Q2 2023 Rivian Automotive Inc Earnings Call
Good day and thank you for standing by welcome to Vivian second quarter 20, twenty-three earnings conference call.
At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session you'll need to press star one one on your telephone you would've been here an automated message advising your hand this race to remove yourself from the queue. Please press start wouldn't want again, please be advised that today's conference is being recorded.
I would now like to hand, the conference over to Tim Bank, Vice President of strategic Finance and Investor Relations. Please go ahead.
And thank you for joining us for <unk> second quarter 2000 twenty-three earnings call.
Before we begin matters discussed on this call, including comments and responses to questions reflect management's views as of today. We will also be making statements related to our business operations and financial performance that may be considered forward looking statements under federal securities laws such.
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 shareholder letter. During this call. We will discuss both gap and non-GAAP financial measures a reconciliation of GAAP to non-GAAP financial measures is provided in our shareholder letter.
Just before the call we published our shareholder letter, which includes an overview of our progress over the recent months I encourage you to read it for additional details on some of the items will cover on today's call with that I'll turn the call over to R. J, who will begin with a few opening remarks.
Thanks to whoever won and thanks for joining us today.
During our call Oh, how is he developments during the second quarter and provide an update on the progress we're making gets our core value drivers rush.
Russian continues to ramp which is translated to improve profitability and capital assistance fee.
We're also driving material cost reductions through commercial and engineering design updates, including the integration of our in house door motor into the R. One product line.
We remain focus on the customer experience as we expand our physical digital and mobile footprint and took important steps during the quarter to improve our charging you experience.
Importantly, prior to getting into the quarters details I'd like to thank our employees customers partners suppliers give me these and shareholders for their continued support of our vision.
Consistently for lost earnings call <unk> different leaders to join us each quarter.
For this call <unk> said, our senior Vice President of software development to join given the critical rolls off replace and enabling our business and the ever improving and expanding capabilities and features of our vehicles.
During the second quarter reproduce 13992 vehicles, which represents a 50% increase compared to the first quarter <unk>.
Importantly, approximately 70 per cent of the arwen units produced during the second quarter, where or when us vehicles.
[noise] represents the first time or when his quarterly production was higher than <unk> production our.
Our team of normal has made strong progress through the first half of the year maturing the manufacturing process with you are with us to the point, where the build efficiency is essentially equal to the <unk>.
It's also important to note the <unk> is more profitable than the RMT.
The ramp of our in House Enduro Motor line remains a key nadler to near term production performance.
Due to a progress during the first half of the year, we are increasing our 2023 production guidance to 52000 total units.
Building on the successful launch of the in-house enduro motors for a commercial vans last quarter, we successfully integrated this motor into the dual motor variant of your one platform during the second quarter.
This is an important milestone from a cost perspective and will also be instrumental in expanding the consumer market opportunity for arwen vehicles.
We believe the majority of our longterm arwen demand will come from our dual motor variance. These variants have pricing that starts at just over $70000 extend up to 400 miles of range <unk> 60 miles per hour and as quick as three and a half seconds.
Pull up to 11000 pounds and generate over 800 foot pounds of torque and 650 horsepower.
We believe the dual motive earns offer great value, while providing <unk> on and off road performance.
The technology, including should approach, we've taken with Y'all one product line has really enabled the uniquely differentiated product features the attribute.
The way the vehicle feels so so special.
And you know this is the result of thousands and thousands of tradeoffs for making between different pieces of content. The way, we think about design than what we think about technology integrating with that design.
And of course the R. One product line was intended it as our handshake with the world. It's.
It's our flagship product.
And so as we've now I've been thinking a lot about how does that brand position that we've created for a product point of view integrate.
Integrate across the mosaic of all the other touch points. We have is a company and and of course into our two of those same that's a mindset and the same ethos is being applied a horseman smaller price a smaller form factor in a lower price point.
Having spent a lotta time with the teams and closely coordinating all these different trade offs.
Sort of thinking about how does review manifest at this lower price point with a smaller form factor I can say, we've we couldn't possibly more be more excited about what's to come with our too and.
And really looking forward to showing that product in the early part of 2024.
It represents in much the same way that are one rethought Ah segment, rethought space or to take that even further and stretches our ideology in our brand ethos really into such a such a great segment in such a large also market.
Now onto our second quarter results, which reflect our continued extreme focus on cost efficiency as we celebrate a drive towards profitability on.
On a quarter over quarter basis delivered vehicles grew by 60% gross profit per vehicle improved by about $35000. We.
We achieved meaningful reductions in both are when a edd vehicle unit costs across the key components.
Including material cost manufacturing labor overhead and logistics.
Maintaining our cost reduction efforts through consistent focus in collaboration across all levels of the company is a core part of the culture We're building.
I'll also want to take this opportunity to highlight some of the progress we're making for a partnership with Amazon when.
When designing the electric delivery man, we sell to develop a delivery van which offers a step change in safety innovation technology and of course driver comfort.
As of early July the <unk> in operation across over 800 cities in United States <unk>.
Additionally, recently initiated deliveries ibew's to Amazon in Europe .
It was a strong quarter and we remain focused on ramping production driving cost efficiencies developing future technologies, and creating an amazing customer experience.
With that I'll pass the caller was seem to discuss our software development strategy.
Thank you alright.
Good to be here to discuss our software capabilities and the progress we are making the impact of software is pervasive throughout the company.
The most obvious and customer facing aspects of our software is what the customers see and experience with their vehicle digit that experience.
Over the updates and there was even more by that.
Our priority here is to take feedback from our customers and enhance the customer experience, whether that's through drive mode comfort features range efficiency or.
Addressing other pinpoints that customers may experience.
Over here I have actually been called the chief read that officer, given my interaction with customers on their against separated.
Since launching platform in the fall of 2021, we have pushed 22 major software updates to all our vehicles.
These updates have been fitted with features such as Birdseye camera view drive Cam Snow mode Kemp mode, <unk> mode and much more.
All designed to enhance our customer's experience.
Most recently this included the integration of a better route planner, which we expect to meaningfully improve our customers charging and robbing experience.
This technology will give our customers the ability to plan and compare charging stops along the way.
It also provides us data to help with the site selection of our of an adventure fast charging a network.
And the roadmap we have is equally exciting while I don't want to share it too much yet over the next month's USPS lounge at doing mode update, including greater profiles, but camera views adaptive range estimation and doing char stations discovery and the navigation App.
We also plan to launch download, which will provide an immersive camera experience followed by our computer vision and as I mentioned reality technologies.
We believe that our software capabilities are structural differentiator that will only grow in importance as electric vehicles continued to increase in complexity.
Our unique capabilities stem from the intention of the decisions we made years ago.
When we decided to truly take a clean sheet approach to the software stack and electrical hardware in the vehicle.
What this means is that we only software stack and control.
Every single computer in the vehicle.
We designed our software stack to scale to multiple hardware architectures, allowing us to rapidly support three variance with a high level of <unk> use across our <unk>, our wellness and edd.
This modular lateral approach is also enabling us to prepare her up and migration to our next Gen electric.
Electrical architecture, which brings increase levels of system integration and will allow us to achieve significant material cost savings thanks to the hardware consolidation.
As I mentioned earlier at Caribbean Software is foundation.
Forced to optimize dysfunctions throughout the company.
What I just described was on the consumer facing side of our work. They work my team does behind the scenes is equally important.
Are connected software architecture allows us to gather sophisticated data that provide.
Insights, enabling us to improve the reliability and safety of our products.
And reduce our service costs.
It allowed our service team to perform remote diagnostics and assess the issues that customers may be experiencing well in advance.
So we can determine when to deploy mobile service vehicles, what barstow bring in some cases, even fix the issue through over the air software.
This in house platform also powers all manufacturing operations in the plant, allowing us to have and lie diagnostics that automatically detect potential assembly issues as the vehicle move through the lines.
And allows us to perform exhaustive electric liquidity checks on all vehicles.
This altimetry saves us time improve scores.
And improves efficiency during the manufacturing process.
As a team we're excited about the work, we do and the impact we are having.
It's not often that you'll get the Chinese to redefine how an industry view software.
We are encouraged by the work we have done and even more excited about what's to come.
With that let me turn it over to Claire.
Thanks, <unk> second quarter results reflect the strong progress our team delivered against the operating plan, we outlined earlier this year.
RG mentioned, we remain focused on the drivers of long term value for our business ramping production driving cost efficiency building feature technology and improving the customer experience.
Turning to our second quarter results, we produced 13992 vehicles and delivered 12640 vehicles, which was the primary driver at the $1.1 billion of revenue we generated.
Total revenue for the quarter included $34 million of proceeds from the sale of regulatory credits, we expect the sale of regulatory credits to increase over time, but to very quarter to quarter.
During the second quarter, we improved our gross profit per vehicle by approximately $35000 as compared to the first quarter of 2023, representing a gross margin improvement over 4400 basis points the.
The primary drivers include fixed cost leverage, they're changing <unk> inventory right down and losses on firm purchase commitments material cost reduction and increased revenue per vehicle delivered.
Now going deeper into the material cost reduction drivers after a full quarter of ETV production with the introduction of the LSP battery pack and our in house Enduro dragging. It. We are now seeing a 35 per cent reduction in material costs for our vans as compared to Q4 2022.
Concurrently we've seen.
Continue to see strong progress on our one material cost reduction through commercial cost down efforts and a reduction in short term premiums.
Total gross profit for the quarter with negative $412 million as compared to negative $704 million in the same period last year.
Total operating expenses in the second quarter of 2023 fell to $873 million as compared to $1 billion in the same period last year.
The primary driver of the reduction in operating expenses was related to lower levels of stock based compensation expense.
We continued to rationalize our operating expenses despite significant investments in court in vehicle technologies and the customer experience.
Over the past year, we've expanded our physical and mobile service offerings increased our demo drive capacity developed and launched a new motor platform expanded our ravine adventure network built a parts distribution center and re manufacturing center and so much more.
All of this was done while lowering our quarterly operating expenses by $131 million of which $89 million consisted of cash expenses.
These are all forward investments that position as to capitalize on our director customer relationship and enable us scale efficiently as our car park growth.
Our gross profit improvements coupled with our operating expense rationalization resulted in $424 million of improvement and adjusted EBITDA as compared to the prior year.
We ended the second quarter of 2023 with $10.2 billion in cash cash equivalents and short term investments.
We continue to believe that our cash can fund operations through 2025 and with the addition of 1.5 billion dollar Green convertible notes and the amendment an extension of our $1.5 billion asset base lending agreement earlier. This year, we have strengthened our balance sheet as we approached the launch of <unk> in 2026.
Turning to our business outlook for 2023, we remain focused on ramping production and driving greater cost efficiency across the company.
Based on the progress of our production ramp, including the ramp of our in house motor along with the latest understanding of the supply chain, we are increasing our production guidance to 52000 total units.
We have also seen strong progress in our costs down efforts and are improving our adjusted EBITDA guidance to negative $4.2 billion.
Finally, we are reducing our capital expenditure guidance for 2000 $23 billion to $1.7 billion due to a shift in capital expenditure timing.
We continue to believe the average capital expenditures per year between this year and next year will be in the low 2 billion dollar area.
In closing we have seen progress in all three aspects of our path to generate positive gross margin ramping production driving material costs down and increasing average selling price.
Substantial reductions in ETV material cost driven by the introduction of the LSP pack, an enduro drive unit is reflective of the material cost improvements, we expect to experience with our our one platform. Following the 2024 shutdown to relate the art one line to 85000 units per year and introduce new.
Allergies.
This reinforces our confidence in our long term financial targets, we see a clear path to our approximately 25 per cent gross margin target.
Hi teams adjusted EBITDA margin target and approximately 10% free cash flow margin target.
With that let me turn the call back to the operator to open the line for Q&A.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press star one one again, please wait for your name to be announced we ask that you. Please limit your questions to one with one follow up please stand by while we compile the Q&A roster.
One moment for our first question face.
Our first question comes from the line of Dan Levy with Barclays Shyness now open.
Hi, Good evening and thank you for taking my question.
Wanted to dig in first on the on the gross margin improvements and I realize you said that you're making progress on each of the areas that you flagged in terms of improved fixed cost absorption material cost reduction, but maybe.
Maybe you can.
Give us a little bit of a voice over a little bit of deep deeper color on how this is playing out <unk>.
How much more grounded there in terms of renegotiating some of your supplier contract how much more upside is there on the pricing front.
And any color on the path to being contribution margin positive.
Which is a step and ultimately getting to total gross margin positive.
Thanks, Dan Yeah. This is this is a major major focus for us as a business in something that.
Across all aspects of a product developments or.
Quality teams are manufacturing teams, we're working towards.
As we look at unpacking as your question sort of dug into the gross margin improvements.
A portion of it absolutely is the fixed costs absorption and prevents that just are born out of the increased volume.
But I'm I'm glad you point out really.
Really important element of this is also material cost improvements so reductions in our building materials.
This is what we're seeing today is some but not all of the improvements that are coming.
Is clair said in her opening remarks.
We've achieved roughly 35% reduction in vitro costs on the Edd program in conjunction with the shutdown that happened at the beginning of this year.
And we expect a similar level of reductions on our one with the shutdown that's gonna be coming next year, but preceding that there's a whole host of ongoing commercial negotiations some of which were already beginning to feel and see on our one and many of which are going to be coming and I want to just call out a few of the points that I also made in my opening.
Comments, the you know a lot of improvements in engineering that are going into the vehicle.
R R to drive cost out so.
Big one of the biggest areas as the improvements, we're making to the network architecture and consulting a number of our <unk> into a smaller number of Uc's Ultimate is 60 per cent reduction in the number of used used the vehicle and along with that roughly 25 per cent reduction in the wiring harness length in the vehicle.
And so when we look at.
We talked about the confidence we have around.
<unk> further reductions in cause this is not this was not confidence out of thin air. This is confidence that ties to contractual obligations associated with these these component changes as well as contractual obligations with our suppliers built into commercial negotiations.
And will continue to see significant improvements quarter over quarter and the cost structure to build our vehicles ultimately laddering up to the margin targets, we talked about 25% gross margin target for our normal facility for normal no vehicles bruise on her own plan.
Do you want me to just talk a lot about somebody other aspects you're around contribution sure on Ah Ah contribution margin basis, I've, given the significant impact to our material costs on the <unk>. The <unk> that were producing today or <unk> commercial <unk> contribution margin positive and then as we think about the R. One and R. One will be <unk>.
You should margin positive Ah by the end of this year is as you heard from our J through continued progress on supplier contract negotiations as well as some of the upside to prices, we introduced the Max factor and later this year.
Thank you that's very helpful.
Just as a follow up I think one of the broader themes.
And and the E V sales landscape today is just around demand and I think.
This question is probably around some weakness of demand maybe you can give us a sense you know.
I know you've taken away to the order backlog, but what confidence.
<unk> do you have that you know your.
That your backlog will sustain well into 2024 and that you're going to be supply constrained for the.
The foreseeable future.
One of the things where perhaps most excited about is just how well received the products of beds and the level of excitement we see <unk>.
From our customers and the folks are driving our vehicles and we see that manifesting in new.
JD power ordering us the highest level of customer satisfaction within the space within the premium <unk> space.
But importantly, we see it through the day to day interactions, we have with with the owners want vehicles and they become the biggest advocates and.
Essentially marketers if you will for our brand and what we're building with that said we feel very.
Confident in the continued backlog that we have we have clear visibility into the.
Deep into 2024 with that backlog, that's that's established and there's more and more vehicles are on the roads and we now have.
Tens of thousands of of our ones on the roads.
Continues to feed the flywheel of awareness about the brand.
As I said some of our strongest advocates are people that are driving our vehicles every day and so we.
We were quite bullish on the continued.
Strong demand for our products.
Great. Thank you.
Thank you one moment for our next question place.
And that comes from the line of Adam Jonas What's Morgan Stanley . Your line is now open.
Hey, Thanks for everybody.
My first question is on Tesla charging as we know there is a kind of a two way flow here, where there's power as electrons going into the car.
But then data coming out of the car.
To test so I'm curious what data are you required to share or planning to share with <unk>.
Joined they're charging network, then I have a follow up.
They had a big thanks for your question Yeah, Yeah. This.
This is I think an exciting development just around the relationship that we've put together a tussle along with along with other manufacturers.
To utilize the north American charging centred event as part of that access they're charging network and we continue to build out our <unk> adventure network and that will also have north American charge extender standard.
Adapters are plugs I should say on it and and that allows us with our network access a very large carpark with the existing test a car park, that's out there, which gives us much clearer visibility to profitability of are charging network as well.
But in terms of you specifically what what occurs in terms of data transfer there's not any data transfer built into the relationship. So it's it's a charging relationship.
Whereby.
Our customers will access to network and ultimately pay for the charging and that will flow from us through through Tesla.
Okay. Thanks for confirming that and just to follow up on your a dash strategy you have mobile I today, but we understand you'll be adding your own camera based aid our systems side by side with mobile I on the same windshield I'm just wondering how long you plan on having these two redundant systems together before you substitute out mobileye and rely on your own.
Al system. Thanks.
Yeah. It is we think about some of the key differentiating elements of what we're building of course, gentlemen seem spoke about our electronics stack and building our own network architecture.
In designing and developing all the court is used in the vehicle.
Which is what facilitates enables this this significant reduction in number of issues. The vehicle that will be coming in to play next year I'd much. The same way. We also deeply believe that controlling the sensor set the perception stock across the vehicle.
And allowing them to feed into our.
Tottenham <unk> module, what that gives us the ability to have really early fusion of information meeting, we can cross leverage information across multiple cameras a radar set.
And in the future additional centers as well to put us in the best position to have high quality.
Perception information that feeds into our control algorithms, so with that as a as a.
Bit of a technical background on it that's the reason we've taken the view of owning the hardware stock in the software stack around our self driving platform is going to put us in a position to create long term the lowest cost system with early sensor fusion and therefore, the highest level of confidence from the perception <unk> feeding into the.
Getting into control until we control system.
Okay. Thanks RJ.
Thank you one moment for next question face.
And next question comes from the line of John Murphy with Bank of America. Your line is now open.
Good evening, guys I I, just I just wanted to follow up and took it because we have <unk> on the on the line as well on that comment you. Just made me really think about that next Gen architecture, Yeah, I can understand kind of what you just talked about was there anything else from the software size.
Or the functionality of the vehicle from the powertrain side or the H M. I Sighed that this next Gen architecture allows you to do that you might not be able to do right now and it might put yet out front and it'll lead first other vehicles.
Or shrimp.
Thanks, John This is something we're super excited about it. It's it's actually the reason we have we're seeing joined the call today. So he could provide.
Provide some initial color and comments around on the importance of software and how this is such a core aspect of our of our organization and been built into every aspect of how we think about our vehicle platforms and architecture's just a comment on that I'll pass to assume for some additional additional comments.
Probably if we wind the clock back many years, we took the decision to develop.
All the ecu's across the vehicle and so that's typically these issues would be coming from tier one suppliers and those those issues typically when they come from tier one suppliers.
Sort of embodied in that <unk> set of functions and therefore of course.
A side of software applications.
Mosaic and a traditional world that mosaic of third party tier one source dcu's has to work together and.
It's a very cumbersome network architecture to work with and makes things like over the your updates very very difficult because coordinate you have to coordinate across multiple different companies on on a software platform itself.
Software stock that you as the manufacturer Winona.
We felt very very strongly that this is something that had to be caught us as a business. We built deep domain expertise in terms of our electronics development capability of course, our software development capability.
That of course launched into the R. One product, where we own the software stock we own essentially all the issues in the vehicle what that also does in addition to allowing us to do lots of over their updates and as you heard was she mentioned earlier since the launch we've we've had 22 major over their updates.
Beyond that it allows us to look at cost optimization in a really unique way because a specific controller.
Tied to a specific sourcing relationship order a specific set of functions, but rather.
We control the controller and we control what's on it so overtime were consolidated the number of computers, we have in the car to to be significant significantly reduced and next.
Next year that the first step of that as a 60% reduction in the number of computers in the car relative today.
Now that doesn't necessarily directly create customer features of course it takes cost out of the vehicle allows us to operate with we think is significant multi thousand dollar structural cost advantage relative to the Jewish traditional approach.
But importantly, it also opens up opportunities to do some really amazing.
Features where you can cross leverage <unk>, you could cross leverage perception as I referred to in the economy.
Without any question, but we'll see maybe if you can talk just a little bit about this I know you said your comments. So we don't want to give away too much but.
Until the late last night with seminar reviewing some of our software roadmap and I am so excited for the world to see the things that were we have coming so let's see maybe to talk a bit about that yeah, absolutely I think really the core strength that we have is we own every single computer all the vehicles. So we're able to not only <unk>.
Activity, but we can update vehicle control, we can update the vehicle dynamics the energy management.
<unk> the way the vehicle drive the way the <unk> case would be and thyroid were able to create.
<unk> unique experiences that really redefined the ownership with with our customers unruly create that regular connection with our community of customers. So we have those capabilities to continue enhancing the future said.
Through that complex integration, where also able to leverage on those skills. So that we can virtually distribute or these different software features into more constrained hardware platforms in the future, which will bring significant costs down on significant bill of materials savings.
For us for the next generation I think the last item that I'd really want to highlight and this is usually not very obvious I think it's really the role of software behind the scenes. It's the entire connected data infrastructure that we have created.
Where we not only collect data to help with product improvements reliability improvements safety improvements, but we're also able to help with reducing the service costs for the company. We're also helping.
With the acceleration of the overall manufacturing Graham for also able to headed with the improvements from according to spend points for auto manufacturing.
That's very helpful can I just ask one last one is on the <unk> was 70 per cent of VR one mix in the quarter. Yeah. I'm just curious how we should think about mixed on there are ones going forward as Darwin is going to continue to take a greater portion of the of the mix.
That is ramping up further and further or is this the kind of level set next we should think about going forward.
Yeah, John that's a great question is.
As we commented on before.
Up through the.
The first quarter of this year [noise].
We'd been producing in any given quarter majority of vehicles or producer or when T N.
In the second quarter. This past quarter was the first time that Arwen S.
Representing the majority of what we're producing and so.
For the next quarter or two will be producing greater than 70% plus of our want us to help address some of the really long backlog and and this is by far and away one of the biggest customer.
Complaints, we have which is the amount of weight time associate with getting a review in today.
So to <unk>.
<unk>, a little bit towards addressing some of that very long painful backlog for our warehouse, but then with that steady state longterm settling into about 70 per cent or when his production with the remaining 30 per cent being <unk>.
Thank you very much.
Thank you one moment for next question. Please.
And next question comes from the line of fraud Latched with Wolf restart your line is now okay.
Sorry, I was on mute can you hear me now.
We can run.
Sorry about that was hoping that you can give us a sense first of all on the the bomb an advantage that you see from being able to acquire components with your own silicon and software.
You, presumably most of your peers are still buying steering systems and braking systems <unk> systems and suppliers are are generating some additional revenue for that.
Engineering and software that they are adding.
Is there a way to to maybe talk about what.
What this actually will ultimately mean for an R. One and R. Two in terms of dollars per vehicle when when you'll be sort of.
More competitive send them in terms of cost.
Yeah. This is this is a great questions, it's a bit hard to speak to people from an apples to apples point of view, but what I'd like to do is just maybe look at two aspects of as the first is as you said removing.
The tier one as an aggregator of of features onto onto any C. U what you might often here called the domain controller.
That removes that margin stacking effect, but importantly.
It allows us to optimize the way we design the hardware around what we're delivering from a feature set point of view, meaning we're not taking a a piece of hardware. That's been developed for brought application across many many different vehicles take like a body control or power trim control module.
So the first is just the opposition that occurs simply by being specifically designed for us, but the second and I've I've spoken to just a couple of times here.
That I think is really really important and very hard to do if you don't control the hardware in its entirety is the ability to consolidate.
What are typically separate issues that are tied to specific functions such and to be able to consolidate those issues into single computers that are really tied to a zone of the vehicle like let's say a front zone of the vehicle middles under the vehicle of Arizona the vehicle.
And that that massive reduction and number of computers in the vehicle not only simplifies not only reduces the number of modules, but also simplifies the wiring harness and the electric architecture in the vehicle.
And so this is an area for us it's been a core focus and ultimately we're talking about thousands of dollars in savings per vehicle and to.
To be able to build an architecture that has as few of computers is a small number of computers as possible is simplified and the wiring harnesses possible becomes a massive enabler for costs down and we're gonna see that first one or one next year with some of the changes I talked about already but importantly, this forms the basis of what.
Will be going into our too.
And <unk> from a cost point of view has very aggressive targets above.
Above and beyond just what we're putting in place with the.
With the electrical architecture, and the and the computer <unk> in the vehicle, but also well into other aspects of body design, which will leverage the opportunities afforded to it through the simplification of electronics in network architecture.
Okay. Thanks for that I was hoping you can just separately talk about.
Any progress that you've made in your discussions with Amazon regarding the exclusivity deal and just thoughts on on the outlook for demand for the ETV and whether it where there's some resolution of that is required.
To achieve the.
The target of positive gross profit next year.
Sure. So we've you know we continue to have a a great relief.
Relationship with Amazon Us a great partnership I think one of the things I'd want to call out it's just.
The complexities of scaling a logistics network or I should say, taking a scaled logistics network and converting it to electric.
I said my opening comments were now we now have etv's operating in over 800 cities across the United States. We've recently entered Europe with with the product and the feedback we're getting from drivers has been incredible you can find this sort of all over the lab and I'm certainly no shortage of Youtube <unk> around just.
The level of excitement and and how.
The drivers recognizing the amount of driver focused that went into the design of all the touch points the ingress egress the U I.
So we're really pleased with that.
Now with that said.
As we work closer with Amazon to expand.
How many of those vehicles are getting out and of course that ties to hell rapidly ramp the production of of the Edd product, we're also and and I've talked about this before actively working with Amazon to allow us to.
To sell vehicles outside of Amazon sooner than what was originally contemplated in our contract and.
And so that work remains ongoing we're very often optimistic on network again, the close partnership and of course Amazons.
Large position in <unk> helps align incentives to to have a solve this year very shortly.
And Robin Okay.
The second part of the question on Inbox to gross profit positive in 2024.
Having contemplated any external L beyond Amazon from a commercial standpoint and that the comments that we've historically name.
Okay, just just to clarify or are you contemplating Amazon it at its current run right or.
Or is that a.
A major factor at all and the and the positive gross profit target.
The way I would characterize it as as we've talked about it in the past two four is that with a seasonally low volume quarter for Amazon and so that is all set then reflected in in our gross margin commentary uhm given the queue for bridge that we've spoken about it in the past.
Okay.
Alright, thank you.
Q1 moment for next question Frank.
And next question.
<unk> comes from the line of George January to Swift Canaccord Genuity. Your line is now open.
Hi, good afternoon. Thanks for taking my questions three first to focus on your your pricing strategy I know you mentioned earlier that the.
The demand landscape is incredibly strong, but I'm curious as to whether you have thoughts on what's happening with some of your competition in the marketplace and whether you feel comfortable with current prices vehicles.
Thanks, George we we've.
We take a very.
Methodical and thoughtful approach to how we look at our vehicle pricing.
And you'll.
If you look at between the <unk>.
Each of those products when we think about a price there's actually a band of pricing that they operate across in that band has enabled are unlocked. If you will by the introduction of additional variance. So the first step in that is introducing the dual motor into.
Into the vehicles you as you heard of my opening comments the dual motor as our quote unquote based powertrain is a really exciting configuration is still capable of zero to 60 in three and a half seconds telling of 11000 pounds.
It's really an enjoyable architecture and as a base configuration, it's outstanding and of course, you know it doesn't have the same off road capabilities necessarily as as the Quad motor, but we think for a majority of use cases, it's really a perfect fit. So that's the first step in providing customers with a lower price variant of either or <unk>.
And then the next step which is coming here. Shortly is the introduction of our standard pack.
And the standard pack not only as a as a lower cost talk for us to build but importantly allows customers skin tone arwen vehicle just over $70000.
And so as we think about the.
The positioning of the product the capabilities of the product both on road off road dynamically the.
The feature set that's in the vehicles, we feel quite comfortable with the positioning of.
Of what we've done now.
Now I would also want to just comment there's lots of ways to try to measure demand in one of the things we look very closely at his residual value.
And residual values is nice because it gives us a reflect sort of reflects.
How are you used vehicles are trading which gives us an indication of overall demand positioning in the.
The R one products.
Within the truck and SUV segment are among the best residual values of any product and in those in those categories, regardless of electric or combustion so across book, a bunch of vehicles and electric vehicles.
Our vehicles or maintaining valued extremely well.
And even so far as a brand new typically buy a brand new car of the moment you quote unquote transact on the vehicle you lose roughly 10% to 15% of it's value.
People, often do you drive it off the lot and it lose desire and.
In our case uhm.
Once the transaction occurs the vehicle valued doesn't really drop their maintaining really well and of course, that's just an artifact of of the strong demand backdrop that we have in.
The willingness to pay for.
The products were building.
Thank you and maybe as a follow up you spent a lot of time in there <unk>.
Discussing vertical integration maybe.
Maybe relative to your initial plans a couple a few years ago, the speed at which you vertically integrate.
Maybe I've been a little bit slower I'm curious if there if there was one key component.
Of your business that you could in source today in a world of infinite capital theoretically what would it be like you.
The the we spoke about this a bunch of our call today the area that.
I would say the <unk> from the very beginning we knew we wanted to completely control and we we do completely controlled feel very very good about this is is investing in the sulfur in electronics capabilities within the vehicle. So I I would say that's among the most important things to own.
And looking at what is what is structurally cost advantage vehicle manufacturer look like in the world today.
We've recently vertically integrated or drive unit and that's with the enduro driving into single motor practical and Clara commented on this before but that is creating very meaningful cost advantages relative to what we launched with them and just as a reminder will be launched with we did the invertor in house.
Gearbox and how soon assemblage in house, we purchased the rotor and state or from a supplier on on our door motor setup. That's now come in house and that's the strategy will continue to pursue with the propulsion platform.
We're working very hard to continue to advance that given the cost efficiencies and cost advantages that that clearly is driving in the business.
Thank you.
Thank you one moment for next question. Please.
Our next question comes from the line of Marc Delany with Goldman Sachs. Your line is now open.
Yeah. Good afternoon. Thank you very much for taking my question I was hoping to better understand the financial outlook in the updated EBITDA guidance for 2023, I believe it implies a slightly larger EBITDA loss and in the second half of this year relative to the first so I was hoping to better understand what the drivers of that maybe.
Mark what are the key drivers embedded within that second half guidance is more conservative outlook around the magnitude of tailwind that we ascribe Ted the unwind or a reduction in R. L. C. N. R V charges on a go forward basis, and I'd say, that's a little bit of color or do you think about the fact.
Excluding <unk>, we expect to make significant progress against our improved gross margins is beach attract wrap that the second half of the year, we begin to introduce the enduro drive units that are digit spoke about entity are one vehicle that will be a material cost reduction there. They continued progress from that commercial costs down.
<unk> as well as some of the increases that will continue to see as we ramp up production in the cortex F Q3, and importantly, as well at drive towards higher average selling price is through the interaction of our dual Max packing at the end of this year as well.
Okay. Thanks for that Clara and then another question was just on the opportunity for Vivian to sell products beyond the vehicle you spoke of bed already around software, but I think there's other services and accessories that are important part of the long term opportunity for <unk> in terms of profitability, so things like insurance and and and failing.
Yes, some of the gear and campaign accessories and curious if you could share an update around where the company stand on provided some of those products. Thanks.
<unk> <unk> <unk> <unk>, let me think about the the the overall revenue options. We have is a business of course, the obvious place for us all sort of our minds to go to is the vehicle, but there was a whole ecosystem of products and services that surround the vehicle that we think represents significant opportunities both of them.
Terms of alleviating customer pain points, but also in terms of creating a really exciting and sort of joyful customer experiences and so yeah that starts with the purchase process and simplifying what a digital transaction looks like which we've done through our platform has been continued to push ourselves hot.
To improve that further that then immediately connects into the insurance platform, we have not announced any specifics on the returns for our insurance platform, but it's a it's a profit part of our business and it's <unk> on this is quite high. So we're very bullish on the long term potential of our insurance offerings.
And then as you called out what we think of as our adventure products of a year that goes with the vehicle. This is a huge opportunity and something that <unk>.
Particularly as we look at the R. Two product line. There is some really exciting intentionally thought out opportunities that you sort of as the vehicles are being architected, we're putting somebody who's really fun personalization items into this contemplated adventure products offering we're also.
Moves cost out of the corps vehicle and into the accessories, which allows us to achieve a baseline vehicle with with very aggressive.
Cost structure.
And then last but certainly not least is the role this offer a complaint. So there's there's a host of ways. This has been talked about and looked at I think oftentimes. There's this is this is sometimes oversold I'd say in the space, where we we sort of imagine he is very very large revenue numbers are companies often imagined.
I want to call out that we believe table Stakes are gonna be is going to require.
Very robust very thorough.
Software platform, but it's still provides opportunities for very specific unique highly differentiated highly complex features to be sold as an additional service where subscription.
And we've seen this play out in the economy space, but we see where we certainly have plans for ourselves, but there's there's a host of other areas.
And we'll see if you can just talk about this for a moment because this is something I know you and I spend a lotta time on.
<unk>.
<unk> first of all we are developing and expanding software and services for our commercial business every easy that'd be cell today. It comes with a subscription for <unk>, we continue to enhance the roadmap and add more features and more services to it on the consumer side as as as I mentioned.
We are being really extremely thoughtful about which features could become paid options.
We believe that there is an opportunity in a specific subset of features those features need to meet certain criteria. It has this has features that require a very high level of complexity from a development standpoint, or futures, which require hi, compute whether it's in the vehicle or in the.
Cloud, we having turned any roadmap that we will communicate as we basically.
Visited with with our customers.
Thank you very much.
Thank you one moment for next question. Please.
And next question comes from the line of you Manwell Rosner with Deutsche Bank. Your line is now open.
Oh, Thank you very much so it sounds like the the factory rebates for.
The plan for next year is very important.
Step in towards reaching your goals can you may be just help us understand again.
The timing of it and importantly, what sort of available capacity. It would leave you with on the other side of it but also effective capacity for 2024 as a whole.
Yep, Thanks to manual that the the updates were making the line next year I'm glad you asked a question of what you did.
They have really two core purposes. The first is is you called out it's a capacity increase for the R. One line, where we effectively grow the capacity of our one from $65000 on annual basis to 85000 units.
But mmm I'd say more importantly in the area that we believe we're going to have certainly there'll be lots of interesting over the next few quarters is what that represents in terms of a step change in our cost structure and we <unk>, we integrate with that shut down a host of <unk>.
Attack level improvements that simplify simplify the vehicle.
And remove considerable cost consistent with what Claire and I, both spoke about before that we saw with especially with the shutdown and Adv now that's not to say and I want to be very close up to say cost improvements aren't happening leading up to that we have a very clear roadmap with your contractually setup agreements with our suppliers some of those being commercial some of those.
Technical changes proceeding this dispatch if you will of changes coordinated changes that are happening with the shutdown now in terms of the timing of shutdown it'll be happening mid mid next year.
We're doing everything we possibly can to minimize the amount of time, we need to have the line down to make those changes and improvements but.
But it will have an impact as a result of the line being down on the R. One I'll put during that time frame.
And.
Are we haven't provided guidance in terms of 2024 production volume.
Yeah, but but certainly that will play into ultimately the guidance we do provide.
Okay. That's very helpful. And then let me let me ask you about your balance sheet. Claire you made comments that prepared remarks.
<unk> and you still have $10 billion in cash.
And it will take you to I guess officially through 2025, how you're thinking about additional needs for for capital raised and potential timing of it and either modalities. Okay like is it.
Is it the only thing that you could you would think of doing short sooner rather than later or to the extent that is true of whom until 2025. It will be later on a more opportunistic.
Thanks Emanuel as you mentioned, we remain confident in our cash balance and the fact that it can find our operations 320, 25 and as as a spoke about in my prepared remarks with the addition of the convertible notes that we raise N R. A D L and that's further D rats. The lunches are too as we think about.
$10.2 billion in cash and equivalents, we have on the balance sheet today.
But with that said our priority is to maintain a strong balance sheet I prefer acid. It provides a safeguard during volatile industry conditions and mitigate risk while scaling important growth capital projects, such as Ah the investments that we're making into our <unk> and our our facility in in Georgia, as well and so with that in mind.
You know continue to evaluate a variety of capital markets and Balliol available Caribbean uhm across the entirety of the capital structure.
And S. As he spoken about in exemplified by your actions in the first half of this year will continue to employ a diversified approaches we look to maintain that strong longterm balance sheet possession.
Great. Thank you.
Thank you one moment.
And our final question will come from the line of.
Benjamin Kello with R. W. Berwick Your line is now open.
Mr. Callow your line is now open.
Next question one moment.
[noise] comes from the line of Chris Kerr Swiss data your final question.
Oh actually can I talk about the mechanics, and plumbing behind the one day sale.
<unk> are the new new customers or is this your reservation holders that are kind of willing to swap out of.
Current reservation versus waiting for reservation or is this Kenneth yes. It gets flexibility had left the vehicle sooner or the customers tend to want what they want in this like given the opportunity to kind of find new customers I just wanted to get the sense of.
How it went where we see more of them that type of thing.
Thanks, Chris I think you're referring to.
An event, we did a normal and where we have it on.
So yeah I think this.
This has gotten so much more attention than we ever could have imagined. This was an artifact of us looking at some of the vehicles are coming off the line in a potential where those vehicles were sort of late on matches, where a customer changed order configuration or changed color combination whatever that was the case.
Ben where they were available to be matched locally and essentially provide a bypass and having to ship. The vehicles. There was something we did more as an experiment to look at I would say.
It's sort of.
One of many types of experience experience, we running conduct the direct to consumer and having the ability to do things like that.
Alright, thank you.
Thank you.
At this time I'd like to hand, the confidence back over to Mister <unk> closing remarks. Please.
Well I wanted to thank everybody for joining today, we're we're really excited about the progress, we're making and and.
And hopefully reflected in collectively in our comments and discussion today, it's clear that our focus.
Very much remains on not only ramp continuing to ramp production.
In our normal production facility, but importantly, driving costs down across the business on our path to profitability.
And we see that manifesting an insignificant progress between Q1 and Q2 and in our overall gross margin structure and we intend to continue to make that type of progress as we approach the longterm target for the normal facility of 25 per cent gross margins I'd.
I'd say the other point I'd Wanna call out and this again evidence bye.
Bye bye were seen joining us here on the call is is just the importance that we place.
On the technical differentiation of of our products and our platform.
And not only enabling us to run and manage our operations more effectively in terms of over their updates continued progress. Our continued features that make a range of vehicles, but importantly, actually simplifying the vehicle architecture because of the control of these core technology stocks around electronics sulphur.
Associated network architecture.
And that really forms the basis or the foundation, if you will for what's to come with our our two platform.
And this is this is so foundational to what we're building and obviously it takes a lot of work on the front end to build all this capability in both on the hardware side on the software side.
But but we're going to start to see the benefits of that.
Being realized.
In the immediate term through the cost savings and the significant improvements will see quarter over quarter, but importantly will see it when we reveal and show the products far too and the level of.
Content and what will be available at the price points will be talking about far too.
When we showed that product early next year.
So with that thank you everyone for joining and look forward to our next call. Thank you.
Today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
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