Q3 2023 Rivian Automotive Inc Earnings Call

November 7, 2023

[music].

Speaker 1: pack variant with up to 410 miles of range, roll out of multiple over-the-air updates to enhance the customer experience, and focus investment on commercial infrastructure to support our expanding fleet of vehicles.

Rollout of multiple over the air updates to enhance the customer experience and focused investment on commercial infrastructure to support our expanding fleet of vehicles.

Speaker 1: Within the plant we continue to see progress across our production lines. We produce 16,304 vehicles during the third quarter and continue to ramp our Dero driving align.

Within the plant, we continue to see progress across our production lines. We produced 16304 vehicles during the third quarter and continued to ramp our Ontario driving alignment.

Speaker 1: As a result of this, we are raising our production guidance for the year to 54,000 total units.

As a result of this we are raising our production guidance for the year to 54000 total units.

Speaker 1: Later this month, we plan to take about a week of downtime for validation bills to support the incorporation of engineering design changes into the R1 platform, which will be implemented in the planned downtime in the second quarter of 2024, which we discussed in the last rings.

Later this month, we plan to take about a week of downtime for validation builds to support and the incorporation of engineering design changes into the <unk> platform, which will be implemented and the planned downtime in the second quarter of 2024, which we discussed in the last earnings call.

Speaker 1: These new technologies include our simplified electronic control unit topology and cost reductions across a variety of areas including the vehicle harness, body structure, and battery.

These new technologies include our simplified electronic control unit topology.

And cost reductions across a variety of areas, including the vehicle harness body structure and battery pack.

Speaker 1: These technology changes represent ribions continued emphasis on driving greater cost of fish.

These technology changes represent <unk> continued emphasis on driving greater cost efficiency, it will significantly contribute to driving towards <unk> long term gross margin targets.

Speaker 1: It will significantly contribute to driving towards Riverview's long-term gross margin torque.

Speaker 1: Rivian vehicles have now driven over 490 million miles, which provides us with great data and feedback on how our vehicles perform in different environments, and what features can be added or enhanced to improve our customer experience.

Roofing vehicles have now driven over 490 million miles, which provides us with great data and feedback on how our vehicles performed in different environments and what features can be added or enhanced to improve our customer experience. This.

Speaker 1: This past quarter we pushed major over their updates, which improved ride quality, enhanced the towing experience, and offered customers a new way to interact with the different drive modes.

This past quarter, we push major over their updates, which improve drive quality enhance the towing experience and offer customers a new way to interact with the different drive modes over 90% of our customers update their software within five days of it becoming available it's great to see this level of engagement with our software.

Speaker 1: Over 90% of our customers update their software within five days of it becoming available. It's great to see this level of engagement with our software.

Speaker 1: Later this quarter, we plan to launch our leasing platform on select R1T vehicles in certain regions. We look forward to offering this as a new way for our customers to take delivery of a Rivian and plan to expand the lease offering to additional regions across more vehicles as the program matures.

Later this quarter, we plan to launch our leasing platform on select RMT vehicles in certain regions. We look forward to offering this as a new way for our customers to take delivery of Caribbean and plan to expand the lease offering to additional regions across more vehicles as the program matures.

Speaker 1: We currently have 45 service centers along with 408 mobile service vehicles. In addition, we recently opened Rivian spaces, our version of retail stores, in Vancouver, Seattle, Chicago, Brooklyn, Nashville, Atlanta, and Denver. Our DC Fast Charging Network also continues to expand. We currently have 57 Rivian Adventure Network charging sites.

We currently have 45 service centers, along with 408 mobile service vehicles. In addition, we recently opened <unk> and spaces, our version of retail stores in Vancouver, Seattle, Chicago, Brooklyn, Nashville, Atlanta and Denver.

Our DC fast charging network also continues to expand we currently have 57, Vivien adventure network charging sites.

Speaker 1: Progress continued on the development of the R2 platform, as well as preparing the future production site in Georgia. I was just there a few weeks ago. It's great to see the site starting to take form, which is the director's ult of strong collaboration between the state, local community, and ribion.

Progress continued on the development of the <unk> platform as well as preparing the future production site in Georgia I was just there a few weeks ago, it's great to see the site starting to take form which is the direct result of strong collaboration between the state local community and Vivian.

Speaker 1: It was a strong quarter as we continued to deliver on our operational and financial goals. I would like to thank our employees, customers, partners, suppliers, communities, and shareholders for their continued support of our vision. With that, I'll pass the call to.

It was a strong quarter as we continued to deliver on our operational and financial goals I would like to thank our employees customers partners suppliers communities and shareholders for their continued support of our vision with that I'll pass the call to clear.

Speaker 2: Thanks, RJ. I would like to reiterate that our team is focused on four key value drivers, driving greater cost efficiency, continuing to ramp production, investing in differentiated technologies, and continuing to enhance the Rivian customer experience.

Thanks RJ.

I would like to reiterate that our team is focused on four key value drivers driving greater cost efficiency continuing to ramp production investing in differentiated technologies and continuing to enhance the Arabian customer experience.

Speaker 2: Third quarter results demonstrate advancement in each of these aspects of our business.

Third quarter results demonstrate advancement in each of these aspects of our business.

Speaker 2: During the third quarter, we produced 16,304 vehicles and delivered 15,564 vehicles, which was the primary driver at the $1.3 billion of revenue we generated.

During the third quarter, we produced 16304 vehicles and delivered 15564 vehicles, which was the primary driver at the $1 $3 billion of revenue we generated.

Speaker 2: Total gross profit for the quarter was negative $477 million.

Total gross profit for the quarter was negative $477 million.

Speaker 2: We remain focused on improving our gross profit per vehicle delivered. During the third quarter, our gross loss per vehicle improved by approximately $2,000 versus the second quarter.

We remain focused on improving our gross profit per vehicle delivered.

The third quarter, our gross loss per vehicle improved by approximately $2000 versus the second quarter.

Speaker 2: This improvement would have been approximately $14,000 better, excluding the impact of the change in LCNRV and losses on firm purchase commitment.

This improvement would have been approximately $14000 better excluding the impact of the change in LC and RV and losses on firm purchase commitments.

Speaker 2: So therefore, Elfing NRV and losses on firm purchase commitments more significantly contributed to the improvement in gross profit during the second quarter as compared to the third quarter. Highlighting the improvements we have made in ramping production and reducing the material cost of our vehicle.

So, therefore, LC and RV and losses on firm purchase commitments more significantly contributed to the improvement in gross profit during the second quarter as compared to the third quarter highlighting the improvements we have made in ramping production and reducing the material cost of our vehicles.

Speaker 2: As a reminder, when our LCR&RV balance and losses on firm purchase commitments declines, it reduces cost of goods sold and positively contributes to gross profit.

As a reminder, when our LC and RV balance and losses on firm purchase commitments declined it reduces cost of goods sold and positively contributes to gross profit.

Speaker 2: We expect by the end of 2024, you will no longer have material LCNRV inventory charges associated with the production at our Illinois plant as we reach positive growth profits.

We expect by the end of 2024, you will no longer have material LC and RV inventory charges associated with the production at our Illinois plant as we reached positive gross profit.

Speaker 3: Our adjusted EBITDA for the quarter was negative $942 million.

Our adjusted EBITDA for the quarter was negative $942 million.

Speaker 4: In October of this year, we raised a $1.75 billion green convertible note, which further strengthens our balance sheet as we approach the expected start of construction of our Georgia plant early next year.

In October of this year, we raised a $1 $75 billion Green convertible note, which further strengthened our balance sheet as we approach the expected start up construction of our Georgia plant early next year.

Speaker 5: by maintaining a strong balance sheet were well positioned as we looked to start production of the R2 platform in 2026.

By maintaining a strong balance sheet, we are well positioned as we look to start production of the <unk> platform in 2026.

Speaker 6: The offering was not completed until after the quarter end. Accordingly, the $1.6 billion of net proceeds from the raise was not included in our Q3 2023 ending cash balance of $9.1 billion.

The offering was not completed until after the quarter and accordingly, the $1 $6 billion of net proceeds from the raise was not included in our Q3 2023, ending cash balance of $9 1 billion.

Speaker 7: Turning to our business outlook for 2023, we remain focused on ramping production and driving greater cost efficiency across the company.

Turning to our business outlook for 2023, we remain focused on ramping production and driving greater cost efficiency across the company.

Speaker 8: Based on the progress we've seen year-to-date across our manufacturing process and our cost-down efforts, we are raising each aspect of our 2023 annual guidance. We are raising our production guidance to 54,000 units, improving EBITDAW guidance to negative $4 billion, and lowering our CAPEX guidance to $1.1 billion.

Just on the progress we've seen year to date across our manufacturing process and our cost down efforts, we're raising each aspect of our 2023 annual guidance. We are raising our production guidance to 54000 units, improving EBITDA guidance to negative $4 billion and lowering.

Our capex guidance to $1 1 billion.

Speaker 9: The improvement in estimated capex is driven mostly by timing of spend and by our efforts to reduce costs across the business.

The improvement in estimated Capex is driven mostly by timing of spend and by our efforts to reduce costs across the business.

Speaker 10: As a reminder, because Amazon limits the intake of new commercial vans during its peak holiday delivery period, we expect a more significant gap between production and deliveries in Q4 relative to prior periods.

As a reminder, because Amazon limits the intake of new commercial vans during its peak holiday delivery period, we expect a more significant gap between production and deliveries in Q4 relative to prior periods.

Speaker 11: As Arjay mentioned, and as we discussed on last quarter's earnings call, we expected shut down both the consumer and commercial lines in our Illinois facility in the second quarter of 2024 to introduce a number of new and vehicle technologies to the R1 platform.

As RJ mentioned and as we discussed on last quarter's earnings call. We expect to shut down both the consumer and commercial lines in our Illinois facility in the second quarter of 2024 to introduce a number of new in vehicle technologies to the <unk> platform.

Speaker 12: We believe these changes will meaningfully reduce our material costs and position Rivian to exit 2024 with a much improved margin profile.

We believe these changes will meaningfully reduce our material cost and position ribbon to exit 2024 with a much improved margin profile.

Speaker 13: We are planning to adjust the production rate of the lines whereby the planned annual capacity will be for 85,000 units for R1 and 65,000 units for EDV, keeping the total facility at an annual capacity of 150,000 units.

We're planning to adjust the production rate of the lines whereby the planned annual capacity will be for 85000 units for our one and 65000 units for Edp keeping the total facility at an annual capacity of 150000 units.

Speaker 14: Our downtime in Q2 2024 and associated ramp up in Q2 and Q3 2024 is expected to impact roughly two quarters of production.

Our downtime in Q2, 2024 and associated ramp up in Q2, and Q3 2024 is expected to impact roughly two quarters of production.

Speaker 15: While the incorporation of new design changes impacts near-term production, we are confident it better positions Rivian to be more profitable and competitive over the long term.

While the incorporation of new design changes impact near term production, we are confident it better positions <unk> to be more profitable and competitive over the long term.

Speaker 16: Overall, we continue to see a clear path to our approximately 25% gross margin target, high teens 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.

Overall, we continue to see a clear path to our approximately 25% gross margin target high teens, 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.

Speaker 17: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced.

Thank you.

As a reminder to ask a question. Please press star one one of your telephone and wait for your name to be announced.

Speaker 18: To withdraw your question, please press star 11 again. We ask that you please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster.

To withdraw your question. Please press star one again.

We ask that you please limit yourself to one question and one follow up.

Please stand by while we compile the Q&A roster.

Our first question comes from the line of Rod Lache with Wolfe Research. Your line is now open.

Speaker 19: Our first question comes from the line of Rod Lash with Wolf Research. Your line is now open.

Speaker 20: Hi, everybody. I had a question on cost and a question on demand. Just first.

Hi, everybody.

Hi, a question on costs and a question on demand.

Just first.

Speaker 21: My impression is that you're making better than expected progress on cost just simply because you improved your gross loss by $16,000 X LCRV.

My impression is that you are making better than expected progress on costs.

Just simply because you improved your gross loss by $16000 X L. CRV.

Speaker 22: Um, I didn't see any average price improvement and presumably volume isn't helping.

I didn't see any average price improvement and presumably volume isn't helping you just yet because you haven't gotten to contribution margin positive on the <unk>. So is that.

Speaker 23: yet because you haven't gotten the contribution margin positive on the R1, so is that...

Speaker 24: Is that correct, because it is interesting since you haven't yet benefited from the new architecture.

Is that correct.

Because it is interesting since you haven't.

Yet benefited from the new architecture of the pack and all the other things that are coming into 2024.

Speaker 25: Thanks for the question, Rod. As you think about the key drivers and the margin improvement that we saw over the last quarter, it was driven by the 23% increase that we saw in delivery volume. So there was some fixed cost leverage.

Thanks for that question Rod.

As you think about the key drivers in the margin improvement that we saw over the last quarter. It was driven by the 23% increase that we saw in delivery volume. So there was some fixed cost leverage but we also saw significant improvement in material cost, which was driven both by a mix shift to a greater concentration of edp.

Speaker 26: But we also saw significant improvements in material costs.

Speaker 27: which was driven both by a mixed shift to greater concentration of EDV delivery volume.

Delivery volume, so roughly about 30% of our revenue in Q3 was from the sales of the <unk> itself.

Speaker 28: So roughly about 30% of our revenue in Q3 was from the sales of the EDV itself, which is, as you mentioned, is a higher margin, you know, already contribution margin positive for Rivian vehicle platform for us.

Which is as you mentioned is a higher margin already contribution margin positive for radian vehicle platform for us.

Speaker 29: But beyond the EDV, we also saw significant material cost savings as well for R1 driven by the continued work of our procurement team as we've been renegotiating many of our supply agreements, and then it also incorporated some of the early sales of our dual motor to consumers as well that benefited the reduction in material cost.

But beyond the Edd, we also saw significant material cost savings as well for our one <unk> driven by the continued work of our procurement team as we've been renegotiating many of our supply agreements and then it also incorporated some of that early sales of our dual motor.

Tumors as well that benefited the reduction in material costs.

Speaker 30: In addition to those two key levers, we also saw, you know, continued softening in the broader logistics market and space. And so that was also a contributor to the improvement that we saw on a per unit basis for Q3. That's helpful.

In addition to those key two key levers. We also saw continued softening in the broader logistics market.

Space and so that was also a contributor to the improvement that we saw on a per unit basis for Q3.

That's helpful. Yes.

Margin must be on the rcv's on the demand side.

Speaker 31: On the demand side, could you talk about how quickly you can expand the RCV to other customers? I understand that there's a process with pilots.

Could you talk about how quickly you can expand the RCV to other customers I understand that theres, a process with pilots and planning with these fleets, but any thoughts on how we can think about RCV sales into 2020 for 2025 and on the <unk> Youre currently at 65000 units.

Speaker 32: planning with these fleets, but any thoughts on how we can think about RCV sales into 2024 or 2025? And on the R1, you're currently at 65,000 units.

will be at 85,000 units at the end of next year capacity. Presumably, you'd need at least 180 orders per average day just to meet your current capacity. Maybe you could talk a little bit about whether you're seeing convergence to that kind of a number. What's the trajectory of demand that you're seeing?

You will be at 85000 units at the end of next year capacity.

Presumably you would need at least 180 orders per average day just to meet your current capacity, maybe you could talk a little bit about.

Whether you are seeing convergence to that kind of a number what's the trajectory of demand that youre seeing in the orders.

Hi, Rod, thanks for the question on the commercial vehicle and our 1 just to speak 1st on the commercial vehicle side. We, of course, we've been working on this exclusivity agreement with Amazon for a while. We've talked about this in past earnings calls. So, it's not as if we were surprised by that this morning and with that, we've, we've been building.

Hi, Rod Thanks for the question on the commercial vehicle and our one just to speak first on the commercial vehicle side.

Of course, we've been working on.

This exclusivity agreement with Amazon for a while and we've talked about this in past earnings calls so it's not as if we were surprised by that this morning.

And with that we've been building the relationships with a diverse set of commercial operators and that's everything from last mile to retail to a wide variety of.

the relationships with a diverse set of commercial operators. And that's everything from last mile to retail, to a wide variety of industrial commercial business cases, which require businesses that require commercial vans.

Industrial and commercial business cases, which require <unk>.

Businesses that require <unk>.

Commercial vans.

And, you know, while the fleet and the use cases are diverse, the one element that's very common for these large fleets is the necessity of running pilots as a way to prep the network or prep the system to ingest a completely different type of vehicle in terms of its need for charging infrastructure and as well as changes to the standard operating procedure for those respective businesses.

While the fleet and the use cases are diverse the one element that is very common for these large fleets.

Is the necessity of of running pilots as a way to prep the network our prep the system to ingest a completely different type of vehicle in terms of its need for charging infrastructure.

And as well as changes to the standard operating procedure for those respective businesses.

And so what we'll be announcing soon is a range of different pilot programs that will proceed much larger orders as these large fleets start to plan the electrification of their infrastructure.

So what we'll be announcing.

Soon as a range of different pilot programs that will proceed much larger orders as as these large as these large fleets start to plan the electrification of their infrastructure.

As it pertains to R1, we, of course,

As it pertains to our one.

Of course.

you can see in the numbers for Q3, we continue to maintain an extremely strong market share position at the price points at which the R1 platform operates. So, as you think about volume of electric vehicles sold, let's say at over $75,000 price point, we're a very significant market share player that the brand is connected incredibly well with consumers.

You can see in the numbers for Q3, we continue to maintain an extremely strong.

Market share position at the price points at which the <unk> platform operates so as you think about <unk>.

Volume of vehicles electric vehicles sold let's say at over 75000 or price point.

We're very significant market share player that the brand is connected incredibly well with consumers.

and we're seeing that translate to not only continued excitement for the brand, but we see that really manifest as really strong residual values and in particular really strong used vehicle pricing. So Google search of used Rivian R1S will just reveal just how robust.

And we're seeing that translate to not only continued excitement for the brand, but we see that really manifest.

Really strong residual values in particular really strong used vehicle pricing.

So Google search of used review in our warehouse will just reveal just how robust the pricing and therefore the demand for these products are.

the pricing and therefore the demand for these products are. So with that said, this is before we've even launched a number of additional variants that are going to be coming online. We've just recently launched MaxPak. We've launched the dual motor. But early next year, we'll be launching our standard battery pack. We'll be launching an additional trim configuration. And importantly, starting now or starting later this month, we're going to be launching on select models, as you heard Claire and I described in the opening statements.

So with that said.

This is before we've even launched a number of.

Additional variance there it'd be coming online. We've just recently launched <unk>, we've launched the dual motor but early next year, we'll be launching our centered battery pack will be launching additional trim configuration and.

And importantly.

Starting now are starting later this month, we're going to be launching on select models as you heard Kurt I described in the opening statements.

Select Mile is a leasing program, and that leasing program creates a different way for customers to access the product, which is really helpful in an environment with interest rates as we see today.

Select models of leasing program and our leasing program creates a different way for customers to access the product, which is really helpful and.

In an environment with interest rates as we see them today.

So we remain very bullish on our one program and its long-term demand.

So we remain very bullish on.

On the <unk> program and its long term demand.

And as I indicated, I think that the RCV platform, our commercial van platform, really is, in our view, the best commercial van option available for any sort of large fleet. And we're working very hard to translate that into volume over the course of the next several quarters with these pilot programs that I referred to at the start.

And as I indicated I think that the.

The RCB platform commercial van platform.

Really is.

In our view.

The best commercial band option available for fleet up any sort of large fleet.

And we're working very hard to translate that into volume over the course of the next several quarters with these pilot programs I referred to at the start.

Thank you.

Our next question comes from the line of John Murphy of Bank of America. Your line is now open.

Um, good evening guys, um, just a quick question on the 4th quarter implied volumes. Um, it looks like they're, they're a fair amount lower than than what you did in the 3rd quarter on on production. You just curious, you know, this is a question of of days and the calendar, or is there something else going on sort of in the plan? Is it what you mentioned on on the Amazon deliveries where you might downshift a little bit and what's going on there?

Good evening guys.

A quick question on the fourth quarter implied volumes. It looks like there are a fair amount lower than what you did in the third quarter on production.

Just curious is this just a question of days in the calendar or is there something else going on sort of in the plan is it what you mentioned on the Amazon.

Deliveries were you might downshift ETV, a little bit what's going on there.

Claire spoke to this in her opening statements, but we're planning a longer shutdown in the second quarter of 2024 to implement a whole host of changes.

Yes.

Just opening statements, but we were planning.

A longer shutdown in the second quarter of 2024 to implement a whole host of changes that introduce a dramatic reduction in our material costs were below materials for the <unk> platform, but those changes also improve the operations of the plant and allow us to produce vehicles with less labor per vehicle and therefore less cost per.

That introduced a dramatic reduction in our material costs for building materials for the R1 platform, but those changes also improve the operations of the plant and allow us to produce vehicles with less labor per vehicle and therefore less cost per vehicle.

Proceeding that shutdown in Q2 2024, we have a one-week shutdown in Q4. And that's planned to do some of the longer lead changes in the plant.

Vehicle.

Proceeding that shut down in Q2 2024.

A one week shutdown.

In Q4.

And that's that's planned to do some of the longer lead changes in the plant and it requires us to shut down all production for for.

And it requires us to shut down all production for for approximately a week. So you're certainly seeing that in the numbers.

Approximately a week, so you're certainly seeing that in the numbers.

And then I'd say broadly.

Broadly, we've we're also recognizing some of the days lost around the holidays.

Broadly.

We're also recognizing some of the days lost around the holidays.

associated with Christmas and, of course, the New Year holiday.

Associated with Christmas and.

And of course, the near holding.

Okay, and then just one follow up on the physical service network build out. How are you sizing that at the moment? Because I mean, that's obviously something that you're, you're, you're getting way ahead of, you know, the customer needs there, you know, how you're locating, deciding on locations, what's the cost of those and how are you sizing those?

Okay, and then just one follow up on the physical service network Buildout or Jay how are you sizing that at.

At the moment, because I mean, thats, obviously, something that Youre getting way ahead of the.

The customer needs there.

Locating deciding on locations, what's the cost of those and how are you sizing those.

As you know, we've and we've talked about this in the past and past earnings calls, we are building a service footprint that relies on both physical brick and mortar service locations will have about 50 of those in the US by the end of this year. But supplementing that and actually performing a majority of our service, our mobile service vehicles.

Yes.

As you know and we've talked about this in the past in past earnings calls.

Our building service footprint that relies on both physical.

Brick and mortar service locations, we'll have about 50 of those in the U S. By the end of this year.

But supplementing that and actually performing a majority of our service our mobile service vehicles.

And our mobile service vehicle fleet, as I said, at the start is more than four vehicles. Today, as of I think this week, it's 408, but it continues to grow. And that the beauty of a mobile service first strategy is from a customer.

Mobile service vehicle fleet as I said at the start is more than 400 vehicles today.

As of I think this week, it's 408, but it continues to grow.

And that's the beauty of mobile service first strategy is from a customer point of view, it's a much it's a.

It's a much, it's a much easier process. So if there's an issue on the vehicle, rather than you as the customer having to deal with the vehicle being dropped off, or they're taken to a service center, we simply come to you, we come to your house or come to your place of business and and perform the service on the vehicle.

And more than half well over half of all of our service operations there, mobile, we expect that to shift into greater than three quarters of all service operations will be performed with mobile service.

Now, that doesn't completely relieve the need for physical infrastructure, the physical infrastructure is important for, you know, more significant service activities.

And as I said, that's why we continue to grow and invest in that network and we'll see that.

growing where, since we put service locations closest to where we have large pools or large pockets of demand.

Thank you. Our next question comes from the line of Joseph Speck with UBS. Your line is now open. Thanks so much everyone.

Claire, I know you sort of, you know, talked a little bit about some of the puts and takes into next year, but you know, you're you're right now running at a at a 65,000 run rate this quarter. So, in the context of.

of uh... you know the downtime and a hundred and fifty

Okay, total capacity, how should we be thinking about next year's potential? Is that sort of 65 run rate about the right level you guys are planning for next year?

So, as you mentioned, there's going to be a number of puts and takes overall, and it's important to note that the impacts of the shutdown are temporary in nature, but the benefits.

will be there for the future. And RJ spoke briefly to just the magnitude of technology changes that will be introduced into the R1 vehicles next year that creates a true step change in our material cost roadmap and path to positive first profit margin for us as a whole.

So as you think about the cadence of the year, as I mentioned in my program, Mark will start, you know, Q1, you know, akin to our, you know, current and existing run rates. And then Q2 and Q3 will be heavily impacted quarters from a production standpoint, where we'll take multiple weeks of downtime throughout the course of Q2. And then we'll be ramping up.

All of the respective variants of R1, both in Q2 and in Q3 as well.

And then as we talked about in the past, Q4 becomes that run rate potential for the business where you'll see Rivian continuing to ramp up our volumes from a production standpoint for both. Our one as well as our commercial volumes, you'll see the full impact of each of the new technologies, hitting our material costs, that also coincides with a significant percentage of the

commercial cost down opportunity that we have in front of us as well. And so those elements come together in connection as well with Rivian fulfilling our pre 31222 pre orders, which also results in a step change in our average selling price is the vehicle over that period of time as well. So next year is certainly a year of different puts and takes, but that's directly how I would think about the volume

Okay, that's helpful. And actually, that feels nice into my next question, you know, RJ or Claire, like, I mean, you've talked about this in the past about, you know, the higher ASPs with the backlog and RJ sort of mentioned some of the, you know, affordability concerns out there on, in EVs, but really I'd say in broader auto as well at least in the headlines. So, you know,

Clearly, you have good visibility on your backlog through 24. But how are you thinking about or planning for the margin profile for the business when you go, once you get past that? Like if affordability is a greater concern, do you have enough line of sight on cost reduction initiatives or other efforts to sort of help balance out what might be a little bit of a tougher pricing environment? Faster.

We've talked about this a bit in the past, but when we think about the R1 platforms, you know, we launched with a quad motor, large packs, that's our middle sized pack and one trim configuration. And what we've done over the last.

You know, last few months is we start to introduce additional build combinations above and beyond that. So we introduced a dual motor that's built around our Enduro motor platform. We of course, introduced our Max pack, which is our largest battery pack. Next year.

our standard pack, which is our smallest battery pack, and we'll be introducing a variety of different trim and build combinations along with that over the course of the next.

year and what that does is it provides us with a broader spread of prices or price choices for consumers on the R1.

platform to essentially be able to target both the most price-sensitive customers as well as customers are looking to buy

you know, sort of the fully loaded maximum content vehicle and

What that effectively does is it allows us to benefit from the higher margin profile on these higher price, full content vehicles and balance.

the lower priced, lower content vehicles and still look at it as we look at that fill-ins of ASP, still see ASP grow over time. And a big contributor to that, which peroluted to it is as we start to blend in newer pricing and we move past the... the as we look at that fill-ins of ASP, still see ASP grow over time.

free March 1, 2022 pricing. That's also gonna have an accretive effect on overall ASP.

The other thing to keep in mind from a demand point of view is just the scale of the segments that we're operating in. The three-wheel-resh of e-space and the picture.

represent very large pools of demand. And of course, across those large pools of demand, there's a range of prices, but this is a really important element for us is just recognizing, you know, how much overall demand potential there is. And we're seeing with increased awareness and excitement for the brand that translate to lots and lots of new EV customers.

The other thing which, which is worth just bringing up in the context of some of the negotiations that we've had with with our one.

is the bill of material cost reductions we're seeing, and these are significant, and we're going to see them quarter over quarter. I've described it before, almost like this staircase set of changes quarter over quarter, with a big step being that which comes in quarter two of next year. But we've been able to leverage suppliers' excitement for

to achieve you materially lower cost in our bill of materials.

that will start to layer in, you know, along with what comes in Q2, but even beyond that. And so R2 is sort of this incredible carrot for suppliers night. And one of the things that's become very clear, particularly in the last two to three quarters,

is just how well the Rivian brand is resonating and suppliers are recognizing relative to some of the other customers, just how much volume we're delivering and how much demand there is for our product.

relative to a wide variety of established brands. And they recognize that that excitement for our brand.

We'll also translate to lower price points. And the R2 captures the essence of our brand, but of course, it has a smaller package and a much lower price point.

Our next question comes from the line of Mark Delaney with Goldman Sachs, she'll line his note then.

Thanks for taking my question. You reiterated your view to be gross margin positive in 2024, but I'm hoping to better understand if your views on how Rivian will get there. I've changed it all recently, given the volatility in the industry more broadly with competitors cutting EV vehicle prices, but also costs falling, and Rivian, as you described, making so much progress on its own.

Thanks, Mark. I'll let Claire jump in and this is what I think this is just such an important topic. And ultimately, I just spoke to it a bit, but there's

A few major levers, the first being the continued ramp up of our production facility and the fixed cost absorption that comes with that. We're seeing the benefits back quarter of a quarter as we continue to ramp. So it's numerically very easy to understand. The second, which is maybe less.

It's not as easy to see without having a look into all of our supplier negotiations and discussions is a significant progress we're making contractually with redefining bill material costs or material costs.

through negotiations with suppliers, through resourcing of new suppliers, or through changes to the component or system design to achieve those cost reductions. And the shutdown that we have in the second quarter of next year, 2024, will allow us to implement a large bundling of all of those changes, both in terms of suppliers.

Part design changes, component changes, I've talked about this a lot in the past, but massive consolidation of our ECU topology, massive simplification of our harness, simplification of our body structure, simplification of the HVAC system in the vehicle, so there's big changes that are going to be coming as part of that shutdown.

And we saw a similar, it's worth noting with the commercial vehicle, with the EDV, when we had the shutdown earlier this year, we had a 35% reduction in our material costs associated with the consolidated set of changes we made with that shutdown. So we're expecting and anticipating a similar level of step change in our material costs following the shutdown.

And then lastly, which I spoke to a moment ago is growth ASP, and that's going to be both due to the layering in or the feathering in of new pricing, which, again, we'll just see quarter over quarter as more and more of our our deliveries are associated with new pricing, meaning post March 1 2022.

as we work through that. And then the other is the introduction of some of these new trim packages. MaxPak as an example, we have some new trim configurations going to be coming out next year that will also help us grow ASP.

So it's the combination of RAMP, material costs, and ASP that give us a very high degree of confidence in our long-term gross margin for the business.

Thanks for that, RJ. And my follow-up was on a related topic on margins. Last quarter, you spoke about your expectation for R1 to be contribution margin positive exiting this year. Is that still your expectation?

Mark, we still expect R1 to be contribution margin positive exiting this year, not for a newly priced unit. Thank you.

Thanks so much, team. Sorry to follow on the same topic, but if we, you know, I wanted to look at that sort of the shape of the gross profit progression as we think about next year. And so, and just paraphrasing, you know, could we think about this, you know, minus 30,

thousand per vehicle as sort of linearly getting better in Q4 and Q1. And then obviously there's a big step change. You talked about all the massive improvements in the architecture. Q2, you have some re-ramp in Q3, so I don't want to put, it's going to be a more complex number. But coming out of Q3 into Q4, that's where we should start to really see that the gross profit ramp probably well through positive, because then obviously you have target...

2025 that include double-digit gross profit, does that sound like a shape where you get a big change out of the Q2, Q3 into Q4 because that's where a large amount of the architecture costs change out?

Yeah, so Chris, as you think about the near term cadence, one area I wanted to just call out is

As I mentioned in Rob's question, EDV was a significant contributor to our Q3 margin improvement itself.

And so, as you look to Q4, given the seasonality of Amazon's business, that will be a fraction of the volume that they took in Q3 of this year. And so, you won't see this linear path from Q3 to Q4 in terms of the gross profit losses per unit. They are just given some of the

As you look to Q1, you'll see more, you know, similar types of dynamics, especially as you start to ramp up greater volumes of our Enduro drive units, where you're all seeing, you know, some of the new technology introductions that we have in R1. You'll see the benefits of MaxPak as well throughout the course of Q4 and Q1 that are contributing to the cost down road map for R1.

And then, as you mentioned, if you were to just look at the material cost trajectory,

That's where you'll see the significant step change, really, in the second half of 2024 as each of the new technologies that we'll be introducing will start to go into production in the line as well. And so that's going to be that step change in terms of gross margin improvement.

However, that step change will be mitigated by some volume related impacts given our production rates for Q2 and Q3, and so Q4 is where you'll see more of the run rate potential coming out of the shutdown itself.

And, you know, the full complement of material cost downs included within the vehicles themselves.

make make that uh... i get there's a lot of moving parts but basically think about next year that Q1 clean quarter

And Q4, obviously, you know, clean again, there'll be the EDV issues then, but basically it all comes out of Q4. So, okay, in terms of the shape, that all makes sense.

One of the areas you've also been really improving upon has been on the OPEX side. And I'm just curious, how do we think about if we run rates going into next year?

When do we have to start to build in some OPEX for Georgia pre-work?

uh... you know some obviously can be be capitalized but you know do we have to start to build in an op-ex investment as i

As you think about the OPEX drivers, you'll start to see.

Georgia pick up in 24. But beyond that, you'll also see more material investments as we approach.

the 2024 shutdown to introduce new technology. So, as our team today is increasing the number of prototypes we're building in advance of the shutdown and increasing the level of, you know, engineering, design, and development work that we're doing with our supply partners for those new technology introductions, you're seeing a little bit of a tick up of R&D that you'll see throughout the second half of this year and into the first half of next year itself. But in.

We don't expect a material increase will certainly see some, you know, continued increases across the board, but we'll continue to maintain, you know, sort of the slight increased level that we've seen of late over the longer term.

Thank you. Our next question comes from the line of Emmanuel Rossner with Deutsche Bank. Your line is now open.

Thank you very much. So it's exciting to hear that you'll be able to sell the commercial vehicle.

other customers. I was wondering if you can try and help us with a directional sense of

you know, volume splits between that and the Amazon ones, and also timing. So after the re-rate next year, you'll have, I think, 65,000 units of capacity for the, you know, the commercial vehicles. How quickly or on what timeline do you think that you would be able to essentially fill that capacity between, you know, your current customers and any new ones?

As I spoke to before, the sales process for commercial customers really is a relatively long, long sort of lead time process whereby it's important for these large fleet operators to run pilot programs. You both understand.

you know, the unique idiosyncrasies of the vehicle, but also to understand what changes are necessary from an infrastructure point of view. And as is often the case.

where the vehicles would be based out of their quote unquote hub wasn't originally designed with a lot of power, so it doesn't have necessary power to support daily charging or night charging of the vehicles, and that takes time to install that. We've learned this, you know, some of the challenges associated with converting existing facilities to support large EV fleets. We've learned this, you know, through the lens of our relationship with Amazon very clearly. And so.

Those pilot programs, which will be kicking off will be announcing a number of them shortly will lead to larger volumes, but we want to be careful to just set expectations in the right way that these pilot programs will take some time. And so we think of this as

some volume associated with both the pilots and orders that come following the pilots in 2024, but the significant opportunity really starts to kick in in 2025 as these larger customers transition from pilot to at-scale development.

Okay, that's helpful. And then my second question is on APEC.

Obviously quite a big cut again to this year's guidance. I think you've mentioned about among other factors, you know, timing delays. I guess historically when you've lowered the capex over the last few quarters or so, there was no real.

increasing capex for the future periods. But how should we think about this particular cut? Like, are you going to see something next year in terms of capex that's higher than what you previously contemplated? Or in the end, you can leave it at your regular framework?

So, what we've we've talked about in the past has been approximately two billion dollars for on average between twenty three and twenty four.

I'd say that we'll be.

We'll be in position to be, you know, below that average, just slightly below that average. If you think about the trajectory and the significance of cuts that we've had in 2023 itself. It's really been driven by both some improvements that we've had in terms of longer dated payment terms on some of the work that we're doing within our production facility and with our equipment purchases, as well as

the episodic nature of some of our investments predominantly surrounding the shutdown and introduction of new technologies, that's really the largest contributor to the reductions that we've made this year that will hit, you know, in the early part of 2024.

Thank you. Our next question comes from the line of Colin Langan with Wells Fargo. Your line is now open. Oh great, thanks.

If I look at gross profit, XC, LC, and RV, it's trending, I think, close to 38,000 a vehicle, and that has improved a lot from Q1.

where I think it was close to 80, but still quite a big gap to get to the gross profit. I mean, I think in Q1 you kind of framed like a certain percent was leverage, certain price, certain was engineering, certain price downs. Any sort of framework how we get from this sort of $38,000 today to the break even? What are sort of the main drivers from here? Is it mostly the pricing and engineering at this point, or is there still some leverage?

The three drivers remain, as you think about them, being the fixed cost leverage that we'll get from increased volume from current state to the end of 2024, as well as the material cost down trajectory and improvements in average selling price as a whole.

As you look at the progress that we've made over the course of this year, that's largely been driven by the improvements that we've seen in fixed cost leverage from the production ramp, as well as the progress that we've been making on material costs, given the technologies we've introduced in EDV, which RJ referenced, resulted in a 35 percent improvement in our material costs from the EDV.

itself, and then continued progress against both the introduction of new technologies, such as the, you know, dual motor introductions that we've had in R1, and then beyond that, we've also continued to see progress, as RG mentioned, in the visibility that we have today in our contractual agreements with supplier partners that are continuing to come down as we look both.

you know, to the business in the future. The other key that we've seen has has been around the commodities environment and backdrop. And to date, you're not really seeing the softness in some of the key battery cell raw materials reflected in our current results. So some of that trajectory is still to come as you think about impacts for the end of this year and into 2024 as well.

I think, you know, Claire and I both spoke to this, but it's important to call out when we talk about material cost reductions and.

and pulling overall our bomb costs down. These are contractual, meaning this isn't like us sitting over here hoping that this is going to come down. These are detailed contractual negotiations, part by part, supplier by supplier.

And the effectivity data in some of these, you know, where it's, let's say, just a pure negotiation on a part that's not going to change or on a supply that's not going to change, we've been able to accelerate the effectivity date.

to have already happened or to be happening prior to the the shutdown in Q2 of 2024.

But for some of the larger changes, things like, let's say, for example, the significant consolidation of ECUs that we're driving or the massive refactoring of our harness, it takes roughly 25% of the harness length out.

You know, those, those involve, you know, engineering changes that were and involve new suppliers and completely new supplier contracts. And so the bundling of some of.

multi-thousand dollar changes that have effectivity dates in April , it's, you know, we have

a hundred percent confidence those are going to occur. Those are again, I'm using the word here as clearly as I can, these are contractual agreements. But the contractual agreements have an effectivity date and they tie to when we start production with those new components.

So, you know, as we look at this transition, the continued ramp, as I said earlier, that's, we understand the number, you know, that's just the numerics of fixed cost absorption. And on the bomb cost side, it's just understanding what I understand is hard for all of you to see, but very clear for us to see, the contractual obligations that we've negotiated with all of our suppliers.

I guess I think in Q1, you had kind of indicated half of the gap was leverage, and then it was like a quarter price and then a quarter supplier and engineering. At this point, we have already cut it in half. I mean, how should we think between those three items? Is it now equally a third, a third each of what's going to drive closing that gap? I guess I was trying to gauge the size.

Colin, we're not going to provide an update specifically to the bridge that we had commented on. But as I mentioned, the significance in the progress that we've seen to date has really been driven by fixed cost leverage from production ramp and some of the progress in our material cost down trajectory. So you can extrapolate that to understand those sort of relative reweighting of those three key drivers for us.

Thank you. Our next question comes from the line of Jordan Levy with Truist Securities. Your line is now open.

Hi, all it's Henry on for Jordan here. I just a quick 1 around some of the current macro news on demand. Just want to get a sense of any, any small changes in your thinking around the long bar to timing, et cetera, due to this, or do you think that. The backdrop reviews be substantially improved by the time it rolls out in 2026.

Yeah, ultimately, as we look at, I'd say, probably beyond even R2, just at the space, I think there is a overreaction to some of the

short-term headwinds, short or medium-term headwinds we see between interest rates being at record high levels. And of course, those aren't going to drop down anytime in the next month or two, but this is something that we'll recover over time. And some of the geopolitical challenges that we have across the world. So if you look at R2 launching in 2026,

everything about R2 in terms of its ability to, and our deep confidence in its ability to capture the essence of our brand. We're enormously excited about the product, but to do it at a price point that's considerably lower than what we have in R1 and at a form factor of size that makes it sort of fit from a just a market point of view, fit the largest segment in the United States.

we couldn't be more excited and bullish on this product. And we think the timing of it works out beautifully in terms of the brand buildup that we're driving with R1 and off the back of that to then have a product that is sized physically in terms of its footprint as well as price.

such that it can really capture the hearts and minds of buyers, but also give customers a real choice. There's an extreme vacuum of choice, we feel, in the $45,000 to $50,000 price range for midsize SUVs. There's just not a lot of great options.

Such that it can really capture.

Capture the hearts and minds of buyers, but also give customers a real choice.

Stream vacuum of choice we feel.

In the sort of 45 to $50000 price range for midsize Suvs Theres, just not a lot of great options.

And as a result, we see very highly concentrated market share with with with with Tesla, but we believe there's a there's a need for alternatives and those alternatives need to be very robustly developed with vertically integrated software electronics.

And as a result, we see very highly concentrated market share with.

With with Tesla.

But we believe theres, a theres a need for alternatives and those alternatives need to be very robustly developed with vertically integrated software electronics.

and a deeply seamless user experience user interface, which is of course what we're developing with R2.

And deeply seamless user experience user interface, which is of course, what we're developing with our too.

Awesome, thanks for that. And then can I just piggybacking off the software space? Can you just update us again on some of the monetization opportunities you'll see in the software segment kind of into next year and then kind of longer term?

Awesome. Thanks for that and then kind of just piggybacking off the software space can you just update US again on some of the monetization opportunities you'll see in the software segment kind of into next year, and then kind of longer term.

We've spoken about this before, but we really believe, in terms of the large scale opportunities to monetize, we think that the most

We.

We've spoken about this before but we really believe in terms of the large scale opportunities to monetize we think the most.

The model that we think is going to fit and has shown to fit the most is around autonomy, and as we look at higher levels of autonomy, the ability to charge for that, and there's a variety of ways that that can be done, you know, monthly payments, as well as upfront payment for access to a higher level of autonomy. We do think there's been a over.

The model that we think is going to fit in.

As shown to fit the most is around autonomy and because you look at higher levels of autonomy the ability to charge for that and Theres a variety of ways that that can be done monthly fee payments as well as upfront payment for access to a higher level of autonomy.

We do think theres been a over.

There's been an over, it's been overestimated how much vehicle manufacturers can charge for every software feature, so the way that we think about it is the features that have a lot of complexity and require a lot of development, autonomy being a great example of that, some of what we think of as some of the really interesting immersive user experiences, particularly as you start to think about AR and the way that the vehicle can interact with its environment. We think those represent opportunities for.

There's been an over.

It's been overestimated how much.

Vehicle manufacturers can charge for every software feature so the way that we think about it is the features that have a lot of complexity.

And require a lot of development autonomy being a great example of that some of what we think of as some of the really interesting immersive user experiences.

Typically as you start to think about <unk> and the way that the vehicle can interact with its environment, we think those represent opportunities for us.

an incremental charge above and beyond the base platform. But the idea of charging for heated seats or charging for sort of a binary 1 or 0, like turning a feature on and off, we don't think that that's going to land well with consumers. And we don't think that that's going to be a sustained model for charging for software. We think it really ties to the much more complex, much more heavy development platform.

An incremental charge above and beyond the base platform.

But like the idea of charging for heated seats are charging for sort of a binary one or zero like turning a feature on and off we don't think that thats going to land both consumers and we don't think that that's going to be.

Sustained model.

For for charging for sulfur, we think it really ties to the much more complex much more heavy development platforms.

Thank you. Our last question is from Alex Potter with Piper Sandler. Your line is now open.

Thank you.

My last question is from Alex Potter with Piper Sandler Your line is now open.

Perfect, thanks a lot. I was wondering if you could give us an update on your battery strategy. I know that historically you've been working in house, potentially, and having your own chemistry, your own cell spoken relatively favorably about any changes in your thinking there about what you're doing now and also looking forward to our 2.

Perfect. Thanks, a lot.

I was wondering if you could give us an update on your battery strategy I know that historically you had been working in house potentially.

Potentially having your own chemistry here on cell, it's broken relatively favorably about LSP.

Any changes in your thinking there about what you're doing now and also looking forward to.

So this is a space that's rapidly evolving, and as we look out over the next decade, one of the things that's become very clear through both the lens of policy but also through the lens of securing long-term supply is the upstream supply of some of the raw materials. So lithium hydroxide, lithium carbonate, of course,

This is a space that is rapidly evolving.

As we.

Look out over the next decade, one of the things that's become very clear.

Through both the lens of policy, but also through.

Through the lens of securing long term supply is the upstream suppliers some of the raw materials, so lithium hydroxide or lithium carbonate of course Nicole.

you know, thinking also very much and more recently about graphite.

Thinking I'll also very much more recently about graphite.

And each of these upstream raw materials has different implications around the cell manufacturing itself. So something like graphite of course, as a very closely tied relation to the anode chemistry, whereas, let's say lithium hydroxide is a little bit more monetized and more easy to, you know, easier to integrate into a downstream supply. And so where we've been spending a lot of time is building a very robust strategy around

And each of these upstream raw materials has different implications around the cell manufacturing itself. So something like graphite of course is a very.

Closely tied relation to the anode chemistry, whereas let's say lithium hydroxide is a little bit more commoditized and more easy to easier to integrate into a into a downstream supply and so we've been spending a lot of time is building a very robust strategy around.

each of the components of the cell and each of the raw materials of the cell from an upstream relationship point of view and also making sure that those upstream relationships and the way we want to engage with those upstream suppliers integrates with the way we've structured our deals with battery cell suppliers.

Some suppliers integrates with the way we've structured our deals with battery cell suppliers.

And in the case of R2, this is really important given the role that IRA is going to play in terms of driving.

And in the case of our two this is really important given the role that <unk> is going to play in terms of driving.

uh advantaged pricing with the consumer facing tax credit uh and and in the effect that that'll have in terms of consumer behavior.

Advantaged pricing with the consumer facing tax credit.

And the effect that that will have in terms of consumer behavior.

So we're incredibly focused on upstream supply. I also think that the last 18 months have been a really challenging environment in that, particularly if you think about.

So we're we're incredibly focused on upstream supply I also think that the last 18 months have been a really challenging environment and that particularly if you think about what happened in 2022 and into the beginning of 2023, where there was.

what happened in 2022 and into the beginning of 2023, where there was, I would say, a lot of bad deals done in the upstream raw material supply, where people were overpaying and inflating the market, and it made it hard to do a good deal. We sort of watched some of that play out and I'd say.

I would say a lot of bad deals done in the upstream raw material supply where people are overpaying and inflating the market and it made it hard to do a good deal.

We sort of watch some of that play out in I'd say in.

In the aftermath of some of that exuberance, there's now a lot more rational deals that are on the table in terms of securing some of that upstream supply of raw materials.

And the after math of some of that exuberance Theres now a lot more rational deals that are on the table.

In terms of securing some of that upstream supply of raw materials.

Okay.

Great. Okay. That was going to be my next question.

Great Okay.

That was going to be my next question.

So I guess maybe one last one, just a simple one. How many three March first orders do you still have in the backlog? Presumably there shouldn't be very many of them left. At what point is that going to be completely clean? Thanks.

So I guess, maybe one last one just a simple one how many.

Pre March 1st quarter do you still have in the backlog, presumably there shouldnt be very many of them left at what point does that going to be completely Glenn. Thanks.

Alex will continue to work through the pre-March 1st pre-order base as a whole. And as we've talked about in the past, they'll be feathered in both new orders, as well as pre-March 1st orders, especially as we expand our production to include more dual motor units, which weren't

Alex will continue to work through the pre March 1st Preorder base as a whole and as we've talked about in the past there'll be feathered in both new orders as well as P March 1st orders, especially as we expand our production to include more dual motor units, which werent.

available to those pre-march first cut consumers originally and will introduce Max back and there's a variety of new introductions over the course of 2024 as well. So you'll continue to see both new orders as well as pre-march first pre-orders feathered in together.

Available to those pre March one.

Consumers originally.

We will introduce snack pack and Theres, a variety of new introductions over the course of 2024 as well.

We continue to see both new orders as well as our pre March 1st.

Preorders feathered in together.

Thank you. I'd now like to turn the call back over to RJ Scarrinch for closing remarks.

Thank you I'd now like to turn the call back over to RJ Sky Ranch for closing remarks.

Well, thanks, everyone for joining us on our call today.

Well, thanks everyone for joining us on a call today. And we've spent...

And we've spent.

At the time, with the last quarter, really continuing focus on things we said we're going to focus on driving up production volume and achieving better fixed cost leverage, achieving meaningful reductions in our material costs from a bill and a true point of view. Working on building out our commercial and go-to-market operations to allow us to not only continue driving demand, but to continue driving up our

The at the.

Time over the last quarter really continue to focus on things, we've said theyre going to focus on driving our production volume.

And achieving better fixed cost leverage.

Moving.

Meaningful reductions in our material costs from a bill of materials point of view.

Working on building out our commercial and go to market operations to allow us to not only continue driving demand, but to continue driving up.

Our asps.

and importantly focused on developing our our next.

Importantly focused on developing our next set of products around the <unk> platform, which as you've heard me say, we couldn't be more excited about and im really looking forward to <unk>.

set of products around the R2 platform, which as you heard me say, we couldn't be more excited about and really looking forward to showing to the world in the other part of next year. You know, as we now look out and particularly with all the...

<unk> in the World and the early part of next year.

As we as we now look out.

And particularly with all the.

Discussion around long term EV penetration and the timing for EV penetration, I want to just end by saying we remain deeply convicted around the transition of the entirety of our transportation space.

Discussion around long term EV penetration and the timing for EV penetration I wanted to just end by saying.

We remain deeply convicted around the transition of the entirety of our transportation space.

and we're committed to building customers, or building products that our customers absolutely love, and building a brand around those products that that continues to resonate across a variety of price points and a variety of form factors, which of course the R2 platform will really help deliver on.

And we're committed to building customers are building products that our customers absolutely love and building our brand around those products that continues to resonate across a variety of price points in a variety of form factors, which of course, the <unk> platform.

Really helped deliver on.

So with that, thank you everyone for joining. Look forward to our next call.

So with that thank you everyone for joining and look forward to our next call.

This concludes today's conference call. Thank you for participating. You may now disconnect.

This.

Today's conference call. Thank you for participating you may now disconnect.

Okay.

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Okay.

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Okay.

Bill.

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Okay.

Yes.

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Okay.

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Good day and thank you for saying goodbye. Welcome to the Rivian 3rd quarter, 2023 Ernest Conference call. At this time, all participants are in a listening mode. After you speak this presentation, there will be a questioning intercession. To ask the question during the session, you will need to press star one one or your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again.

Good day and thank you for standby welcome to the Arabian third 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 answer session to ask a question. During this session you will need to press star one one of your telephone.

Didn't hear an automated message if I see your hand is raised to withdraw your question. Please press star one again.

please be advised that today's conference is being recorded. I'd now like to turn the conference over to your speaker today, Tim Bay, Vice President of Investor Relations. Please go ahead.

Please be advised that today's conference is being recorded.

I would now like to turn the conference over to your Speaker today, Tim Bay, Vice President of Investor Relations. Please go ahead.

Good afternoon and thank you for joining us for Rivians third quarter 2023 earning

Good afternoon, and thank you for joining us for <unk> third 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.

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.

<unk> that may be considered forward looking statements under federal Securities laws.

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.

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'll cover on today's call with that I'll turn the call over to RJ, who will begin with a few opening remarks.

Just before the call, we published our shareholder letter, which includes an overview of our progress over the recent months. I encourage you to read it for additional details around some of the items we'll cover on today's call. With that, I'll turn the call over to RJ, who will begin with a few opening remarks.

Thanks, Tim. Hello, everyone. Thanks for joining us today. During our call, I'll highlight key developments during the third quarter and provide an update on the progress we're making against our core value drivers. Importantly, I want to take this opportunity to provide some broader perspective on the EV space. There's been a lot of noise and a lot of dialogue recently around EV adoption. And I want to emphatically state just how deeply convicted we are that the entire automotive industry will be transitioning to electric over the next one to two decades.

Thanks, Tim and Hello, everyone and thanks for joining us today during our call I'll highlight key developments during the third quarter and provide an update on the price we are making against our core value drivers importantly, I want to take this opportunity to provide some broader perspective on the EV space, there's been a lot of noise and a lot of dialogue recently around EV adoption.

And I want to emphatically state just how deeply convicted we are that the entire automotive industry will be transitioned to electric over the next one to two decades.

We built and designed our business around this transition. We designed our team structure, our technology stack, the way we've approached vertical integration to not only help our business scale profitably, but to ensure we're positioned to be a leader in this generational opportunity.

We've built and designed our business around this transition we've designed our team structure our technology stack.

We were approached vertical integration.

So not only help our business scale profitably, but to ensure we're positioned to be a leader in this generational opportunity.

We believe a substantial competitive advantage is our approach to vertically integrating our in-vehicle computers, software stack, and propulsion platform, along with our efficient, direct-to-consumer, go-to-market strategy.

We believe a substantial competitive advantage is our approach to vertically integrating our in vehicle computers software stack and propulsion platform, along with our efficient direct to consumer go to market strategy.

R2 will benefit from investments we've made in R1 and will represent our first global platform.

<unk> will benefit from investments we've made in our one and and will represent our first global platform.

Additionally, Rivian's production ramp and introduction of multiple vehicle platforms in our Illinois plant has provided significant learnings in a compressed timeframe. Our team will apply this experience to our new manufacturing facility in Georgia with the goal of achieving a considerably lower cost.

Additionally, <unk> production ramp and introduction of multiple vehicle platforms, and our Illinois plant has provided significant learnings in a compressed timeframe. Our tmall apply this experience to our new manufacturing facility in Georgia with the goal of achieving a considerably lower cost structure.

Now in the short term, I want to acknowledge the macroeconomic and geopolitical pressures impacting consumers and businesses, most notably the increase in interest rates.

Now in the short term I want to acknowledge the macroeconomic and geopolitical pressures impacting consumers and businesses, most notably the increase in interest rates.

In this context, we remain laser-focused on the factors within our control, driving greater cost efficiency, continuing to ramp production, investing in differentiated technologies, continuing to enhance the Rivian customer experience, and maintaining a strong balance

In this context, we remain laser focused on the factors within our control driving greater cost efficiency continued to ramp production investing in differentiated technologies, continuing to enhance the revenue and customer experience and maintaining a strong balance sheet.

Our financial and operating results during the third quarter of 2023 represent progress on each of these fronts.

Before I get into the third quarter's milestones and performance, I wanted to touch on an important new development, which was just released.

Before I get into the third quarter's milestones of performance.

I wanted to touch on an important new development, which was just released.

We have amended our Amazon agreement with terms and conditions which provide the opportunity to sell commercial vans to other customers, helping more companies reduce their CO2 emissions.

We have amended our Amazon agreement with terms and conditions, which provide the opportunity to sell commercial bands to other customers, helping more companies reduce their COPD.

With more than 10,000 EDVs on the road and 260 million delivered packages, we are already seeing meaningful impact from our initial rollout.

With more than 10000, Evs on the road and $260 million delivered packages, where you're already we're already seeing meaningful impacts from our initial rollout.

We are excited to continue our work with Amazon to deliver on their initial order of 100,000 vehicles, along with a diverse set of new commercial customers.

We're excited to continue our work with Amazon to deliver on their initial order of 100000 vehicles, along with a diverse set of new commercial customers.

We're confident in the value our vans, software, and services offerings can provide fleet customers and are in active discussions with a number of large potential fleet customers to launch pilot programs.

We're confident in the value of our advanced software and services offerings can provide fleet customers and are in active discussions with a number of large potential fleet customers to launch pilot programs.

It's important to appreciate that the sales cycle for commercial vans typically begins with lower volume pilot programs.

It is important to appreciate that the sales cycle for commercial events typically begins with lower volume pilot programs.

The most recent quarter demonstrated sequential production growth, further improvement in our profitability per vehicle, introduction of a new MaxPak variant with up to 410 miles of range, rollout of multiple over-the-air updates to enhance the customer experience, and focused investment on commercial infrastructure to support our expanding fleet of vehicles.

The most recent quarter demonstrated sequential production growth further improvement in our profitability per vehicle introduction of the new Max pack variant with up to 410 miles of range rollout of multiple over the air updates to enhance the customer experience and focused investment on commercial infrastructure to support our expanding fleet of vehicles.

Within the plant, we continue to see progress across our production lines. We produced 16,304 vehicles during the third quarter and continue to ramp our Enduro drive unit line.

Within the plant, we continue to see progress across our production lines. We produced 16304 vehicles during the third quarter and continued to ramp arent duro driving alignment.

As a result of this, we are raising our production guidance for the year to 54,000 total units.

As a result of this we are raising our production guidance for the year to 54000 total units.

Later this month, we plan to take about a week of downtime for validation bills to support the incorporation of engineering design changes into the R1 platform, which will be implemented in the planned downtime in the second quarter of 2024, which we discussed in the last earnings report.

Later this month, we plan to take about a week of downtime for validation builds to support an incorporation of engineering design changes into the <unk> platform, which will be implemented and the planned downtime in the second quarter of 2024, which we discussed in the last earnings call.

These new technologies include our simplified electronic control unit topology and cost reductions across a variety of areas, including the vehicle harness, body structure, and battery power.

These new technologies include our simplified electronic control unit topology.

And cost reductions across a variety of areas, including the vehicle harness body structure and battery pack.

These technology changes represent Rivian's continued emphasis on driving greater cost efficiency.

These technology changes represent <unk> continued emphasis on driving greater cost efficiencies that will significantly contribute to driving towards revenues long term gross margin targets.

they will significantly contribute to driving towards Rivian's long-term gross margin target.

Rivian vehicles have now driven over 490 million miles, which provides us with great data and feedback on how our vehicles perform in different environments and what features can be added or enhanced to improve our customer experience.

Reuben vehicles have now driven over 490 million miles, which provides us with great data and feedback on how our vehicles performed in different environments and what features can be added or enhanced to improve our customer experience.

This past quarter, we pushed major over-the-air updates, which improved ride quality, enhanced the towing experience, and offered customers a new way to interact with the different drive modes.

Over 90% of our customers update their software within five days of it becoming available. It's great to see this level of engagement with our software.

Later this quarter, we plan to launch our leasing platform on select R1T vehicles in certain regions. We look forward to offering this as a new way for our customers to take delivery of Arrivium and plan to expand the lease offering to additional regions across more vehicles as the program matures.

Later this quarter, we plan to launch our leasing platform on select <unk> vehicles in certain regions. We look forward to offering this as a new way for our customers to take delivery of Caribbean and plan to expand the lease offering to additional regions across more vehicles as the program matures.

We currently have 45 service centers, along with 408 mobile service vehicles. In addition, we recently opened <unk> spaces, our version of retail stores in Vancouver, Seattle, Chicago, Brooklyn, Nashville, Atlanta and Denver.

Our DC fast charging network also continues to expand we currently have 57 review an adventure network charging sites.

Progress continued on the development of the R2 platform, as well as preparing the future production site in Georgia. I was just there a few weeks ago. It's great to see the site starting to take form, which is the direct result of strong collaboration between the state, local community, and Rivian.

It was a strong quarter as we continued to deliver on our operational and financial goals. I would like to thank our employees, customers, partners, suppliers, communities, and shareholders for their continued support of our vision. With that, I'll pass the call to

Thanks, RJ. I would like to reiterate that our team is focused on four key value drivers, driving greater cost efficiency, continuing to ramp production, investing in differentiated technologies, and continuing to enhance the Rivian customer experience.

Thanks, RJ I would like to reiterate that our team is focused on four key value drivers driving greater cost efficiency continuing to ramp production investing in differentiated technologies and continuing to enhance the Arabian customer experience.

Third quarter results demonstrate advancement in each of these aspects of our business.

During the third quarter, we produced 16,304 vehicles and delivered 15,564 vehicles, which was the primary driver of the $1.3 billion of revenue we generated.

During the third quarter, we produced 16304 vehicles and delivered 15560, <unk> vehicles, which was the primary driver at the $1 $3 billion of revenue we generated.

Total gross profit for the quarter was negative $477 million.

We remain focused on improving our gross profit per vehicle delivered. During the third quarter, our gross loss per vehicle improved by approximately $2,000 versus the second quarter. This improvement would have been approximately $14,000 better, excluding the impact of the change in LCNRV and losses on firm purchase commitment.

We remain focused on improving our gross profit per vehicle delivered.

During the third quarter, our gross loss per vehicle improved by approximately $2000 versus the second quarter.

This improvement would have been approximately $14000 better excluding the impact of the change in LC and RV and losses on firm purchase commitments.

So, therefore, LTNRV and losses on firm purchase commitments more significantly contributed to the improvement in gross profit during the second quarter as compared to the third quarter, highlighting the improvements we have made in ramping production and reducing the material cost of our vehicles.

As a reminder, when our L-C-N-R-B balance and losses on firm purchase commitments decline, it reduces cost of goods sold and positively contributes to gross profit.

As a reminder, when our LTE <unk> balance and losses on firm purchase commitments declined it reduces cost of goods sold and positively contributes to gross profit.

We expect by the end of 2024, we will no longer have material LCNRV inventory charges associated with the production at our Illinois plant as we reach positive gross profit.

We expect by the end of 2024, you will no longer have material LC and RV inventory charges associated with the production at our Illinois plant as we reached positive gross profit.

Our adjusted EBITDA for the quarter was negative $942 million.

In October of this year, we raised a $1.75 billion green convertible note, which further strengthens our balance sheet as we approach the expected start of construction of our Georgia plant early next year.

In October of this year, we raised a $1 $75 billion Green convertible note, which further strengthened our balance sheet as we approach the expected start of construction of our Georgia plant early next year.

By maintaining a strong balance sheet, we're well positioned as we look to start production of the R2 platform in 2026.

By maintaining a strong balance sheet, we are well positioned as we look to start production of the <unk> platform in 2026.

The offering was not completed until after the quarter end. Accordingly, the $1.6 billion of net proceeds from the raise was not included in our Q3 2023 ending cash balance of $9.1 billion.

The offering was not completed until after the quarter and accordingly, the $1 $6 billion of net proceeds from the raise was not included in our Q3 2023, ending cash balance of $9 1 billion.

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 we've seen year to date across our manufacturing process and our cost down efforts, we are raising each aspect of our 2023 annual guidance. We are raising our production guidance to 54,000 units, improving EBITDA guidance to negative $4 billion, and lowering our CapEx guidance to $1.1 billion.

Just on the progress we've seen year to date across our manufacturing process and our cost down efforts, we're raising each aspect of our 2023 annual guidance. We are raising our production guidance to 54000 units improving EBITDA guidance to negative four $1 billion and lowering our capex guidance.

<unk> to $1 1 billion.

The improvement in estimated CapEx is driven mostly by timing of spend and by our efforts to reduce costs across the business.

The improvement in estimated Capex is driven mostly by timing of spend and by our efforts to reduce costs across the business.

As RJ mentioned, and as we discussed on last quarter's earnings call, we expect to shut down both the consumer and commercial lines in our Illinois facility in the 2nd quarter of 2024 to introduce a number of new and vehicle technologies to the R1 platform.

We believe these changes will meaningfully reduce our material costs and position Rivian to exit 2024 with a much improved margin profile.

We believe these changes will meaningfully reduce our material cost and position ribbon to exit 2024 with a much improved margin profile.

We are planning to adjust the production rate of the lines whereby the planned annual capacity will be for 85,000 units for R1 and 65,000 units for EDV, keeping the total facility at an annual capacity of 150,000 units.

Our downtime in Q2 2024 and associated ramp up in Q2 and Q3 2024 is expected to impact roughly 2 quarters of production.

Our downtime in Q2, 2024 and associated ramp up in Q2, and Q3 2024 is expected to impact roughly two quarters of production.

While the incorporation of new design changes impacts near term production, we are confident it better positions Rivian to be more profitable and competitive over the long term.

While the incorporation of new design changes impact near term production, we are confident it better positions <unk> to be more profitable and competitive over the long term.

Overall, we continue to see a clear path to our approximately 25% gross margin target, high teens 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.

Overall, we continue to see a clear path to our approximately 25% gross margin target high teens, 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.

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Our first question comes from the line of Rod Lash with Wolf Research. Your line is now open.

Our first question comes from the line of Rod Lache with Wolfe Research. Your line is now open.

Hi everybody. I have a question on cost and a question on demand.

Hi, everybody.

Hi, a question on costs and a question on demand.

Yes.

But my impression is that you're making better than expected progress on cost just simply because you improved your gross loss by $16,000 x LCRV.

My impression is that you are making better than expected progress on costs.

Just simply because you improved your gross loss by $16000 X L. CRV.

Um, I didn't see any average price improvement and presumably volume isn't helping.

I didn't see any average price improvement and presumably volume isn't helping you just yet because you haven't gotten to contribution margin positive on the <unk>. So is that is.

yet because you haven't gotten the contribution margin positive on the R1s.

Is that correct, because it is interesting since you haven't yet benefited from the new architecture.

Is that correct.

Because it is interesting since you haven't.

Yet benefited from the new architecture of the pack and all the other things that are coming into 2024.

Thanks for the question, Rod, as you think about the key drivers in the margin improvement that we saw over the last quarter, it was driven by the 23% increase that we saw in delivery volume. So there was some fixed cost leverage.

Thanks for that question Rod.

As you think about the key drivers in the margin improvement that we saw over the last quarter. It was driven by the 23% increase that we saw in delivery volume. So there was some fixed cost leverage but we also saw significant improvements in material costs, which was driven both by a mix shift to a greater concentration of ABB.

But we also saw significant improvements in material costs.

which was driven both by a mixed shift to greater concentration of EDV delivery volume.

Delivery volumes, they're roughly about 30% of our revenue in Q3 with from the sales of the <unk> itself.

So roughly about 30% of our revenue in Q3 was from the sales of the EDV itself, which is, as you mentioned, is a higher margin, you know, already contribution margin positive for Rivian vehicle platform for us.

As you mentioned is a higher margin already contribution margin positive for radian vehicle platform for us.

But beyond the EDV, we also saw significant material cost savings as well for R1 driven by the continued work of our procurement team as we've been renegotiating many of our supply agreements, and then it also incorporated some of the early sales of our dual motor to consumers as well that benefited the reduction in material cost.

Well that benefited the reduction in material costs.

In addition to those two key levers, we also saw, you know, continued softening in the broader logistics market and space. And so that was also a contributor to the improvement that we saw on a per unit basis for Q3. That's helpful.

In addition to those key two key levers. We also saw continued softening in the broader logistics market.

Space and so that was also a contributor to the improvement that we saw on a per unit basis for Q3.

That's helpful.

Contribution margin must be on the Rcv's on the demand side could you talk about how quickly you can expand the RCV to other customers. They understand that it's there's a process with pilots and planning with these fleets, but any thoughts on how we can think about.

On the demand side, could you talk about how quickly you can expand the RCV to other customers? I understand that there's a process with pilots.

planning with these fleets, but any thoughts on how we can think about RCV sales into 2024 or 2025? And on the R1, you're currently at 65,000 units.

RCV sales into 2020 for 2025 and on the <unk> Youre. Currently at 65000 units you will be at 85000 units at the end of next year capacity.

will be at 85,000 units at the end of next year capacity. Presumably you'd need at least 180 orders per average day just to meet like your current capacity. Maybe you could talk a little bit about whether you're seeing convergence to that kind of a number. What's the trajectory of demand that you're seeing?

Presumably you would need at least 180 orders per average day just to meet your current capacity, maybe you could talk a little bit about.

Whether you are seeing convergence to that kind of a number what what's the trajectory of demand that youre seeing in the orders.

Hi, Rod, thanks for the question on the commercial vehicle and our 1 just to speak 1st on the commercial vehicle side. We, you know, of course, we've been working on this exclusivity agreement with Amazon for a while. We've talked about this in past earnings calls. So it's not as if we were surprised by that this morning. And with that, we've, we've been building.

Hi, Rod Thanks for the question on the commercial vehicle and our one just to speak first on the commercial vehicle side we.

Of course, we've been working on.

This exclusivity agreement with Amazon for a while and we've talked about this in past earnings calls so it's not as if we were surprised by that this morning.

And with that we've we've been building the relationships with a diverse set of commercial operators and that's everything from last mile to retail to a wide variety of <unk>.

the relationships with a diverse set of commercial operators, and that's everything from last mile to retail to a wide variety of industrial or commercial business cases which require businesses that require commercial vans.

Industrial and commercial business cases, which require businesses that require.

Commercial vans.

And.

While the fleet and the use cases are diverse the one element that is very common for these large fleets is the necessity.

Of of running pilots as a way to prep the network our prep the system to ingest a completely different type of vehicle in terms of its need for charging infrastructure and.

And as well as changes to the standard operating procedure for those respective businesses.

And so what we'll be announcing soon is a range of different pilot programs that will proceed much larger orders as these large fleets start to plan the electrification of their infrastructure.

So what we'll be announcing.

Soon as a range of different pilot programs that will proceed much larger orders as as these large as these large fleets start to plan the electrification of their infrastructure.

As it pertains to R1, we, of course,

As it pertains to our one.

Of course.

can see in the numbers for Q3, we continue to maintain an extremely strong market share position at the price points at which the R1 platform operates. So, as you think about volume of vehicles, electric vehicles sold, let's say at over $75,000 price point, we're a very significant market share player that the brand is connected incredibly well with consumers.

You can see in the numbers for Q3, we continue to maintain an extremely strong.

Market share position at the price points at which the <unk> platform operates so as you think about <unk>.

Volume of vehicles electric vehicles sold let's say at over 75000 or price point.

We're very significant market share player that the brand is connected incredibly well with consumers.

And we're seeing that translate to not only continued excitement for the brand, but we see that really manifest.

Really strong residual values in particular really strong used vehicle pricing.

So Google search of used review in our warehouse will just reveal just how robust the pricing and therefore the demand for these products are.

So with that said.

This is before we've even launched a number of.

Additional variance there it'd be coming online. We've just recently launched <unk>, we've launched a dual motor but early next year, we will be launching our centered battery pack will be launching additional trim configuration and.

And importantly.

Starting now are starting later this month, we're going to be launching on select models as you heard Kurt I'll describe in the opening statements.

Select Mile is a leasing program, and that leasing program creates a different way for customers to access the product, which is really helpful in an environment with interest rates as we see today.

Select models of leasing program and our leasing program creates a different way for customers to access the product, which is really helpful and.

In an environment with interest rates as we see them today.

So we remain very bullish on our one program and its long-term demand.

So we remain very bullish on.

On the <unk> program and its long term demand.

And as I indicated, I think that the RCV platform, commercial van platform, really is, in our view, the best commercial van option available for any sort of large fleet. And we're working very hard to translate that into volume over the course of the next several quarters with these pilot programs that I referred to at the start.

And as I indicated I think that the.

The RCV platform commercial van platform.

It really is.

In our view.

The best commercial band option available for fleet up to any sort of large fleet and we're working very hard to translate that into volume over the course of the next several quarters with these pilot programs that are referred to at the start.

Thank you.

Our next question comes from the line of John Murphy of Bank of America. Your line is now open.

Um, good evening guys. Um, just a quick question on the 4th quarter implied volumes. Um, it looks like they're, they're a fair amount lower than what you did in the 3rd quarter on on production. You just curious, you know, this is a question of of days and the calendar, or is there something else going on sort of in the plan? Is it what you mentioned on on the Amazon deliveries where you might downshift a little bit? And what's going on?

Good evening guys. Just a quick question on the fourth quarter implied volumes. It looks like there are a fair amount lower than what you did in the third quarter on production.

I'm just curious is this just a question of days in the calendar or is there something else going on sort of in the in the plan is it what you mentioned on the Amazon deliveries, where you might downshift Adv, a little bit what's going on there.

Claire spoke to this in our opening statements, but we're planning a longer shutdown in the second quarter of 2024 to implement a whole host of changes.

Yes.

Spoke to just opening statements, but we were planning.

A longer shutdown in the second quarter of 2024 to implement a whole host of changes that introduce a dramatic reduction in our material costs were drilling materials for the <unk> platform, but those changes also improve the operations of the plant and allow us to produce vehicles with less labor per vehicle and therefore less cost.

that introduced a dramatic reduction in our material cost for building materials for the R1 platform. But those changes also improve the operations of the plant and allow us to produce vehicles with less labor per vehicle and therefore less cost per vehicle.

Per vehicle.

Proceeding that shutdown in Q2 2024, we have a one week shutdown in Q4, and that's planned to do some of the longer lead changes in the plant.

Preceding that shutdown in Q2 2024, we have a one week shutdown in Q4.

And that's that's planned to do some of the longer lead changes in the plant and it requires us to shut down all production for.

And it requires us to shut down all production for for approximately a week. So you're certainly seeing that in the numbers.

Approximately a week, so you're certainly seeing that in the numbers.

And then I'd say broadly.

Broadly, we've we're also recognizing some of the days lost around the holidays.

Broadly.

We are also recognizing some of the days lost around the holidays.

associated with Christmas and, of course, the New Year holiday.

Associated with Christmas and.

And of course, the new year holiday.

Okay, and then just one follow up on the physical service network build out. How are you sizing that at the moment? Because, I mean, that's obviously something that you're getting way ahead of, you know, the customer needs there, you know, how you're locating, deciding on locations, what's the cost of those and how are you sizing those?

Okay, and then just one follow up on the physical service network Buildout or Jay how are you sizing that at.

At the moment, because I mean, that's obviously something that Youre getting way ahead of.

The customer needs there.

How you are locating deciding on locations, what's the cost of those and how are you sizing those.

As you know, and we've talked about this in past earnings calls, we are building a service footprint that relies on both physical brick and mortar service locations. We'll have about 50 of those in the U.S. by the end of this year. But supplementing that and actually performing a majority of our service are mobile service vehicles.

As you know and we've talked about this in the past in past earnings calls we are building up our service footprint that relies on both physical.

Brick and mortar service locations, we'll have about 50 of those in the U S. By the end of this year.

But supplementing that and actually performing a majority of our service our mobile service vehicles.

And our mobile service vehicle fleet, as I said, at the start is more than 400 vehicles today. It's as of, I think, this week, it's 408, but it continues to grow. And that the beauty of mobile service first strategy is from a customer point of view.

In our mobile service vehicle fleet.

Ted.

The start is more than 400 vehicles today.

As of I think this week, it's 408, but it continues to grow.

The beauty of mobile service first strategy is from a customer point of view, it's a much it's.

It's a much, it's a much easier process. So if there's an issue on the vehicle, rather than you as the customer, having to deal with the vehicle being dropped off or they're taken to a service center, we simply come to you, we come to your house or come to place of business and and perform the service on the vehicle.

A much easier process. So if theres an issue on the vehicle rather than use the customer having to deal with the vehicle being dropped off they are taken to a service center, we simply come to you when we come to your house or come to your place of business.

And perform the service on site and more than half well over half of all of our service operations. There mobile we expect that to shifted to greater than three quarters of all service operations will be performed with mobile service now that doesn't completely relief the need for physical infrastructure. The physical infrastructure is important for <unk>.

And more than half, well over half of all of our service operations there are mobile. We expect that to shift into greater than three quarters of all service operations will be performed with mobile service.

Now, that doesn't completely relieve the need for physical infrastructure, the physical infrastructure is important for, you know, more significant service activities.

More significant.

Service activities and as I said, that's why we continue to grow and invest in that network and we will see that.

And as I said, that's why we continue to grow and invest in that network and we'll see that.

growing where essentially we put service locations closest to where we have large pools or large pockets of demand.

Growing.

Essentially we put service locations closest to where we have large pools of large pockets of demand.

Thank you. Our next question comes from the line of Joseph Speck with UBS. Your line is now open. Thanks so much, everyone.

Thank you.

Our next question comes from the line of Joseph Spak with UBS. Your line is now open.

Thanks, so much everyone.

Claire, I know you sort of talked a little bit about some of the puts and takes into next year, but you're right now running at a at a 65,000 run rate this quarter. So, in the context of.

I know you sort of.

Talk a little bit about some of the puts and takes in to next year, but you are right now running at a at a 65000 run rate this quarter.

So in the context of.

of, you know, the downtime and the 150.

<unk>.

The downtime and the 150.

Okay, total capacity, you know, how should we be thinking about about, you know, next year's potential? Is that is that sort of 65 run rate, you know about the right level you guys are planning for next year?

K total capacity.

How should we be thinking about about next year's potential is that is that sort of $65 run rate.

About the right level you guys are planning for next year.

So as you mentioned, there's going to be a number of puts and takes overall, and it's important to note that the impacts of the shutdown are temporary in nature, but the benefits.

So as you mentioned, there's going to be a number of puts and takes overall and it's important to note that the impacts of the shutdown are temporary in nature, but the benefits will be there for for the future and RJ spoke briefly to just the magnitude of technology changes that will.

We'll be there for, you know, for the future and RJ spoke briefly to just the magnitude of technology changes that will be introduced into the R1 vehicles next year that creates a true step change in our material cost roadmap and path to positive first profit margin for us as a whole.

Be introduced into the <unk> vehicles.

And next year that creates a true step change in our material cost road map and path to positive gross profit margin for us as a whole.

So, as you think about the cadence of the year, as I mentioned in my prepared remarks, we'll start Q1, akin to our current and existing run rates, and then Q2 and Q3 will be heavily impacted quarters from a production standpoint, where we'll take multiple weeks of downtime throughout the course of Q2, and then we'll be ramping up.

So as you think about the cadence of the year as I mentioned in my prepared remarks, they will start and Q1 is a kin to our current and existing run rates and then Q2 and Q3 will be heavily impacted quarters from a production standpoint, where it will take multiple weeks of downtime throughout the course of Q2.

And then we will be ramping up all of the respective variance of our one.

all of the respective variants of R1 both in Q2 and in Q3 as well.

Both in Q2 and into Q3 as well and then as we've talked about in the past Q4 become that run rate potential for the business, where youll see <unk> continuing to ramp up our volumes from a production standpoint for both our one as well as our commercial volumes, you'll see the full impact of each.

And then as we've talked about in the past, Q4 becomes that run rate potential for the business where you'll see Rivian continuing to ramp up our volumes from a production standpoint for both R1 as well as our commercial volumes. You'll see the full impacts of each of the new technologies hitting our material costs. That also coincides with a significant percentage of the

Of the new technologies are hitting our material cost that also coincides with a significant percentage of that.

the commercial cost down opportunity that we have in front of us as well. And so those elements come together in connection as well with Rivian fulfilling our pre three one twenty twenty two preorders, which also results in a step change in our average selling price of the vehicle over that period of time as well. So next year is certainly a year of different puts and takes. But that's directionally how I would think about the volume kit.

<unk>.

The commercial cost out opportunity that we have in front of us as well and so those elements come together in connection as well with Arabian fulfilling our pre 312022, preorders, which also results in a step change in our average selling price of the vehicle over that period of time as well.

And so next year is certainly a year of different puts and takes but thats directionally, how I would think about the volume cadence.

Okay, that's helpful. And actually, um, that deals nicely into, into my next question. Um, you know, RJ or Claire, like, I mean, you've, you've, you've talked about this in the past about, you know, the, the higher ASPs with, with the backlog and RJ, you sort of mentioned some of the, you know, uh, affordability concerns out there on, um, in EVs, but really, I'd say in broader auto as well, at least in, in, in the headlines. Um, so, you know,

Okay, that's helpful and actually.

Dovetails nicely into my next question.

Our Jay or Clare.

You've talked about this in the past about the.

The higher Asps with the backlog and RJ you sort of mentioned some of the.

Affordability concerns out there on.

And Evs, but really I would say in broader auto as well at least in the headlines.

So.

Clearly, you have good visibility on your backlog through 24, but how are you thinking about or planning for, you know, the margin profile for the business when you go, once you get past that, like, if affordability is a greater concern, do you have enough line of sight on cost reduction initiatives or other efforts to sort of help, help balance out what might be a little bit of a tougher pricing environment?

Clearly you have good visibility on your backlog through 'twenty four but how are you thinking about or planning for.

The margin profile for the business. When you go once you get past that like if affordability is a greater concern do you have.

Enough line of sight on cost reduction initiatives or other efforts to sort of help help balance out what might be a little bit of a tougher pricing environment.

We've.

We've talked about this a bit in the past, but when we think about the R1 platform, you know, we launched with a quad motor, large pack, that's our middle sized pack and one trim configuration. And what we've done over the last.

We've talked about this a bit in the past when we think about the <unk> platform.

We launched with the Quad motor large pack, that's our middle sized pack and one term configuration.

And what we've done over the last.

Um, you know, last few months as we start to introduce additional. Build combinations above and beyond that. So we introduced the dual motor that's built around our enduro motor platform. We, of course, introduced our max pack, which is our largest battery pack. Next year.

Last few months as we start to introduce additional.

Build combinations above and beyond that so we introduced the dual motor.

Built around our dural motor platform.

Of course introduced our Max pack, which is our largest battery pack.

Next year, we'll be introducing.

our standard pack, which is our smallest battery pack, and we'll be introducing a variety of different trim and build combinations along with that over the course of the next.

Our centered pack, which is our smallest battery pack and we'll be introducing.

A variety of different trim and build combinations along with that over the course of the next year and what that does is it provides us with a broader spread of prices or price choices for consumers are one plot.

year. And what that does is it provides us with a broader spread of prices or price choices for consumers on the R1.

platform to essentially be able to target both the most price sensitive customers as well as customers are looking to buy.

Platform to essentially be able to target both the most price sensitive customers as well as customers are looking to buy.

you know, sort of the fully loaded maximum content vehicle and

Sort of the fully loaded Maxim content vehicle.

What that effectively does is it allows us to benefit from the higher margin profile on these higher priced full content vehicles and balance

What that effectively does is it allows us to you.

Benefit from the higher margin profile on these higher priced full content vehicles and balance it with.

The, you know, the lower priced lower content vehicles and still look at it through as we look at that fill in the ASP still see ASP grow over time and a big contributor to that, which which pair alluded to is as we start to blend in newer pricing and we move past the.

The lower priced lower content vehicles, and still look at it through as we look at that <unk>.

Asps.

Still see asps grow overtime, and a big contributor to that which Pierre alluded to is as we start to blend in newer pricing and we move past the pre March one 2022 pricing.

pre-March 1, 2022 pricing, that's also gonna have an accretive effect on overall ASP.

That's also going to have an accretive effect on overall asps.

The other thing to keep in mind from a from a demand point of view is just the scale of the segments that we're operating in the three rest of the space and the pickup.

The other thing to keep in mind.

From a from a demand point of view is just the scale of the segments that we're operating in.

The three row SUV space in the pickup segment.

Represent very large pools of demand.

And of course across those large pools of demand there is.

A range of prices, but this is this is a really important element for us is just recognizing how much overall demand potential there is and we're seeing with increased awareness and excitement for the brand.

Does that translate to lots and lots of new EV customers.

The other thing which, which is worth just bringing up in the context of some of the negotiations that we've had with with our one.

The other thing, which is worth just bringing up in the context of some of the negotiations that we've had with with our one.

The bill of material cost reductions, we're seeing and these are significant and we're going to see them quarter over quarter. I've described the performance like the staircase set of changes quarter over quarter with a big step being that which comes in quarter two of next year.

But we've been able to leverage suppliers excitement for our two.

to achieve materially lower costs in our bill of materials.

To achieve.

Materially lower costs in our bill of materials that we will start to layer in along with what comes in Q2, but even beyond that and so our two is sort of this incredible cared for suppliers.

that will start to layer in, you know, along with what comes in Q2, but even beyond that. And so R2 is sort of this incredible carrot for suppliers. And one of the things that's become very clear, particularly in the last two to three quarters,

One of the things that's become very clear, particularly in the last two to three quarters.

is just how well the Rivian brand is resonating and suppliers are recognizing relative to some of the other customers just how much volume we're delivering and how much demand there is for our products.

Is just how well the <unk> brand is resonating and suppliers are recognizing.

Relative to some of the other customers just how much volume we are delivering and how much demand there is for our products.

relative to a wide variety of established brands. And they recognize that that excitement for our brand.

Relative to <unk>.

The wide variety of established brands and they recognize that that excitement for our brand we.

will also translate to lower price points. And the R2 captures the essence of our brand, but of course in a smaller package and in a much lower price point.

We will also translate to lower price points and the <unk> captures the essence of our brand but of course at a smaller package and then a much lower price point.

Thank you.

Our next question comes from the line of Mark Delaney with Goldman Sachs. Your line is now open.

You reiterated your view to be gross margin positive in 2024, but I'm hoping to better understand if your views on how Rivian will get there. I've changed it all recently, given the volatility in the industry more broadly, with competitors cutting EV vehicle prices, but also costs falling, and Rivian, as you described, making so much progress on its own. So I'm wondering if you could talk a little bit more about that.

Yes. Good afternoon. Thanks for taking my question you reiterated your view to be gross margin positive in 2024, but I'm, hoping to better understand if your views on how review and we will get there changed at all recently given the volatility in the industry more broadly with competitors cutting EV vehicle prices, but also cost falling and Vivian as you've described are making so much progress on its own cost structure.

Yes.

Thanks, Mark. I'll let Claire jump into this as well. I think this is just such an important topic and ultimately there's, you know, I just spoke to it a bit but there's

Thanks, Mark I'll, let clay jump in and this is why this is such an important topic and ultimately there's just spoke to it a bit but there is.

A few major levers, the first being the continued ramp up of our production facility and the fixed cost absorption that comes with that. we're seeing the benefits that quarter over quarter, as we continue to ramp so it's it's numerically very easy to understand the second, which is maybe less.

A few major levers the first being the continued ramp up of our production facility in the fixed cost absorption that comes with that.

We're seeing the benefits of that quarter over quarter as we continue to ramp so it's.

Numerically very easy to understand.

The second which is maybe less.

It's not as easy to see without having a look into all of our supplier negotiations and discussions, is the significant progress we're making contractually with redefining bill material costs or material costs.

It's not as easy to see.

Without having a look into all of our supplier negotiations and discussions.

Is the significant progress, we're making contractually with redefining.

Bill of material costs or material costs.

Through negotiations with suppliers through resourcing of new suppliers or through changes to the component of our system design to achieve those.

Cost reductions and the shutdown that we have in the second quarter of next year of 2024.

It will allow us to implement a large bundling of all of those changes both in terms of suppliers.

Part design changes, component changes, I've talked about this a lot in the past, but massive consolidation of our ECU topology, massive simplification of our harness, simplification of our body structure, you know, simplification of the HVAC system in the vehicle, so there's big changes that are going to be coming as part of that shutdown.

Part design changes component changes I've talked about this a lot in the past, but massive consolidation of our EC topology massive simplification of our harness simplification of our body structure.

Simplification of the HVAC system in the vehicle. So theres big changes that are going be coming as part of that shut down.

And we saw a similar, it's worth noting, with the commercial vehicle, with the EDV, when we had the shutdown earlier this year, we had a 35 percent reduction in our material cost associated with the consolidated set of changes we made with that shutdown. So we're expecting and anticipating a similar level of step change in our material costs following the shutdown.

And we saw similar.

It's worth noting with the commercial vehicle with the EV. When we had the shutdown earlier. This year, we had a 35% reduction in our material cost associated with the consolidated set of changes we've made with that shutdown. So we're expecting in.

And anticipating a similar level of step change in our material costs following the shutdown.

And then lastly, which I spoke to a moment ago, is growth in ASP, and that's going to be both due to the layering in or the feathering in of new pricing, which, again, we'll just see quarter over quarter as more and more of our our deliveries are associated with new pricing, meaning post March 1 2022.

And then lastly, which I spoke to a moment ago as growth Asps.

And that's going to be both due to the layering in of the feathering in of new pricing.

Again, we will just see quarter over quarter as more and more of our our deliveries are associated with new pricing, meaning post March one 2022.

as we work through that. And then the other is the introduction of some of these new trim packages. MaxPack as an example, we have some new trim configurations coming out next year that will also help us grow ASP.

As we work through that and then the other is the introduction of some of these new trim packages Max pack as an example.

We have some new trim configuration is going to be coming out next year that will also help us grow asps.

So it's the combination of RAMP, material costs, and ASP that give us a very high degree of confidence in our long-term gross margin for the business.

So it's a combination of ramp material cost and ASP.

They give us a very high degree of confidence in our <unk>.

Long term gross margin for the business.

Yes, thanks for that RJ and my follow up was on a related topic on margins last quarter. You spoke about your expectation for <unk> to be contribution margin positive exiting this year or is that still your expectation. Thank you.

Mark, we still expect R1 to be contribution margin positive exiting this year, not for newly priced units. Thank you.

Mark we still expect <unk> to be contribution margin positive exiting this year after a newly priced units.

Thank you.

Our next question comes from the line of.

Chris Mcnally with Evercore. Your line is now open.

Thanks, so much team.

Sorry to follow on the same same topic, but if we wanted to look at that sort of the shape of the gross profit progression as we think about next year and so.

And just paraphrasing could we think about this year minus 32000 per vehicle as it sort of linearly getting better in Q4 and Q1.

thousand per vehicle as sort of linearly getting better in Q4 and Q1. And then obviously there's a big step change. You talked about all the massive improvements in the architecture. Q2, you have some re-ramp in Q3, so I don't want to, you know, put, it's going to be a more complex number. But coming out of Q3 into Q4, that's where we should start to really see that the gross profit ramp probably well through positive, because then obviously you have target

And then obviously there is a big step change you talked about all of the massive improvements in the architecture Q2, you have some re ramp in Q3. So I don't want to put it is going to be a more complex number but coming out of Q3 into Q4, that's where we should start to really see that the gross profit ramp probably well.

Through positive because then obviously you have targets.

2025 that include double digit gross profit does that sound like a shape, where you get a big change out of the Q2 Q3 into Q4, because that's where a large amount of the architecture cost change out.

Yeah, so Chris, as you think about the near term cadence, one area I wanted to just call out is

Yes, so Chris as you think about the near term cadence at one area I wanted to just call out is.

As I mentioned in Rob's question, EDV was a significant contributor to our Q3 margin improvement itself. And so as you look to Q4, given the seasonality of Amazon's business, that will be a fraction of the volume that they took in Q3 of this year. And so you won't see this linear path from Q3 to Q4 in terms of the gross profit losses per unit. They are just given some of the mixed shifts.

As I mentioned in Rob's question ETB was a significant contributor to our Q3 margin improvement itself and so as you look to Q4, given the seasonality of Amazon business that will be at a fraction of the volume that they took in Q3 of this year and so you will see this linear path from Q.

Three to Q4 in terms of their gross profit losses per unit. There just given some of the mix shift as you look to Q1, you will see more similar types of dynamics, especially as you start to ramp up greater volumes of our <unk> drive units.

As you look to Q1, you'll see more, you know, similar types of dynamics, especially as you start to ramp up greater volumes of our enduro drive units, where you're all seeing, you know, some of the new technology introductions that we have in R1. You'll see the benefits of MaxPak as well throughout the course of Q4 and Q1 that are contributing to the cost down road map for R1.

Are you all seeing some of the new technology introductions that we have in our one you will see the benefits of Max tack as well throughout the course of Q4 into Q1 that are contributing to the cost of a road map for our one and then as you mentioned if you were to just look at the material cost trajectory, that's where you'll see the significant step.

And then, as you mentioned, if you were to just look at the material cost trajectory,

That's where you'll see the significant step change, really, in the second half of 2024 as each of the new technologies that we'll be introducing will start to go into production in the line as well. And so that's going to that's going to be that step change in terms of gross margin improvement.

Change.

Early in the second half of 2024 as each of the new technologies and that we'll be introducing will start to go into production in the line as well and so that's going to that's going to be that step change in terms of gross margin improvement. However that step change will be mitigated by some volume related.

Given our production rates for Q2, and Q3, and so Q4 is where youll see more of that run rate potential coming out of the shutdown itself.

And, you know, the full complement of material cost downs included within the vehicles themselves.

The full complement of of material cost downs included within the vehicles themselves.

make make that uh... i get there's a lot of moving parts but basically think about next year that uh... Q1 clean quarter

Makes sense, so there's a lot of moving parts, but basically if we think about next year. There's a Q1 clean quarter in Q4, obviously clean again there'll be the ETB issues, then, but basically it all comes out of Q4. So okay in terms of the shape that that all makes sense.

And Q4, obviously, you know, clean again, there'll be the EDV issues then, but basically it all comes out of Q4. So, okay, in terms of the shape, that all makes sense.

One of the areas you've also been really improving upon has been on the OPEX side. And I'm just curious, how do we think about if we run rates going into next year?

The areas you've also been really improving upon has been on the Opex side and I'm. Just curious how do we think about if we run rate going into next year. When do we have to start to build in some opex for <unk> for GA pre work.

When do we have to start to build in some OPEX for Georgia pre-work?

uh... you know some obviously can be be capitalized but you know do we have to start to build in and op ex investment

Some obviously it can be be capitalized, but do we have to start to build in an opex investment as I think about for 24. Thank you.

As you think about the OPEX drivers, you'll start to see.

As you think about the Opex drivers and Youll start to see Georgia pick up in 'twenty four.

Georgia pick up in 24. But beyond that, you'll also see more material investments as we approach.

And that you'll also see more material investments as we approach the 2024 shutdown to introduce new technology. So as our team today is increasing the number of prototypes were building in advance of the shutdown.

the 2024 shutdown to introduce new technology. So as our team today is increasing the number of prototypes we're building in advance of the shutdown and increasing the level of engineering design and development work that we're doing with our supply partners for those new technology introductions, you're seeing a little bit of a tick up of R&D that you'll see throughout the second half of this year and into the first half of next year itself.

And increasing the level of engineering design and development work that we're doing with our supplier partners for those new technology introductions, youre seeing a little bit of a tick up of R&D that you'll see throughout the second half of this year.

Into the first half of next year itself.

But in aggregate.

We don't expect a material increase, we'll certainly see some, you know, continued increases across the board, but we'll continue to maintain, you know, sort of the slight increased level that we've seen of late over the longer term.

We don't expect a material increase we will certainly see some continued increases across the board.

But we'll continue to maintain sort of that.

The slight increase level that we've seen of late over the longer term.

Thank you. Our next question comes from the line of Emmanuel Rothner with Deutsche Bank. Your line is now open.

Thank you.

Our next question comes from the line of Emmanuel Rosner with Deutsche Bank. Your line is now open.

Thank you very much. So it's exciting to hear that you'll be able to sell the commercial vehicle.

Thank you very much so to say coming through here that you'll be able to sell the commercial vehicles too.

other customers. I was wondering if you can try and help us with a directional sense of

Other customers I was wondering if you can.

Try and help us with there.

<unk> sense of.

you know, volume split between that and the Amazon one, and also timing. So after the re-rate next year, you'll have, I think, 65,000 units of capacity for the, you know, the commercial vehicles. How quickly or on what timeline do you think that you would be able to essentially fill that capacity between, you know, your current customers and any new ones?

Volume split between that and Amazon wants and also timing. So after the re rates next year, you will have a say 65000 units of capacity for the into the commercial vehicles.

How quickly or on what timeline do you think that's going to be able to essentially fill that capacity between your current customers and then the new one.

As I spoke to before, the sales process for commercial customers really is a relatively long, long lead time process whereby it's important for these large fleet operators to run pilot programs.

As I spoke to before.

The sales process.

For commercial customers really.

Is it relatively long long sort of lead time process whereby.

It is important for these these large fleet operators to to run pilot programs.

Both understand the.

you know, the unique idiosyncrasies of the vehicle, but also to understand what changes are necessary from an infrastructure point of view. And as is often the case.

The unique idiosyncrasies of the vehicle, but also to understand what changes are necessary from their from an infrastructure point of view.

And as is often the case, where the vehicles will be based out of their quote unquote hub wasn't originally designed with a lot of power. So it doesn't have necessarily power to support <unk>.

where the vehicles would be based out of their quote-unquote hub wasn't originally designed with a lot of power, so it doesn't have necessary power to support daily charging or night charging of the vehicles, and that takes time to install that. We've learned this, you know, some of the challenges associated with converting existing facilities to support large EV fleets. We've learned this, you know, through the lens of our relationship with Amazon very clearly. And so.

Daily charging a night charging of the vehicles and that takes time to install that we've learned some of the challenges associated with converting existing facilities to support large EV fleets. We've learned this.

Through the lens of our relationship with Amazon very quickly and so.

Those pilot programs, which will be kicking off we'll be announcing a number of them shortly.

<unk> will lead to larger volumes, but we want to be careful to just set expectations in the right way that these pilot programs will take some time and so we think of this is.

Some volume associated with both the pilots and orders that come following the pilots in 2024, but the significant opportunity really starts to kick in in 2025.

As these larger customers transition from pilot to add scale development.

Okay, that's helpful. And then my second question is on APEC.

Okay. That's helpful.

And then my second question is on the Capex. So.

Obviously quite a big cut again to this year's guidance. I think you've mentioned about among other factors, you know, timing delays. I guess you started when you've lowered the capex over the last few quarters or so. There was no real.

Obviously quite a big cuts again to this year's guidance.

You've mentioned about among other factors timing delays I guess historically when you've lowered the capex over the last few quarters or so.

There was no real.

increasing capex for the future periods. But how should we think about this particular cost? Like, are you going to see something next year in terms of capex that's higher than what you previously contemplated? Or in the end, you can leave it at your regular framework?

The increase in Capex for the future periods, but how should we think about this particular call it like that you're going to see.

Something next year in terms of Capex up higher than what you previously contemplated or India.

Leave it at that your regular framework.

So, what we've we've talked about in the past has been approximately two billion dollars for on average between twenty three and twenty four.

What we've talked about in the past have been approximately $2 billion for an average between 23 and 'twenty four.

I'd say that we'll be.

Okay.

I'd say that will it be.

<unk>.

We'll be in position to be, you know, below that average just slightly below that average. If you think about the trajectory and the significance of cuts that we've had in 2023 itself, it's really been driven by both some improvements that we've had in terms of longer dated, you know, payment terms on some of the work that we're doing within our production facility and with our equipment purchases, as well as,

We'll be in position to be below that average just slightly below that average if you think about the trajectory and the significance of cuts that we've had in 2023 itself.

It's really been driven by both some improvements that we've had in terms of longer dated payment terms on some of the work that we're doing within our production facility.

Our equipment purchases as well as.

the episodic nature of some of our investments, predominantly surrounding the shutdown and introduction of new technologies. That's really the largest contributor to the reductions that we've made this year that will hit in the early part of 2024.

The episodic nature of some of our investments predominantly surrounding the shutdown and introduction of new technologies.

It's really about the largest contributor to the reductions that we've made this year that will hit in the early part of 'twenty four.

Thank you. Our next question comes from the line of Colin Langan with Wells Fargo. Your line is now open. Oh great, thanks.

Thank you.

Our next question comes from the line of Colin Langan with Wells Fargo. Your line is now open.

Oh, great. Thanks for taking my questions.

If I look at gross profit, XC, LC, and RV, it's trending, I think, close to 38,000 a vehicle, and that has improved a lot from Q1.

If I look at gross profit X L Santa or if it's trending I think close to 38000 vehicles and that has improved a lot from Q1.

where I think it was close to 80, but still quite a big gap to get to the gross profit. I mean, I think in Q1, you kind of framed like a certain percent was leverage, certain price, certain was engineering, certain price downs. Any sort of framework how we get from this sort of 38,000 today to the break-even? What are sort of the main drivers from here? Is it mostly the pricing and engineering at this point, or is there still some leverage?

Where I think it was close to 80.

It's still quite a big gap to get to the gross profit I mean, I think in Q1, you kind of framed like a certain percent was leverage certain price certainly was engineering certain price downs or any sort of framework, how we got from the sort of 38000 today.

So the breakeven what are sort of the main drivers from here or is it mostly the pricing in engineering at this point or is there still some leverage there.

So the three drivers remain as you think about them being the fixed cost leverage that will get from increased volume from current state to the end of 2024, as well as the material cost down trajectory and improvements in average selling price as a whole.

The three drivers remain as you think about them being the fixed cost leverage that we'll get from increased volume from current state to the end of 2024.

And as well as the material cost down trajectory and improvements in average selling price as a whole and as you look at the progress that we've made over the course of this year and that's largely been driven by the improvements that we've seen and fixed cost leverage from the production ramp as well as the progress that we've been making on.

Material costs.

Given the technologies, we've introduced in ABB, which RJ referenced resulted in a 35% improvement in our material costs in the edp.

itself, and then continued progress against both an introduction of new technologies, such as the, you know, dual motor introductions that we've had in R1. And then beyond that, we've also continued to see progress, as RG mentioned, in the visibility that we have today in our contractual agreements with supplier partners that are continuing to come down as we look at both.

Itself and then continued progress against both the introduction of new technologies, such as the dual matter.

Introductions that we've had in our one and then beyond that we've also continued to see progress as Archie mentioned in the visibility that we have today in our contractual agreements with supplier partners and that are continuing to come down as we look at both.

you know, to the business in the future. The other key that we've seen has has been around the commodities environment and backdrop. And to date, you're not really seeing the softness in some of the key battery cell raw materials reflected in our current results. So some of that trajectory is still to come, as you think about impacts for the end of this year and into 2024 as well.

To the business in the future.

Other key that we've seen has been around the commodities environment and backdrop and today youre not really seeing the softness in some of the key battery cell raw materials are reflected in our current results and so some of that trajectory is still to come as you think about.

Impacts for at the end of this year and into 2024 as well.

I think, you know, Claire and I both spoke to this, but it's important to call out when we talk about material cost reductions and.

Okay clear enough.

But it's important to call out when we talked about material cost reductions and.

And pulling overall, our Bom cost down these are contractual meaning this isn't like a sitting over here, hoping that this is going to come down these are.

Detailed contractual negotiations part by part supplier by supplier.

And the Effectivity data in some of these.

Where it's where it is let's say just a pure negotiation on our part that's not going to change on a supply that's not going to change we've been able to accelerate the effectivity date.

to have already happened or to be happening prior to the the shutdown in Q2 of 2024.

Two have already happened or to be happening prior to the shutdown in Q2 2024, but for some of the larger changes.

But for some of the larger changes, you know, and things like, let's say, for example, the significant consolidation of ECUs that we're driving, or the massive refactoring of our harness that takes roughly 25% of the harness length out.

And things like let's say for example, the.

Significant consolidation of easy to use that we're driving or the massive refactoring of our harnessed. It takes roughly 25% of the harnessed blanked out.

You know, those those involve, you know, engineering changes that were involved, new suppliers and completely new supplier contracts. And so the bundling of some of.

Those those involved.

Engineering changes that <unk> and <unk>.

<unk>, new suppliers and completely new supplier contracts and so the bundling of some of those big.

multi-thousand dollar changes that have effectivity dates in April , it's, you know, we have

A multi thousand dollar changes that have effectivity dates in April.

We have.

100% confidence those are going to occur those are again.

I'm using the word here is good with academies are contractual agreements.

But there are contractual agreements haven't effectivity date tied to when we start production with those with those new components.

So, you know, as we look at this transition, the continued ramp, as I said earlier, that's, we understand the number, you know, that's just the numerics of fixed-cost absorption, and on the bomb cost side, it's just understanding what I understand is hard for all of you to see, but very clear for us to see, the contractual obligations that we've negotiated with all of our suppliers.

<unk>.

We look at the this transition the continued ramp as I said earlier, that's we understand that that's just the numeric of fixed cost absorption.

And on the Bom cost side, it's just understanding.

I understand it's hard for all of UTC, but very clear for us to see the contractual obligations that we've negotiated with all of our suppliers.

I guess I think in Q1, you had kind of indicated half of the gap was leverage on it it was like a quarter price in a quarter supplier and engineering.

At this point, where you have already cut it in half I mean, how should we think between those three items is it now equally a third a third each of what's going to drive that closing that gap I guess I was trying to gauge the size of whats left.

We're not going to provide an update specifically to the bridge that we hedge and commented on but as I mentioned.

The significance and the progress that we've seen to date has really been driven by fixed cost leverage from the production ramp and some some of the progress in our material cost down trajectory. So you can extrapolate that to understand relative.

Relative re weighting.

Three key drivers for us.

Thank you. Our next question comes from the line of Jordan Levy with Truist Securities. Your line is now open.

Thank you <unk>.

Next question comes from the line of Jordan Levy with <unk> Securities. Your line is now open.

Hi, all it's Henry on for Jordan here. I just have a quick 1 around some of the current macro news on demand. Just want to get a sense of any, any small changes in your thinking around the 1 bar to timing, et cetera, due to this, or do you think that. The backdrop reviews be substantially improved by the time it rolls out in 2020.

Hi, all it's Henry on for Jordan here, just a quick one around some of the current macro news.

EV demand just wanted to get a sense of any any small changes in your thinking around the launch of our two timing et cetera due to this or do you think that.

<unk> op reviews to be substantially improved by the time it rolls out in 2026.

Yeah, ultimately, as we look at, I'd say, probably beyond even R2, just at the space, I think there is a overreaction to some of the

The ultimate.

Finally, as we look at.

I'd say probably beyond even our two just at this space I think there is a overreaction to some of the.

short-term headwinds, short or medium-term headwinds we see between interest rates being at record high levels. And of course, those aren't going to drop down anytime in the next month or two, but this is something that will recover over time. And some of the geopolitical challenges that we have across the world. So if you look at R2 launching in 2026,

Short term headwinds short or medium term headwinds we see.

Between interest rates being at record high levels and of course, those aren't going to dropdown anytime.

Next month or two but but this is this is something that will recover over time and some of the geopolitical challenges that we have across the world.

So if you look at our two launching in 2026.

everything about R2 in terms of its ability to, and our deep confidence in its ability to capture the essence of our brand. We're enormously excited about the product, but to do it at a price point that's considerably lower than what we have in R1 and at a form factor, a size that makes it sort of fit from a just a market point of view, fit the largest segment in the United States.

Everything about our too in terms of its ability to and our deep confidence in its ability to capture the essence of our brand.

We're enormously excited about the product, but to do it at a price point that's.

Considerably lower than what we have in our one and at a form factor of size that makes it.

Sort of fit from addressable market point of view.

The largest segment in the United States.

We couldnt be more excited and bullish on this product and we think the timing of it works out beautifully.

In terms of the brand buildup that we're driving with our one and off the back of that to then have a product that is sized physically in terms of its footprint as well as priced.

Such that it can really capture.

To capture the hearts and minds of buyers, but also give customers a real choice.

Extreme vacuum of choice, we feel and the sort of 45 to $50000 price range for midsize Suvs Theres, just not a lot of great options.

And as a result, we see very highly concentrated market share with with with Tesla, but we believe there is there is a need for alternatives and those alternatives need to be.

Very robustly developed with vertically integrated software electronics.

and a deeply seamless user experience user interface, which is of course what we're developing with R2.

And deeply seamless user experience user interface, which is of course, what we're developing with our too.

Awesome, thanks for that. And then can I just piggybacking off the software space, could you update us again on some of the monetization opportunities you'll see in the software segment kind of into next year and then kind of longer term.

Awesome. Thanks for that and then kind of just piggybacking off the software space could you just update US again on some of the monetization opportunities Youll see in the software segment kind of into next year, and then kind of longer term.

We, we've spoken to us before, but we, we really believe in terms of the large scale opportunities to monetize we think that the most.

We.

We've spoken about before but we really believe in terms of the large scale opportunities to monetize we think the most.

The model that we think is going to fit in.

We do think theres been a over.

There's been an over a S.

It's been overestimated how much.

Vehicle manufacturers can charge for every software feature so the way that we think about it is the features that have a lot of complexity.

And require a lot of development autonomy being a great example of that some of what we think of as some of the really interesting immersive user experiences, particularly as you start to think about <unk> and the way that the vehicle can interact with its environment, we think those represent opportunities for <unk> and.

An incremental charge above and beyond the base platform.

Sustained model for.

For charging for sulfur, we think it really ties to the much more complex much more heavy development platforms.

Thank you. Our last question is from Alex Potter with Piper Sandler. Your line is now open.

Thank you.

Last question is from Alex Potter with Piper Sandler Your line is now open.

Yeah.

Perfect. Thanks, a lot.

I was wondering if you could give us an update on your battery strategy I know that historically you had been working in house potentially having your own chemistry around cell, it's broken relatively favorably about LSP.

Any changes in your thinking there about what you're doing now and also looking forward to.

So this is a space that's rapidly evolving. And as we look out over the next decade, one of the things that's become very clear through both the lens of policy but also through the lens of securing long-term supply is the upstream supply of some of the raw materials. So lithium hydroxide, lithium carbonate, of course,

So this is a space it's rapidly evolving.

As we.

Look out over the next decade, one of the things that's become very clear.

Through both the lens of policy, but also through.

Through the lens of securing long term supply is the upstream supply of some of the raw materials, so lithium hydroxide or lithium carbonate.

Of course Nicole.

you know, thinking also very much and more recently about graphite.

Uh huh.

Thinking also very much more recently about graphite.

And each of these upstream raw materials has different implications around the cell manufacturing itself. So something like graphite, of course, as a very closely tied relation to the anode chemistry, whereas let's say lithium hydroxide is a little bit more commoditized and more easy to, you know, easier to integrate into a, into a downstream supply. And so where we've been spending a lot of time is building a very robust strategy around.

And each of these upstream raw materials has different implications around the cell manufacturing itself. So if something like graphite of course is a very.

Closely tied relation to the anode chemistry, whereas let's say lithium hydroxide is a little bit more commoditized and more easy to easier to integrate into a into a downstream supply and so where we've been spending a lot of time is building a very robust strategy around.

Each of the components of the sell in each of the raw materials of the cell from an upstream relationship point of view and also making sure that those upstream relationships and the way we want to engage with those upstream suppliers integrates with the way we've structured our deals with battery cell suppliers.

And in the case of R2, this is really important given the role that IRA is going to play in terms of driving.

And in the case of <unk>. This is really important given the role that <unk> is going to play in terms of driving.

uh advantaged pricing with the consumer facing tax credit uh and and in the effect that that'll have in terms of consumer behavior.

Advantaged pricing with the consumer facing tax credit.

And the effect that that will have in terms of consumer behavior. So we're we're incredibly focused on upstream supply I also think that the last 18 months have been a really challenging environment and that particularly if you think about what happened in 2022 and into the beginning of 2023, where there was.

So we're, we're incredibly focused on upstream supply. I also think that the last 18 months have been a really challenging environment in that, particularly if you think about.

I would say a lot of bad deals done in the upstream raw material supply where people are overpaying and inflating the market and it made it hard to do a good deal.

We sort of watch some of that play out and I would say in.

in the aftermath of some of that exuberance, there's now a lot more rational deals that are on the table in terms of securing some of that upstream supply of raw materials.

And the after math of some of that exuberance Theres now a lot more rational deals that are on the table.

In terms of securing some of that upstream supply of raw materials.

Great. Okay. That was going to be my next question.

Great Okay.

That was going to be my next question.

So, I guess maybe 1 last 1, just a simple 1, how many. Uh, 3, March 1st orders do you still have in the backlog? Presumably there shouldn't be very many of them left. At what point is that going to be completely Clinton? Thanks.

So I guess, maybe one last one just a simple one how many.

Pre March 1st quarter do you still have in the backlog, presumably there shouldnt be very many of them left at what point does that going to be completely.

pre-order base as a whole. And as we've talked about in the past, they'll be feathered in both new orders as well as pre-March 1st orders, especially as we expand our production to include more dual motor units, which weren't.

available to those pre-March 1st consumers originally and we'll introduce MaxPak and there's a variety of new introductions over the course of 2024 as well. So you'll continue to see both new orders as well as pre-March 1st pre-orders feathered in together.

Available to those pre March one.

Consumers originally.

We will introduce snack pack and Theres, a variety of new introductions over the course of 2024 as well.

We continue to see both new orders as well as our pre March one.

Preorders feathered in together.

Okay.

Thank you. I'd now like to turn the call back over to RJ Scarrinch for closing remarks.

Thank you I'd now like to turn the call back over to RJ Sky Ranch for closing remarks.

Well, thanks, everyone, for joining us on the call today. We've spent.

Well, thanks, everyone for joining us on our call today.

And we've spent.

The time over the last quarter really continue to focus on things we've said we're going to focus on driving up production volume and achieving better fixed cost leverage, achieving meaningful reductions in our material costs from a bill of materials point of view, working on building out our commercial and go-to-market operations to allow us to not only continue driving demand but to continue driving up our

The at the.

Time over the last quarter really continue to focus on things. We've said, we're going to focus on driving our production volume.

And achieving better fixed cost leverage.

Moving.

Meaningful reductions in our material costs from a bill of materials point of view.

Working on building out our commercial and go to market operations to allow us to not only continue driving demand, but to continue driving up.

Our asps.

and, importantly, focused on developing our next.

Importantly focused on developing our next set of products around the <unk> platform, which as you heard me say, we couldnt be more excited about and really looking forward to <unk>.

Set of products around the R2 platform, which, as you heard me say, we couldn't be more excited about and really looking forward to showing to the world in the early part of next year as we as we now look out and particularly with all the.

<unk> in the World and the early part of next year.

As we as we now look out.

And particularly with all the.

discussion around long-term EV penetration and the timing for EV penetration, I want to just end by saying we remain deeply convicted around the transition of the entirety of our transportation space.

Discussion around long term EV penetration and the timing for EV penetration I wanted to just end by saying.

We remain deeply convicted around the transition of the entirety of our transportation space.

And we're committed to building products that our customers absolutely love. And building a brand around those products that continues to resonate across a variety of price points and a variety of form factors, which of course the R2 platform will really help deliver on.

Really helped deliver on.

So with that, thank you everyone for joining, look forward to our next call.

So with that thank you everyone for joining look forward to our next call.

This concludes today's conference call. Thank you for participating. You may now disconnect.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q3 2023 Rivian Automotive Inc Earnings Call

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