Q1 2023 Rivian Automotive Inc Earnings Call
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Okay.
Good day, ladies and gentlemen, thank you for standing by.
Welcome to Namibians first quarter 2023 earnings conference call. At this time, all participants are in a listen only mode. 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 one on your telephone you will go on in the automatic message advising your hand its ways. Please note that today's conference is.
Being recorded.
I will now hand, the conference over to your speaker host Jim.
Vice President of Investor Relations. Please go ahead.
Good afternoon, and thank you for joining us for radians first quarter 2023 earnings call.
Before we begin matters discussed on this call, including comments and responses to questions reflect managements views as of today. We will also be making statements related to our business operations and financial performance that may be considered forward looking statements under federal securities laws such.
Such statements involve risks and uncertainties that could cause actual results to differ materially.
These risks and uncertainties are described in our SEC filings and today's shareholder letter. During this call. We will discuss both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP financial measures is provided in our shareholder letter just before the call. We published our shareholder letter which include 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 with that I'll turn the call over to RJ, who will begin with a few opening remarks. Thanks.
Thanks, Tim whoever won and thanks for joining us today.
I would like to highlight key developments during the first quarter as well as discuss progress on our key value drivers.
With a strong start to the year as our team delivered on our targets, including continuing to ramp our one production.
Integration of the Enduro motor and LLP battery packs and improved operating efficiency. This.
As OSB battery packs.
Our enduro production line as our first use our internally developed plant software platform designed to aid in the rapid bring up of equipment and our robotics.
This platform offers greater control over our equipment and visibility into thousands of data points across all parts of the manufacturing process endures.
Endurance, providing cost improvements are a result in a significant reduction in our bill of materials, we expect to start implementing the enduro motor into our own vehicles as a dual motor configuration during the second quarter of 2023.
Which will contribute to expanding our addressable market by enabling lower priced future arwen variance.
As I referenced the introduction of the enduro and LLP battery pack and EBV enabled us to reduce the <unk> billow materials by approximately 25%.
Our core priorities for 2023 are unchanged. The team remains focused on ramping production for our wind and RSV platforms driving cost reductions developing the <unk> platform in future technologies and delivering an outstanding end to end customer experience.
Growing production volume improved fixed cost leverage at our large scale manufacturing plant and normal Illinois. This is crucial to realizing the long term structural cost advantages of our vertically integrated strategy and represents the primary lever on our path to sell each vehicle profitably.
While challenges remain we have become a stronger more agile company through this process.
The duration and magnitude of our impact is directly linked to our ability to produce vehicles profitably.
We have a strong sense of urgency in achieving this goal driving lower cost will be enabled by integration of new technologies, such as enduro and LLP battery packs as well as our companywide program designed to maximize efficiency across across key cost elements of material costs logistics labor and overhead indirect costs and capital expenditures.
Beyond our push to drive operational efficiency innovations that deliver both improved performance and range as well as simplified production our core focus of our development teams.
Much of the work we are doing in our one including enduro driving its simplified network architecture.
And updated sensor set in compute directly translates to our <unk> platform.
We are utilizing our one to help capture and drive learnings to ensure a smooth ramp of VR to.
This alignment of technical technical Roadmaps between <unk> and our two will help further drive long term cost efficiencies.
Finally, we continue to progress the purchase process process and service experience.
This year, we expect to grow our physical go to market infrastructure, including our mobile and physical service footprint charging for a review of adventure network and Vivian spaces.
Further we plan to increase engagement with our preorder customers and drive additional demand by expanding our demo dry program offering more opportunities for potential customers to experience roofing vehicle.
Overall, the progress, we're making against our core value drivers of ramping production driving costs down developing new technologies and platforms and enhancing customer experience positions us well to continue executing on our goals for the remainder of the year as well as into 2024.
With that I'll pass the call over to Claire for more details on our financial and operating performance for Q1.
Thanks RJ.
Shipments during Q1 establish an important base of new technologies that will benefit <unk> for quarters to come through greater material cost reduction enhanced range of efficiency and access to additional market segments.
Technologies, such as Enduro and LSP are critical to achieve our long term target cost structure across current vehicle platforms as well as our account.
Turning to our first quarter results, we produced 9395 vehicles and delivered 7946 vehicles, which was the primary driver of the $661 million of revenue we generated.
During 2022, we took measures to drive greater efficiency, which remains our focus for 2023.
Compared to our fourth quarter of 2022 Q1 gross profit per delivered vehicle improved 46% cash SG&A expenses were relatively flat, while cash R&D increased slightly primarily due to restructuring expenses.
Gross profit for the quarter was negative $535 million, which was impacted by a net charge for LC and RV write downs on inventory and losses on firm purchase commitments.
The accumulative inventory write downs and losses on firm purchase commitments of $822 million.
<unk> is comprised of $561 million.
Our write downs related to inventory on hand and $261 million.
Losses on firm purchase commitments.
Given we are now in a new fiscal year, the LC and RV charge of $229 million you will see on our statement of cash flows is reflected of the charge on new inventory purchased and firm purchase commitments entered into in Q1.
The accumulative, LC and RV and firm purchase commitments of $822 million.
Represents a $98 million decrease versus the prior quarter due primarily to significant reductions in material costs for the ETB and an increase in average selling price for our <unk> vehicles.
As the cumulative LC and RV inventory write down decreases we expect to see an increase in net inventory balances and overtime and net decrease in cost of goods sold per vehicle.
We forecast reaching positive gross profit in 2024, and therefore expect by the end of 2024, we will no longer have material LCM inventory charges and losses on firm purchase commitments associated with our production at our normal plant.
Total operating expenses in the first quarter of 2023 fell to $898 million.
As compared to $1 1 billion in the same period last year.
The primary driver of the reduction in operating expenses was related to decreases in stock based compensation.
We continue to prioritize investments in our core and vehicle technologies and customer experience, while also driving additional focus and cost optimization across the business.
Adjusted EBITDA for the first quarter of 2023 was negative $1 1 billion as compared to negative $1 1 billion for the same period last year.
Capital expenditures were $283 million in Q1 of 2023 as compared to $418 million during the same period last year.
We ended the first quarter of 2023 with $11 $8 billion in cash cash equivalents and restricted cash.
<unk> during the quarter, we took steps to reinforce our robust liquidity position.
Maintaining a strong balance sheet is a key priority.
It provides a buffer during volatile industry conditions, and mitigates risks, while scaling significant growth capital projects.
It also allows us to focus on delivering against our long term growth plans, including the path to positive gross profit in 2024 as well as the launch of our two during the first quarter of 2023, we issued green convertible senior notes due in 2029, which generated proceeds of approximately one 5 billion.
In mid April we announced an amendment to our asset based revolving credit facility, which doubles the available revolving commitments to $1 5 billion extends the maturity to 2028 improved borrowing availability by more efficient lending on current assets and increases our permitted indebtedness provision.
To expand that capacity.
In aggregate these transactions have increased radiant liquidity profile by over $2 4 billion provide debt maturity beyond the launch of our two and are reflective of our diversified approach to funding the business.
We remain confident that our cash can fund operations through 2025 and believe with these recent additions we have strengthened our balance sheet as we approach the launch of our two and 2026.
I also wanted to take this opportunity to reiterate our gross profit bridge from Q1 2023 to Q4 of 2024.
We continue to target positive gross profit in 2024.
Excluding the impact of LC, and RV and firm purchase commitments, we expect approximately half of the improvement will be driven by greater volume and utilization of our installed capacity.
Our 2023 production guidance of 50000 units implies a doubling of capacity utilization, which will result in significantly lower fixed cost per vehicle and we expect production volumes to increase further in 2024.
The remaining half is split between increases in average selling prices and material cost reduction.
Lower material costs will be enabled by the integration of new technologies, such as <unk> and LSP battery packs, which delivered about 25% material cost reduction for our commercial vehicles in Q1 versus Q4.
In addition to the engineering design driven cost reductions. We also expect to realize commercial cost savings as we negotiate with our suppliers.
The increase in average selling prices is based upon the gradual improvements we expect to achieve as we complete the fulfillment of our pre March 2022, preorder base as well as the introduction of new technologies that produced improved performance and capabilities.
Gross margin is expected to remain negative in 2023 Q1 represented significant progress versus Q4 2022 with gross profit loss per delivered vehicle nearly cut in half.
This was due to cost of goods sold improvements and higher average selling prices during.
During the first quarter of 2023 cost of goods sold benefited from lower LC and RV freight and material costs versus Q4 2022.
While performance for any particular quarter may vary we expect these trends to persist throughout 2023.
We are reaffirming all aspects of our 2023 guidance.
Notably we are reaffirming 2023 total vehicle production of 50000 units and 2023 EBITDA guidance of negative $4 3 billion.
Which represents an improvement of $900 million versus 2022.
Additionally, we expect capital expenditures for 2023 will be $2 billion.
In closing I want to reiterate our confidence in our long term financial targets.
See a clear path to our approximately 25% gross margin target high teens, EBITDA margin target and approximately 10% free cash flow margin target.
With that let me turn the call back over to the operator to open the lineup for Q&A.
Thank you, ladies and gentlemen to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw your question Press Star one again in order to accommodate all participants in the queue. Please limit yourself to one question and one follow up please.
Please standby, while we compile the Q&A roster.
Now first question coming from the line of John Murphy with Bank of America. Your line is open.
Hi, good afternoon guys.
Just wanted to ask.
First question on on pricing I mean RJ.
Sort of your entire strategy, you've kind of looked at the lifetime revenue opportunity of the vehicle and really thought about that in a holistic way.
Thank you have a pretty good view of that.
There are some folks that are taking that view and saying hey, listen I can cut my upfront price on vehicle and not make that much money on it and make up the profitability on the back end from that lifetime revenue and profit opportunity I'm. Just curious as you think about the company and the strategy and the philosophy of running it if you would ever think of Embry.
<unk> something like that and then maybe as a sort of a second part of that question.
You were talking about raising pricing so you're kind of trying to go in the opposite direction. How should we think about the cadence of the roll off of the pre March 22, preorders that had the price protection.
Thanks Tommy.
I think really relevant questions here for us as we think about the pricing of the vehicles.
In the case of our one this is our flagship product so from a flagship product point of view.
We've we've introduced with what we call our large packing with our quad motor and over the course.
Over the next several months, we're going to be launching our Max pack, which which introduces a higher price for <unk>.
And it will also be introduced dual motor, we can throw driving which which introduces our our entry configuration.
So we're both can be growing.
Pricing on some brands, but also offerings from our lower credit firms at the same time.
And for Us.
Really important with that is giving customers and we see the data giving customers. What they are looking for and a significant portion of our customers are looking for the best of the best when it comes to our one platform in terms of wanting to get the maximum range of maximum performance and so we are really looking forward to getting the Max stock out there that will contribute to growing sp.
But as you said the other element is the growth in <unk>.
Post March one orders.
Noted the pre March 1st orders have a lower price and as we start to come off of those orders and then to newer orders that's going to naturally start to shift pricing up we're already seeing that in Q1 of this year.
So those two those two together.
It gives us a lot of confidence in asps growing over time for the <unk> platform now.
Now more broadly as we think about the business in terms of Rev.
<unk> trends beyond the initial sale.
This is something we also believe.
Strong land and it's driving a lot of the investment, we're making into our technology platforms.
Of course around not only our full software stack, but importantly, what.
What we're building with autonomy and as I noted in my opening comments a lot of work is underway right now on our next generation platform for.
The new sensors that updated sensor, so I should say as well as updated compute.
Which will allow us as we look at future variance in future products to.
To really over deliver when it comes to the level two level three self driving features.
And enable our ability to.
To monetize that as well so that we certainly see as part of the business in the long term and above and beyond the self driving or other opportunities to create meaningful recurring revenue and some of those we've started to launch an initiated already with our insurance product with some of the financing products that we have.
So we do see the business as you pointed out very holistically across the lifecycle of the products.
Just to follow up RJ, you would never cut price on the front end to drive the hardware sale.
The profit back overtime on sort of a software and services side over time, you believe you need to earn adequate.
And returns on the front end.
Even though you have this opportunity in the vacuum is that a is that a fair statement.
For us through the <unk> platform. This our strategy isn't to.
Certainly intend to do that but no longer term as the business evolves.
And I'm sure we'll talk about this in the Q&A portion.
Putting a tremendous amount of focus on driving cost efficiencies cost efficiencies into our <unk> platform.
That's how the vehicles Architected and Thats how were looking at part consolidation. That's how we're thinking about everything from network architecture to <unk>.
<unk> topology across the vehicle to drive cost efficiencies to facilitate.
Obviously, a much lower price vehicles, but also to give us flexibility in the long term to look at different revenue streams and different revenue opportunities, but as it stands on our one.
As I return at the start we do see <unk> continuing to expand and grow.
Both because of we're pulling a new post March one customers as well as.
The expanded number of offerings that bring in things like Max Bakken and certainly we will be continuing to push on the feature set to allow us to fully access customer demand.
Okay, and if I could ask one follow up here on the virtual factory technologies that used for the enduro motor launch can you just kind of explain what that actually means and how can you can use that in the future and how much that saves you in the launch process as far as time and money.
Yes.
Is an important development, our cheeseman working hard maintenance enduro represents for us really.
Sort of a full embodiment of what we believe are capable of in terms of both product engineering and falls.
Fracturing guarantees in the close integration between those teams led to a lot of innovations, which which we've talked about in previous calls.
In terms of par consolidation.
Part.
Raul design simplification.
What's not necessarily seeing a product is how our manufacturing and the bring up of this line.
Is it has gone very smoothly. It's ahead of schedule. We're actually ahead of our ramp curve, which which is a great thing, but a lot of that's been facilitated by really careful planning from the teams, but also what I referred to in the opening comments, we've developed a platform that allows us very.
A very seamlessly bring up.
The plc.
Controllers, all the robotics and the equipment associated with that much more seamlessly by creating effectively an abstraction layer that we control from a plant software point of view and we can access equipment much more seamlessly and.
And we can bring up the equipment much more seamlessly than when we're working through a variety of third party platforms to do those things.
Very interesting thank you very much.
Okay.
Thank you and our next question coming from the line of Adam Jonas with Morgan Stanley . Your line is open.
Hey, everybody.
My first question is for Frank.
We're coming up on one year at the company as COO.
When you think about the next 12 months, where do you see the greatest opportunity to improve efficiency at normal and what would you point out is the greatest risk to execution from here. Thanks Frank.
Yeah. Thanks, Adam for the question I mean, my priorities certainly for the next 12 months is to continue focusing on the ramp up of normal.
Certainly driving down the cost as RG and clear already mentioned and certainly also already preparing the ramp up of our <unk> platform and this is I think.
We will give us a competitive advantage as we are already as a team jointly together with Nick and working on the next generation or two and really preparing that.
And you've seen we've already in the last few months shown.
That we are in line with your expectation on the Q1 production numbers and we really anticipate continuing the ramp up of the <unk> line.
We really see in the second half of this year that we should see the numbers being really close to our installed capacity.
On the cost initiative, yes, I mean, we still see a significant gap on what we should be paying our suppliers and what we're currently playing paying so what we have done in the last few months.
Starting to engage the discussions with every single supplier and to show them the gap and we're working on closing the gap within the next few months. So this is really my priorities.
I think we have a great plan in place so right now for me, it's literally just executing the plan that we put together as a team.
Thanks, Frank and RJ, just a follow up for you now that you've been.
We released from exclusivity on the Adv, you're able to provide any update on.
Status of discussions with other commercial customers at a high level in the last few months. Thanks.
Thanks, Adam.
At this point continuing to focus from a production point of view.
Unrelated single customer with Amazon and.
In terms of looking beyond the exclusivity into other customers, we do see.
A broad set of needs in the commercial space and.
As you all know these are these are long lead time discussions and negotiations, especially for some of these larger contracts. So those have been underway for some time now.
And certainly play into the long term plan for the platform.
It's been something we've been working very closely with Amazon on to allow us to pursue.
These other customers.
As quickly as possible.
Thanks RJ.
Thank you and our next question coming from the lineup.
George Henriques with Canaccord Your line is open.
Hey, good afternoon, everyone. Thanks for taking my questions.
I was wondering if you could help us understand a little bit with a little more granularity some of the levers you could have two EV commodity prices coming in you had mentioned in the past that your contracts from 2018 2019, our expiring any any additional color would be greatly appreciated.
This is important and Frank referenced that a bit in his previous comment but.
Lot of our the vast majority of our bill of materials for when we start up production.
We're negotiating contracts.
2018, 2019 timeframe that was.
A few years before we started production certainly we didn't have the negotiating leverage that we have today.
And as we wind the clock forward through to today.
The level of excitement and engagement that we have from suppliers.
It's <unk>.
Absolutely 90 day, so there's a tremendous amount of.
Passion to drive towards to help us drive towards profitability.
Really as the suppliers see us as a significant partner going forward and are excited not just about our one but but are certainly very excited about the <unk> platform as well.
So as Frank talked about these are negotiations that are happening real time, and we're working closely with our with our partners to find appropriate cost on path to achieve our targets and to achieve the long term.
Building on our one but also to.
Set up the relationships to be profitable very rapidly on our team.
As a follow up asking for a friend.
Curious on timing for the Max back duration for the <unk> platform.
Yes.
<unk> been asking me that a lot lately too. So I think there's a tremendous amount of excitement for the Mac stack.
And we're working very hard to bring that forward.
I noted at the beginning it certainly also helps us grow asp's or is Theres a lot of reasons. In addition to your friend and my dad satisfaction of pulling back back in as quickly as possible.
Thank you.
Thank you and our next question coming from the line of Rod.
Rod Lache with Wolfe Research your line is open.
Hi, everybody.
I know that you are not talking about backlog anymore on the consumer side, but I was hoping RJ you might be able to just give us some color first of all on what youre seeing in terms of demand trends.
On that side of the business.
Sure. Thanks, Ron.
Backlog.
So extends well into 2024.
I think important to note here is just engagement, we have with customers and the level of satisfaction that our early customers. The first 35000 or so customers are having.
Really creates a powerful flywheel, where our biggest and I would say most important advocates are the buyers of our vehicles and so.
With that said, we continue to see that.
Through the online forms receive after the communities that are performing and we even see that through third party recognition J D power.
How does awarded with the highest level of customer satisfaction of any vehicle.
In the 2023 ratings, which was which was great and it's really reflective of the brands. We're working hard to build but also the experiences we're trying to create across the full lifecycle of.
The ownership experience.
Now with that said.
The work that we're going to continue to do over the course of this year, we will and I noted this earlier.
Help us expand the brand.
Brand visibility and brand awareness so the additional physical spaces that we're building out the sales infrastructure service infrastructure that we're building out.
We will continue to contribute to that that growing flywheel of awareness and growing flywheel of demand.
Great.
Thanks for that and clear I wanted to make sure that we're thinking about the underlying gross profit ex the LC and RV impact correctly, because I think that we are seeing some signs of improvement here, even with the downtime that you took in before probably before the impact of this.
The 25% decline in and bomb on the RCV in the past you've.
You suggested that we look at the difference in the LC and RV charge, so that would be $98 million. This quarter. So broad strokes would you say that on the gross profit line clean run rate was a bit over.
$600 million loss on 8000 units delivered versus $760 million or so on kind of similar.
Delivery volume last quarter and is that the run rate from which you're bridging to breakeven or are you talking you're referring to the full year guidance.
That's correct. That's the run rate that we're working on as I mentioned in my prepared remarks on the Q1 block from current Q1 gross profit excluding the impact of <unk> to where we expect to be in Q4 of 2024 and as you rightfully noted we saw 17% improves.
Quarter over quarter.
Went from Q4 to Q1.
Okay. So it sounds like you're you're confirming that and is your bridge.
Sort of holding commodities somewhat flat in your.
In your guidance bridge or how do you sort of think about.
As we are seeing lithium carbonate hydroxide costs falling what.
Or are you sort of factoring that into your your bridges at this point.
Sure the way I would characterize it is within the forecast guide to that Q4 2024.
The expectations are for a more of a normalized state of commodity costs. So we have that.
Said another way we haven't expected.
Material reductions in commodity costs, even though in the course of the last quarter has seen a significant declines in the cost of lithium carbonate.
Lithium hydroxide as well.
Great. Thank you.
Thank you and our next question coming from the line of Alex Potter with Piper Sandler Your line is open.
Great. Thanks.
Thanks, guys. So my first question is on the 25% reduction in the bill of materials as a result of the RFP packing Enduro, which I think is an interesting data point.
Do you expect something similar when you start rolling those technologies out.
With our one and if.
That comes alongside a price hike it seems like the impact on gross margin could be pretty material I. Just don't know if it has such a big impact on the bill of materials for our one as well.
Yes, Alex Thanks for the question.
As <unk> noted were excited to see.
The 25% reduction that we referenced starts to make its way into the numbers in Q2 as the <unk> line.
It comes back on and we'll see those numbers in Q2, but.
<unk>. This is a really important development as part of a broader set of developments that.
When we talk about a lot of R&D work of innovation that we're driving a big portion of this is focused on driving cost down driving simplification of product and all.
I'd like to invite Nick just to talk a bit about some of the work that we're doing there.
<unk> of enduro.
But there's a host of other work streams that we're going to start to see come to light.
Yes, Thanks RJ.
Enduro driving it is a significantly.
Less expenses.
Product.
And Diversifies, our supply chain, which brings additional value.
When we think about the.
The <unk> experience that we've been able to deliver on over the last quarter with the ramp of enduro and the integration of Alexey.
And to that 25% reduction is.
Is really impactful and we expect to see something similar in R. One.
As we look over the next.
Just a couple of quarters.
Beginning of next year.
Okay great.
Second question on Capex saw that you maintained the $2 billion guidance.
That's a pretty that implies I guess, a pretty material step up versus what you spent in Q1. So just wondering maybe qualitatively or quantitatively. If you can talk through what that money is earmarked for in the back half and if there is any potential to maybe defer some of that in order to.
Protect the cash balance.
Sure Alex as we think about the cadence of our Capex as you can imagine with $2 billion guide that we have.
That implies significantly higher levels of capex over the remaining three quarters of the year and for US our expectation is we're going to make significant investments predominantly in.
<unk> as we think about some of the next generation technologies that will start to be introduced throughout the course of <unk>.
<unk> thousand 23, and then importantly, as we've talked about in.
Prior earnings calls before throughout the course of 2024 as well and so I would say that's one of the primary drivers of our Capex spend beyond that there is incremental payments associated with them.
The commissioning and utilization of our internal line, where we have the line fully running today, but all of that cash is not yet out the door and <unk> and then beyond that as our daily to two continued build out of our go to market infrastructure as we're building out incremental service centers charging.
Work.
<unk> of that nature, as we continue to grow and scale the business in aggregate.
Based off of your second part of your question on <unk>.
Availability to defer capex, given the lumpy nature of our Capex deployment and spend there.
Some likelihood, especially as we think about.
The Georgia, Capex and initiation that some of that could fall into 2024 relative to 2023.
Perfect. Thanks, guys.
Yeah.
Thank you our next question coming from the line of Dan.
Levy with Barclays. Your line is open.
Hi, good evening, thanks for taking the questions.
First wanted to ask about the <unk>.
Constraints at normal in the past I think you said.
The largest constraint on production was on power semi so just wanted to get a sense of.
Where where that stands and we've heard about tightness.
Silicon carbide I know he is he's but silicon carbide in IGT, but how much is that.
Tight silicon carbide supply still.
A challenge for you.
Okay.
Thanks, Dan.
One of the things we've.
Sort of embedded in our commentary that we should add some more color choose with the bring up of the enduro drive unit.
It doesn't it's not only providing us with.
Lower costs propulsion platform, but it also helps us diversify our supply chain.
With regards to the power modules so bring on additional.
Suppliers are both silicone IGT, but also silicon carbide.
And that was very intentional and we've we've designed the ramp up of that such that it helps alleviate some of the constraints we have on our existing quad motor Silicon carbide supply, which we've talked about in the past as being one of the major ramp constraints.
This is also something that as we look forward into our two.
We're spending a lot of time on to make sure that these constraints aren't there and <unk>.
<unk> and designing our next generation of Inverters and power modules.
A tremendous amount of effort to ensure that we really consider some of the long term constraints that we see in this space.
Yes, I think the comments earlier about when we sourced a lot of the components for our water really relevant in power semi as well the supply base for our original launch configuration was.
A relatively smaller set of players and who we're working with today for both silicon and silicon carbide in and as we move into <unk> and we move into those larger more mature.
Suppliers, we build out that.
Capacity today, and we build those relationships towards the future as we think about our two.
Is it fair to say that as you're sort of addressing the silicon carbide issue and a variety of ways instead.
Hi. This is addressed your pace of production should increase dramatically, which is implied within your guidance in any case.
Okay, great Yeah, that's right.
Okay, great. Thank you.
Second question.
Yes.
And I think you've addressed this somewhat with with enduro.
LSP, but wondering what other opportunities you have within the vehicle to potentially be content further or to help reduce the material cost I know you've talked about working with suppliers to try to.
Cut away some of the costs, but within the engineering of our one itself.
What are there opportunities like there'd be two the content to help improve.
The path to breakeven.
Yes, and drew an LLC or clearly big pieces of the puzzle and I think we tend to talk about those because they're customer facing we're offering different range packs and driven driving configurations Theres a lot of work. That's also going on under the covers to make sure that we have continued cost reduction.
<unk> talked in the past about moving to a zonal architecture, which really has a significant impact on the number of these use in the vehicle.
The complexity and cost of the harness.
And those both have significant impacts.
With Frank in the factory.
Our ability to to.
To reduce labor content in the vehicles. We also are looking at a series of body manufacturing updates later this year update to joining technology and materials to help improve yield and lower cost.
We have a new par.
Part of the Max back and the large pack.
That form coming early next year that involves some significant changes to the battery structure that really pull out cost and again drive up manufacture ability. So.
Again, some of these are really customer facing things, but our goal is to offer better value to customers and then.
Some of these things like zonal architecture, our success means nobody notices that we've made all these changes under the hood.
Yes, I think open just to note.
Nick referred to and I referred to at.
The updates, we're making to our network architecture really.
Lay the groundwork for what we're doing with our two and.
One of the benefits of developing.
All of the electronics in the vehicle and of course, the software stack in the vehicles as we've now reached a level of maturity, where we're consolidating a number of those issues were.
Removing not only a lot of these used from the vehicle while maintaining feature set but also along with that massively simplifying the vehicle harness.
And all of that work flows very naturally into arches, we not only take costs out of our one but we de risk.
The launch of our two.
Great. So a number of work streams that got it okay. Thank you.
Thank you and our next question coming from the line of.
Vijay Rakesh with Mizuho group your line is open.
Yeah, Hi, just a couple of quick questions.
And.
Our dual motor India in the LSD what mix.
<unk>.
Shipments of our deliveries will be on those.
As you ramp those to the year.
And in the case of our commercial vans are 100% of the commercial events are moving to LSP pack configuration and Enduro drive unit.
As it pertains to our one platform, we expect the other drivetrain level between what we call our origin, the quad motor and enduro the dual motor to be about a 50 50 split.
We have the flexibility within our production.
Capabilities to flex that up or down some.
But as you heard from myself and Frank earlier.
The supply chain constraints around the power semi is really a key consideration in that flexibility of our production lines to respond to.
Any supply constraints that may come up is really important.
Now in the case of our one battery pack.
We will be introducing what we call our standard pack.
But thats going to be.
A little later than this.
This year.
Got it.
On the you mentioned the higher ASP sales just wondering how that is ramping.
Deliveries post.
<unk> first and the highest ASP vehicles.
Thank you.
The pre March 1st vehicles have a lower price point.
And we're.
We're actively with every vehicle we deliver those it's one less and we start to work towards.
A growing mix of post March one.
Reservations and promoters.
So over the course of really the next year, we hope to work through those pre March orders and get into newer post March March one 2022 orders.
Got it thank you.
Thank you and our next question coming from the line of Tom <unk> with RBC capital. Your line is open.
Hi, Thanks for taking the question.
And I apologize if you answered this but just a.
A question on the on the guidance the EBITDA guidance.
If I take the Q1, adjusted EBITDA and annualize it again, a number that's only I think 6% below your full year guide.
Deliveries should probably ramp higher and then you have these cost outs.
Just curious as to maybe is there a quarterly cadence dynamic.
That's leading.
Leading to that EBITDA.
Guidance for the full year.
Sure Tom as we think about the overall EBITDA cadence overall, it's driven by a couple of key factors.
First and foremost, while we will be improving.
Our overall cost of goods sold per unit, we are still running at a loss position throughout the course of 2023 and so as we go throughout the courses as the year of this year and we will see some variability both in terms of how.
Rapidly.
Taking down the LC and RV charges throughout the course of the year, which is one factor as it pertains to our adjusted EBITDA that will be reporting.
The other factor that will have as well is really.
As we think about sort of the three key drivers of ramp material cost an ESP and the trajectory that we expect to see as we continuously improve on each of those core drivers.
As the year progresses on but we will be delivering greater volumes of vehicles, albeit at lower loss positions as we continue to scale throughout the year.
Okay.
And just kind of a high level question wondering.
Thank you for RJ Im wondering how you think about the kind of long term market opportunity for your consumer offering in light of what appears to be maybe increasing competition from legacy Oems, particularly in trucks and Suvs.
Does that change kind of how you view the market opportunity.
Longer term.
Or do you view it as kind of.
Different kind of world.
Certainly these legacy Oems are getting more competitive with specifically with with Evs.
Across our across these.
These vehicles.
Yes, Thanks, Tom.
I mean today with the <unk> product we are seeing.
Demand relative to others that are in.
Similar segments for some of our price points its cigna.
Significantly outpacing.
Sort of similarly priced vehicles. So at this price point.
<unk> platforms.
Really the leader in terms of overall share.
And that level of excitement and demand that we're seeing there is reflective of the way we've approached the brand and the features and the overall product design.
And of course, we hope to carry that into much lower price point with the <unk> platform and the <unk> platform.
Wallet.
We will have a number of other players that are offering products that are in that price range of 40 to $50000.
The way, we're thinking about it and the things we're excited about with regards to the product is just how unique we can make it in terms of capturing the core essence of everything we've we've shown with the flagship products with a product that ultimately delivers on a high level of performance both on and off road a tremendous amount of capability.
And the ability to.
Sort of enabled and inspire folks to take the kinds of ventures, where we need to fit your pet's your kids you're gear into the vehicles. So.
We of course Havent shown are two yet.
We've all seen it.
We have a symmetric information on what it looks like and what it is but what I can say, we have a tremendous amount of confidence around the product, we're developing and how that not only fits our brand. So nicely, but we think really provides an extension to the addressable market relative to what we've done with our one.
Yes, I think well.
Well.
Sorry, it's important as well to extend the vision of what we're doing well beyond the electric powertrain legacy Oems are moving in this direction, which is which is great for the overall mission.
But we really do focus on that overall customer experience and what we can deliver with a combined hardware software platform. The fact that we've been shipping a product for less than two years.
Influencer like Mark is broadly I would say best SUV in the world.
We have a software experience and overall customer experience that we're really proud of and we think differentiates beyond just being an electric vehicle.
Yes, I guess I guess relative today, we havent really seen what the legacy Oems have done yet right I mean, a lot of these launches are still yet to come.
24, specifically, we're going to see a couple more and then obviously as we get further in the decade.
That's what I was referring to.
Today, obviously, it's not as robust, especially in the U S.
<unk>.
In the coming years.
I would think.
That competition intensifies.
That's kind of what I was what I was referring to.
I think the other thing to keep in mind.
References.
As in the not too distant future everything will be electric so being electric alone isn't.
Sufficient differentiation point, it really ties into the ultimately what's the what's the way the product comes together the interplay between software.
The electronics in the vehicle of course, the dynamic performance of the vehicle the packaging and the architecture of the vehicle.
Frank referred to and I referred to it but how manufacture both the vehicle, which ultimately drives the cost structure for what were building.
So given the significant changes of illustration offer so it does create new opportunities in terms of how we architect the vehicle how we design the cost structure.
And then the types of driving dynamics and experiences that can be delivered.
Alright, great. Thanks.
Thank you our next question coming from the lineup.
James Picariello with BNP Paribas Your line is open.
Yeah.
James Your line is open.
Okay.
I think.
The reception cut out for me can you hear me.
Yes, we can.
Okay.
I think this is SaaS, but just wanted to clarify given the 25% Bob savings it will be meaningful as we think about next year, what could the mix of your total auto loan production be tied to <unk> enduro.
You have some visibility into that based on your reservations and can you just remind us if theres going to be an impact to the lines as you integrate into our own LSP into are one similar to what we saw for Adv This past quarter. Thanks.
As I referenced we expect from an enduro so the dual motor versus the Quad motor on our one to be roughly a 50 50 split.
And in the case of the commercial vans, 100% of those will be with enduro driving it.
In terms of how we plan to ramp up our one with enduro.
Important to note.
That will be brought the EDI line down in Q1.
For the integration of both <unk> and the <unk> was also we were bringing up the <unk> line and the significant cost savings with that.
<unk> propulsion package delivered.
Really led us to make the decision to bring down <unk>, while we brought those lines up and ramp them up.
I'd like to just invite Frank and I have a few comments on the ramp of enduro and how that will soon be feeding our one as well as <unk>.
And I referenced this before but a big part of it beyond just plant software beyond the equipment beyond the design of the product is also.
The operations the team and how the team is working and how we've set up training and the programs around that.
Yes, Thanks RJ.
The enduro ramp up we started production at the beginning of February and we are already exceeding.
Our anticipated ramp up curve, so from ramping up the endure I don't see a significant challenges ahead of us and the differentiating factor between introducing.
Into the Edd versus our one is that on the Edd, we did shut down the line.
And on a one we plan on continuing producing the <unk>, while we are introducing the enduro motor into the on one product we've already actually build civil endure motors into the loan just to really test the production and it really works seamlessly. So I don't see a major impact on the ramp up curve.
Of the <unk> as we introduce Andrew as a significant change to the <unk> product.
As Frank said the ones and zeros, we've introduced we've produced quite a few.
<unk>.
Bleeding blending those into the line for <unk> I confirmed I've been driving and enduro rns now for the past month.
It's really incredible I can't wait for customers to get their hands on it so.
As Frank said the.
The risk around the enduro bring up and are one is really well managed and we've been very intentional around how we've ramped that line and how we plan the integration of AV enduro entire one and we've really put a lot of emphasis in preparing the team in training the team offline and online to make sure that the team is capable.
<unk> and ready to ramp up on one with the interim order as well.
Got it that's Super helpful. And then just two quick ones as the first half of next year is still the timeframe for normal capacity.
Re rating.
Dr. Juan.
And then is there any update on the Georgia plant incentives out there. Thank you.
Yes.
The first question, yes that is the plan we plan on re rating there on one line in 2024 as we also use that opportunity to modify the line to incorporate the technical changes that Nick mentioned.
So this will happen in 2024, so we're already in preparation of this on the one hand with the equipment suppliers preparing the team.
That's good.
Moving according to plan.
Okay.
Georgia related incentive.
A couple of weeks ago that Georgia pellet court sided with the state and are rolling over that tax abatement offer their projects and ruled in favor of the state's position.
For the buyback aspects of the appeal.
The court ruled in favor of Georgia, and therefore revenue.
Add benefit as part of that rolling over also.
Right moment momentum as we sit here today on progress in Georgia.
Understood. Thank you congrats.
Thank you and our next question coming from the line of.
Jordan Levy with Jefferies. Your line is now open.
Jordan Levy your line is open.
Okay.
I apologize my line cut out for a second.
Afternoon, all I'm wondering just quickly if we could talk about the build out of the adventurer networking.
The importance of growing that and any potential benefits that might be able to be realized from the IRS as you build that out.
Yes, Thanks Jordan.
We're excited about building up more of our ran network our roofing adventure network.
Today, we have.
We have been deploying into what we think of as like the first batch of sites to really ensure the uptime ensure that equipment is working as planned and just as reference. This is the charging from in the DC fast Chargers, we design those internally, we also build those and normal.
So we have a production line dedicated to building those chargers.
We're going through making some updates to the product as well to facilitate it becoming an open network.
Nick This is something your teams working really.
Really hard on we just had a review on our last week.
Couldn't be more excited about any more of these out there.
Can you just provide some more commentary on some of the work that youre doing there.
Yes, sure. So just to put some numbers behind it we have 27 sites open today, which represents about 150 Chargers and la crosse locations across the country, we pick these to be.
Relevant to our customer base as we think about routes from places like the bay area of Tahoe or lay up to manner.
Those units.
Dave referenced are showing really strong uptime and thats really the key to customer feedback about the overall user experience has been excellent. The number one complaint is why aren't there more of them.
We're working hard to accomplish but we really want to scale that back.
Based on.
Solid data that we have the uptime that we're going to have a dependable network.
And then we expect later this year, we'll be able to.
To accelerate the number of installs.
And then again continue that some minor modifications to the equipment to be able to to open the network up beyond radian customers.
And we look forward to be in then.
Taking advantage of that five.
$5 billion of Natalie funding available and then in addition to that the charging and fueling infrastructure program, which has an incremental $2 5 billion available.
So we're excited to use some of those government grant to accelerate our.
Our rollout of the ran network.
And we are uniquely positioned to postpone USB Chargers I don't know what facility.
Yes.
Thanks, so much.
Thank you I will now turn the call back over to RJ screens for any closing remarks.
Okay.
Well, thank you everyone for joining the call.
We enjoyed talking about some of the progress we made in the last quarter.
We're certainly as you heard from all of Us.
Very much looking forward to the quarters and years ahead.
We have a lot of work to do in terms of continuing to drive our production ramp and drive costs down we're operating with that.
An incredible level of focus and urgency as we drive towards that.
But the.
Sites that we're seeing from customers and the passion that we're seeing from.
Customers that want to get future products is certainly a motivating force for all of us with within Arabian.
And we're looking forward to continuing to show progress quarter over quarter as we as we work towards not only profitability, but with significantly higher volumes. So thank you everyone for joining and look forward to the next call.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
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