, um
We do see that and we see that's something that certainly some of the business owners that are buying RMPs are leveraging and then in the case of the commercial vans. This is something that we think is going to be very important and we're seeing that as we talk to customers outside of Amazon. We see this as a very important enabler and it helps ignite this large-scale transition of our commercial vehicle fleet towards electrification.
Thank you. Thank you. I would now like to turn the conference back over to RJ Scurringe for closing remarks. All right, well, thank you everyone for joining the call and thanks for the questions. As I said in my starting comments, we're really excited about what we see in front of us. 2022 was an important year for us. It was a critical year. We're really excited about what we see in front of us.
We launched and ramped three different vehicles between the R1T, the R1S, and the EDV platform. And as we look into this year, more than doubling the overall output, but importantly, getting a lot of customers, or a lot of vehicles into a lot of customers hands. We'll start to see a lot more of these on the roads, whether that's the commercial vans or the consumer vehicles, the R1T and the R1S. And as that ramp continues, and as we start to see more and more of our vehicles on the road, as Claire and I both described, a core focus for us is driving costs down across the business. Some of that will happen naturally as volumes go up and we get the fixed cost leverage that Claire described in some detail.
But that's also happening through the engineering changes we're making and this really heavy focus on the commercial relationship with all of our suppliers. So with that, we're very excited about the year ahead and looking forward to looking forward to getting a lot more vehicles on the road and our path towards profitability. Thank you, everyone. This concludes today's conference call. Thank you for participating. You may now disconnect. The conference will begin shortly. If you raise and lower your hand during Q&A, you can dial star 1-1.