Q4 2023 Rivian Automotive Inc Earnings Call

Okay.

Operator: Good day, and thank you for standing by. Welcome to the Rivian fourth quarter and full year 2023 earnings conference call. At this time, all participants are in a listen only mode.

Good day, and thank you for standing by welcome to the Arabian fourth quarter and full year 2023 earnings conference call. At this time, all participants are in a listen only mode.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tim Bae, vice president of investor relations. Good afternoon, and thank you for joining us for Rivian's fourth quarter and full year 2023 earnings call. Before we begin, matters discussed on this call, including comments and responses to questions, reflect management's views as of today. We will also be making statements related to our business operations and financial performance that may be considered forward-looking statements under federal securities laws. Such statements involve risks and uncertainties that could cause actual results to differ materially.

The speaker's presentation there'll be a question and answer session to ask a question. During this session. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today Tim.

Tim Day, Vice President of Investor Relations.

Good afternoon, and thank you for joining us for <unk> fourth quarter and full year 2023 earnings call.

Before we begin matters discussed on this call, including comments and responses to questions reflect managements views as of today. We will also be making statements related to our business operations and financial performance that may be considered forward looking statements under federal Securities laws.

Such statements involve risks and uncertainties that could cause actual results to differ materially.

Tim Bae: These risks and uncertainties are described in our SEC filings and in 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.

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.

Tim Bae: Just before the call, we published our shareholder letter, which includes an overview of our progress over the recent months. I encourage you to read it for additional details on some of the items 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, and thanks for joining us today.

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

Thanks, Tim and Hello, everyone and thanks for joining us today during our call I'll highlight key developments during the fourth quarter provide an update on the progress we're making against our value drivers and discuss steps revenue is taking to adapt to evolving market conditions and our industry.

RJ: During our call, I'll highlight key developments during the fourth quarter, provide an update on the progress we're making against our value drivers, and discuss steps Rivian is taking to adapt to evolving market conditions in our industry. Before I dive in, as part of our ongoing focus on driving cost efficiency, I'd like to thank our sponsors. We announced internally today the difficult decision to reduce the number of salaried employees by approximately 10%.

Before I dive in as part of our ongoing focus on driving cost efficiency.

We announced internally today, the difficult decision to reduce the number of salary employees by approximately 10%.

These difficult decisions among other initiatives I plan to discuss enable us to maximize the amount of impact we can have as a company.

We hold the deep conviction that the entire automotive industry will electrify over the long term this means as an industry.

Replacing roughly $1 5 billion internal combustion passenger cars across the planet over the next couple of decades.

<unk> mission is to accelerate this transition.

Major goal with the launch of our one was to build a brand that deeply resonates with customers.

Beyond our active owner groups and the <unk> being the top selling EV in the U S priced over $70000 and owner satisfaction survey conducted by consumer reports showed vivien as the number one automotive brand with the highest likelihood for customers to purchase again.

RJ: These difficult decisions, among other initiatives I plan to discuss, enable us to maximize the amount of impact we can have as a society. We hold the deep conviction that the entire automotive industry will electrify over the long term. This means, as an industry, replacing roughly 1.5 billion internal combustion passenger cars across the planet over the next couple of decades. Rivian's mission is to accelerate this transition. A major goal with the launch of R1 was to build a brand that deeply resonates with customers, beyond our active owner groups and the R1S being the top selling EV in the US priced over $70,000. An owner satisfaction survey conducted by Consumer Reports showed Rivian as the number one automotive brand with the highest likelihood for customers to purchase again.

We intend to harnesses brand strength as we launch our two which will be unveiling our March seven.

Our two represents the essence of our brand while targeting a significant mid sized SUV segment.

And massive market with limited compelling EV options beyond Tesla.

Our two has been developed with vertically integrated propulsion platforms electronics and software to create an incredible user experience.

Our team is laser focused on the factors within our control that will drive revenue in the long term value. These.

These include driving cost efficiency, optimizing our production and deliveries investing in differentiating technologies, enhancing Caribbean customer experience and maintaining a strong balance sheet.

The progress we've made ramping production and driving greater cost efficiency with significant 2023.

During the full year, we more than doubled production deliveries and exceeded our initial production guidance by more than 7000 vehicles.

The team achieved this while also successfully managing the complex integration of engineering design changes, including our in house drive units for both the <unk> and our own platforms LSP battery packs for EV and.

And new vehicle variants, such as our Max back.

Ramping production and introducing new technologies across multiple vehicle platforms has presented challenges, but importantly, our team has gained significant learnings in a compressed timeframe.

RJ: We intend to harness this brand strength as we launch R2, which we'll be unveiling on March 7. R2 represents the essence of our brand while targeting the significant midsize SUV segment, a massive market with limited compelling EV options beyond Tesla. R2 has been developed with vertically integrated propulsion platforms, electronics, and software to create an incredible user experience.

This experience will be foundational as we execute against our 2024 plan.

We took significant steps towards driving greater efficiency in 2023 gross.

Gross profit per vehicle improved by approximately $81000 when comparing the fourth quarter of 2023 to the fourth quarter of 2022.

As we start 2024, I want to emphasize our team's continued sense of urgency and ownership mindset and driving further efficiency throughout the organization.

During our second quarter shutdown, we plan to incorporate additional material cost downs with the integration New design engineering changes and the armed platform deliver further supplier cost reductions capture the flow through of commodity price improvements and further optimize our manufacturing expenses.

RJ: Our team is laser-focused on the factors within our control that will drive Rivian's long-term value. These include driving cost efficiency, optimizing our production and deliveries, investing in differentiating technologies, enhancing the Rivian customer experience, and maintaining a strong balance. The progress we've made ramping production and driving greater cost efficiency was significant in 2020. During the full year, we more than doubled production deliveries and exceeded our initial production guidance by more than 7,000 vehicles.

We believe these steps position us to achieve modest gross profit in the fourth quarter of 2024.

As we start 2024, I want to address the broader industry context, which I referred to during our third quarter call. Our business is not immune to existing economic and geopolitical uncertainties.

Most notably the impact of historically high interest rates, which has negatively impact demand.

In this fluid environment, we appreciate the expressed interest and demand visibility from the investment community.

The conversion of orders to sales can be impacted by several factors, including delivery timing location of order monthly payments and customer readiness.

Our order bank is that'll be reduced over time as deliveries to more than doubled in 2023 versus 2022, along with the impact of cancellations due to both the macro environment and the customer factors I just referenced for.

For 2024, we expect our total deliveries to be derived from our existing backlog as well as new orders generated during the year.

Our key focus is on increasing demand to achieve our 2020 forward delivery targets.

Our go to market strategy built on growing brand awareness, enabling our direct to consumer experience and importantly, providing more opportunities for consumers to experience Our award winning <unk> and rns vehicles firsthand.

We're scaling our review and spaces program, which is our equivalent of retail space retail locations.

And today, we have 11 sites open across North America, most of which have opened in the last six months.

These sites have garnered over 130000 visitors so far in 2024.

Complementing our spaces footprint or more than 50 service centers serve as another location for current and potential customers to experience. Our vehicles. We provided over 13000 demo drives already in the first quarter and consider this to be one of our key demand building strategies.

We've also expanded the lineup of our vehicles and recently introduced our standard range variant, which provides an accessible price point for more potential revenue customers.

We are encouraged by the early results.

The steps, we're taking in 2024 be foundational and positioning <unk> as a leader in the transition to electrification.

The opportunity had a significant we're taking deliberate actions to drive additional cost efficiency as we continue building our go to market capabilities and develop our two platform.

RJ: The team achieved this while also successfully managing the complex integration of new engineering design changes, including our in-house drive units for both the EDV and R1 platforms, LFP battery packs for EDV, and new vehicle variants, such as our MAX. Ramping production and introducing new technologies across multiple vehicle platforms has presented challenges, but importantly, our team has gained significant learnings in a compressed timeframe. This experience will be foundational as we execute against our 2024 strategy. We took significant steps towards driving greater efficiency in 2020. Gross profit per vehicle improved by approximately $81,000 when comparing the fourth quarter of 2023 to the fourth quarter of 2022.

I would like to thank all those who continue to support our vision, including employees customers partners suppliers communities and shareholders with that I'll pass the call to clear.

Thanks R J I'd like to reiterate our excitement for the long term success of Radian over the course of 2023, we made significant progress on all four key value drivers driving greater cost efficiency, continuing to optimize production and deliveries investing in differentiated technologies and Ken.

To enhance the Arabian customer experience.

During the fourth quarter, we produced 17541 vehicles and delivered 13972 vehicles, which was the primary driver at the $1 3 billion of revenue we generated.

Total revenue for the quarter included $39 million of proceeds from the sale of regulatory credits.

We expect the sale of regulatory credits to increase over time, but to vary quarter to quarter.

RJ: As we start 2024, I want to emphasize our team's continued sense of urgency and ownership mindset in driving further efficiency throughout the organization. During our second quarter shutdown, we plan to incorporate additional material cost downs with the integration of new design engineering changes in the R1 platform, deliver further supplier cost reductions, capture the flow-through of commodity price improvements, and further optimize our manufacturing expenses. We believe these steps position us to achieve modest gross profit in the fourth quarter of 2025. As we start 2024, I want to address the broader industry context, which I refer to during our third quarter call. Our business is not immune to existing economic and geopolitical uncertainties, most notably the impact of historically high interest rates, which have negatively impacted demand.

For the full year 2023, we produced 57232 vehicles, which were significantly above our initial guidance of 50000 vehicles and more than double 2022 production.

Total gross profit for the quarter was negative $606 million.

Gross profit per vehicle delivered was approximately negative $43000.

During the fourth quarter cost of goods sold were negatively impacted by $70 million of costs, primarily associated with our planned 2024 shutdown or approximately $5000 per vehicle delivered.

These costs include supplier related expenses accelerated depreciation and other expenses related to the new technology and cost savings designs design changes going into the <unk> platform.

While we could incur additional cost associated with the planned shutdown in technology and design changes in the near term, we do not anticipate these costs to be part of our normal course of business in the longer term.

RJ: In this fluid environment, we appreciate the expressed interest in demand visibility from the investment community. The conversion of orders to sales can be impacted by several factors, including delivery timing, location of orders, monthly payments, and customer readiness. Our order bank has notably reduced over time as deliveries have more than doubled in 2023 versus 2022, along with the impact of cancellations due to both the macro environment and the customer factors I just referenced. For 2024, we expect our total deliveries to be derived from our existing backlog as well as new orders generated during the year. Our key focus is on increasing demand to achieve our 2024 delivery. Our go-to-market strategy is built on growing brand awareness, enabling our direct-to-consumer experience, and importantly, providing more opportunities for consumers to experience our award-winning R1T and R1S vehicles firsthand. We're scaling our Rivian Spaces program, which is our equivalent of a retail space, retail location. And today, we have 11 sites open across North America, most of which have opened in the last six months. These sites have garnered over 130,000 visitors so far in 2020.

During the fourth quarter, we also delivered a higher proportion of consumer vehicles due to Amazon's expected seasonality.

For context, the proportion of our total revenue attributed to Amazon was 8% in the fourth quarter of 2023 versus 30% in the third quarter of 2023.

Given our commercial vans have lower material costs due to the technology changes made in 2023, the lower deliveries during the quarter negatively impacted our gross margin.

In addition, due to this dynamic the vast majority of the increase in finished goods inventory in the fourth quarter of 2023 was related to commercial demand.

Changes in LC, and RV and losses on firm purchase commitments benefited our fourth quarter results by $7 million as compared to $106 million in the third quarter of 2023.

A difference of approximately $6300 per delivered unit on a quarter sequential basis.

Next I want to help provide more clarity on how we bridge from our fourth quarter 2023 results to where we expect to reach modest gross profit in the fourth quarter of 2024.

The largest driver which represents approximately 50% of the bridge is our plan to reduce our variable cost per unit.

The majority of this will be accomplished through material cost reductions planned as part of our Q2 2024 shutdown.

RJ: Complementing our footprint, our more than 50 service centers serve as another location for current and potential customers to experience our vehicles. We've provided over 13,000 demo drives already in the first quarter and consider this to be one of our key demand building strategies. We've also expanded the lineup of our vehicles and recently introduced our standard range variant, which provides an accessible price point for more potential Rivian customers. We are encouraged by the early results.

As a reminder, this is through engineering cost reductions such as our <unk> and wire harness simplification through our commercially negotiated cost downs and contribution from lower raw material costs.

The second driver representing approximately 35% of the bridge is through our focus on driving greater efficiency through our production facility.

As part of our planned shutdown, we are increasing the <unk> line rate by approximately 30% to more efficiently produce vehicles.

RJ: The steps we're taking in 2024 will be foundational in positioning Rivian as a leader in the transition to electrification. The opportunity ahead is significant. We're taking deliberate action to drive additional cost efficiency as we continue building our go-to-market capabilities and developing our R2 platform. I would like to thank all those who continue to support our vision, including employees, customers, partners, suppliers, communities, and shareholders. With that, I'll pass on the call.

We also expect to see a benefit from declining LC and RV and firm purchase commitment balances in 2024.

The final piece of the bridge, which represents approximately 15% is the scaling of our non vehicle revenue with over 70000 <unk> on the road, we have the opportunity for increased revenue areas, such as regulatory credits accessories service remarketing and software enabled services.

Yes.

These drivers are core to our long term margin targets and we expect to continue to drive recurring revenues in these areas as the car park grows and we expand our offerings.

Our adjusted operating expenses for the fourth quarter were $706 million.

Claire: Thanks, RJ. I'd like to reiterate our excitement for the long-term success of... Over the course of 2023, we made significant progress in all four key values, driving greater cost efficiency, continuing to optimize production and deliveries, investing in differentiated technologies, and continuing to enhance the Rivian customer. During the fourth quarter, we produced 17,541 vehicles and delivered 13,972 vehicles, which was the primary driver of the $1.3 billion of revenue we generated. Total revenue for the quarter included $39 million of proceeds from the sale of regulatory credits. We expect the sale of regulatory credits to increase over time but to vary quarter to quarter. For the full year 2023, we produced 57,232 vehicles, which was significantly above our initial guidance of 50,000 vehicles and more than double Total gross profit for the quarter was negative $606 million.

For the full year, our adjusted operating expenses of $2 7 billion.

Represented two 5% growth versus 2022, despite our production and delivery volumes more than doubling over the same period.

As RJ mentioned earlier, we're in the process of optimizing our operating expense expenditures by reducing our salaried employees by approximately 10% along with a limited number of nonmanufacturing hourly employees.

Our adjusted EBITDA for the quarter was negative $1 1 billion.

For the full year, our EBITDA was just under our guidance of negative 4 billion.

Turning to our business outlook for 2024, we remain focused on driving greater cost efficiency across the company. We are guiding to 57000 total vehicles produced for the year compared to 2023, we anticipate consumer and commercial vehicle deliveries to grow by low single digits as.

As we discussed on last quarter's earnings call, we expect to shut down both the consumer and commercial lines and our normal plant for several weeks during the second quarter to introduce cost savings in vehicle technologies to the <unk> platform.

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

The direct downtime will be over a portion of Q2, we anticipate this to impact all four quarters of output as we prepare the facility for the work and then individually ramp each vehicle variant as well as our supply chain following the shutdown.

Claire: Gross profit per vehicle delivered was approximately negative $43,000. During the fourth quarter, costs of goods sold were negatively impacted by $70 million of costs primarily associated with our planned 2024 shutdown, or approximately $5,000 per vehicle delivered. These costs include supplier-related expenses, accelerated depreciation, and other expenses related to the new technology and cost savings design changes going into the R1 platform. While we could incur additional costs associated with the planned shutdown and technology and design changes in the near term, we do not anticipate these costs to be part of our normal course of business in the longer term. During the fourth quarter, we also delivered a higher proportion of consumer vehicles due to Amazon's expected seasonality. For context, the proportion of our total revenue attributed to Amazon was 8% in the fourth quarter of 2023 versus 30% in the third quarter of 2023.

As for the first quarter of 2024 due to managing changes in our supply chain associated with the introduction of new materials, we expect to factory gate approximately 13500 units for the quarter.

We expect that there will be a few thousand more vehicles, which are built but not factory gated as they wait and updated part we expect to receive in April.

We anticipate the first quarter total deliveries to be approximately 10% to 15% below the fourth quarter of 2023 deliveries.

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

We expect 2020 for EBITDA to be negative $2 7 billion as.

As we focus on continuing our go to market infrastructure Buildout and the development of <unk>.

While also optimizing our costs driven by the integration of key New engineering technology and design changes negotiated supplier cost downs and a more efficient operating expense structure.

Recently, we have taken measures to rationalize our capital expenditures due to a greater focus on our core business cap.

Capital expenditures in 2024 are expected to be $1 $75 billion driven by additional investments in our production facilities next generation technologies and the continued build out of our go to market operations.

Claire: Given our commercial vans have lower material costs due to the technology changes made in 2023, the lower delivery during the quarter negatively impacted our gross margin. In addition, due to this dynamic, the vast majority of the increase in finished goods inventory in the fourth quarter of 2023 was related to commercial. Changes in LCNRV and losses on firm purchase commitments benefited our fourth quarter results by $7 million as compared to $106 million in the third quarter of 2020, a difference of approximately $6,300 per delivered unit on a quarter-sequential basis.

We remain confident that our cash cash equivalents and short term investments can fund our operations through 2025.

We aim to maintain a strong balance sheet position by continuing to drive cost efficiencies and improve our vehicle unit economics, while opportunistically evaluating a variety of capital markets available to radian ranging across the capital structure.

Over the long term, 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.

Claire: Next, I want to help provide more clarity on how we bridge from our fourth-quarter 2023 results to where we expect to reach modest gross profit in the fourth quarter of 2024. The largest driver, which represents approximately 50% of the bridge, is our plan to reduce our variable cost per unit. The majority of this will be accomplished through material cost reductions planned as part of our Q2 2024 shutdown. As a reminder, this is through engineering cost reductions, such as our ECU and wire harness simplification, through our commercially negotiated cost downs, and contribution from lower raw material costs. The second driver, representing approximately 35% of the bridge, is our focus on driving greater efficiency through our production facility. As part of our planned shutdown, we are increasing the R1 line rate by approximately 30% to more efficiently produce vehicles. We also expect to see a benefit from declining LCNRV and firm purchase commitment balances in 2024. The final piece of the bridge, which represents approximately 15%, is the growth of our non-vehicle revenue.

With that let me turn the call back over to the operator to open the line for Q&A.

Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please limit yourself to one question and one follow up one moment for questions.

Our first question comes from John Murphy with Bank of America, You May proceed.

Good afternoon guys.

Just a question on the downtime relative to the law on the R. One versus the launch.

<unk> and RGA just curious.

Is it may be better to focus on pulling forward the launch of the <unk> in committing capital both human and dollars.

Going that forward in getting that high volume program up and running as opposed to tinkering with the line.

On the R. One and maybe circling back to that are one.

Why leader.

Is that possible or is there kind of constraints or just kind of misguided and these things can both happened at the same time and you can't pull for the <unk> for it at all.

Yes, Thanks John.

We're certainly working very hard to.

Make sure we deliver arch on time and to the extent possible Glenn anytime we can out of the program I think what has us so excited about but are too as we look at the success of our one in terms of the.

Claire: With over 70,000 Rivians on the road, we have the opportunity for increased revenue areas such as regulatory credits, accessories, service, remarketing, and software-enabled services. These drivers are core to our long-term margin targets, and we expect to continue to drive recurring revenues in these areas as the car park grows and we expand our offer. Our adjusted operating expenses for the fourth quarter were $706 million.

How the market has responded to the brand and to the product hits the top selling EV with the price point of over $70000 in our hope of course is to translate the.

The brand strength that we've demonstrated.

For review with our one into the <unk> product and into a much lower price segment, which has a very large just market.

I think the key thing, though to come back to your question number one is just recognizing how much of the content that's going into the shutdown in Q2.

Claire: For the full year, our adjusted operating expenses of $2.7 billion represented 2.5% growth versus 2022, despite our production and delivery volumes more than doubling over the same period. As RJ mentioned earlier, we are in the process of optimizing our operating expenditures by reducing our salaried employees by approximately 10 percent, along with a limited number of non-manufacturing hourly employees. Our adjusted EBITDA for the quarter was negative $1.1 billion.

Actually translates to our too so there's a massive consolidation of our east to use in the vehicles. So it's all the computers and the vehicle, which we design and engineering house with consolidated we reduced the number of computers by about 65%.

And that network architecture and associated issued topology.

Is very closely related to what's in <unk>.

Claire: For the full year, our EBITDA was just under our guidance of negative $4 billion. Turning to our business outlook for 2024, we remain focused on driving greater cost efficiency across the company. We are guiding to 57,000 total vehicles produced for the year. Compared to 2023, we anticipate consumer and commercial vehicle deliveries to grow by low single digits. As we discussed on last quarter's earnings call, we expect to shut down both the consumer and commercial lines in our normal plant for several weeks during the second quarter to introduce cost savings in-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. While the direct downtime will be a portion of Q2, we anticipate this to impact all four quarters of output as we prepare the facility for the work and then individually ramp up each vehicle variant as well as our supply chain following the shutdown.

And so it's not only de risks our too, but it's part of the development process and development sequence, especially with the launch of that product.

Along with that these changes that we're making to our one with regards to just the overall changing out of hundreds of components and associated suppliers with those components also corresponds to a number of supplier engagements that we have that linked to our two.

And the volume that are two brings allows us to be more aggressive in pricing with a number of the suppliers that are on the <unk> program.

So the two are very much interlinked and.

With that said as we think about our focus as a business.

This shutdown and the updates associated with it and our bill of materials and along with the line.

Really as sort of part one to the major focus for us as a business, which is the successful launch and rapid ramp up of the <unk> production.

That's very helpful. Just one follow up if you think about product cadence.

And spacing of product do you feel like the tack that Tesla is taking off.

<unk> launched its relatively sparse, but constant improvement is.

Is more appropriate in the direction you are heading or do you think something closer to sort of a typical sort of four to five year product lifecycle with many products interspersed as the way you are ultimately going to land as we kind of look five to 10 years in the future.

Claire: As for the first quarter of 2024, due to managing changes in our supply chain associated with the introduction of new materials, we expect to factory gate approximately 13,500 units for the quarter. We expect that there will be a few thousand more vehicles which are built but not factory gated as they wait for an updated part we expect to receive in April. We anticipate the first quarter total delivery to be approximately 10 to 15% below the fourth quarter 2023 delivery.

Yeah, when we think about it from a customer point of view one of the things. We see is most valued is making sure that the platform of the vehicle platform and architecture.

Allows for a continuous stream of updates and so in the R. One product.

Customer satisfaction is extremely high the brand strength is high with the consumer reports rated rates us as having the highest level of.

Brand equity, if you will where the likelihood of repurchases the highs for our brand and a lot of that is borne out of the continued updates we're making through over the air software.

Claire: 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. We expect 2024 EBITDA to be negative $2.7 billion as we focus on continuing our go-to-market infrastructure build-out and the development of R2, while also optimizing our costs driven by the integration of key new engineering technology and design changes, negotiated supplier cost downs, and a more efficient operating expense. Recently, we have taken measures to rationalize our capital expenditures due to a greater focus on our core business. Capital expenditures in 2024 are expected to be $1.75 billion, driven by additional investments in our production facilities, next-generation technologies, and the continued build-out of our go-to-market operations. We remain confident that our cash, cash equivalents, and short-term investments can fund our operations through 2025.

Software improvements and so we think thats, a really dramatic shift and just how we think about products and sort of overall vehicle lifecycle.

That will translate of course into our two.

And as we look at the launch of our two learning from what we went through and launching our one with R&D Rns and then also the commercial vans all in parallel we've really simplified the product portfolio cadence with our two where theres a single vehicle that we're launching.

The number of build combinations in term combinations is very limited.

With an emphasis on managing.

Rapid ramp up of the supply chain and driving operational efficiency into the <unk> plan.

Okay. Thank you very much.

Thank you.

One moment for questions.

Our next question comes from Adam Jonas with Morgan Stanley You May proceed.

My first question is how much of the volume.

Your forecast for this year.

Preordered versus what you would expect to be sold out of inventory.

Follow up.

Okay.

[laughter].

Thanks, Adam.

Yes.

Our backlog is something that we know there's been questions around just what does that look like what's the topology of it one of the things we need to recognize there is a lot of the customers that are in our backlog had been there for a number of years and as a result, it's not as if the moment we.

Claire: We aim to maintain a strong balance sheet position by continuing to drive cost efficiencies and improve our vehicle unit economics while opportunistically evaluating a variety of capital markets available to Rivian ranging across the capital spectrum. Over the long term, 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 over to the operator to open the line for Q&A. Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again.

Someone gets to the front of the line so to speak and there.

We're ready to make a delivery to them that they can take delivery at that moment.

Life situation in terms of when they are ready to take on a new vehicle.

<unk>.

The coordination of that around.

What they are financing expectations are all of those factors play in and so the way to think about our backlog is to recognize that this will this will be.

This will continue to exist through the remainder of this year, but in parallel tub to delivering vehicles from our backlog will also be delivering vehicles from newer orders orders that are happening.

Over the course of this year.

And so that for US is a transition as a business, where we go from purely delivering from backlog too.

Having folks that are coming in new demand and having those deliveries happen much quicker.

And to help facilitate that transition we've created a few.

Customer facing structures that make it easier we've created something we call the <unk> shop, which allows some of the more common build combinations to be put in there to allow customers to get access to those vehicles more quickly.

John Murphy: Please limit yourself to one question and one follow-up. There is one moment for questions. Our first question comes from John Murphy with Bank of America. Okay. You may proceed. Good afternoon, guys. Just a question on the downtime relative to the launch of the R1 versus the launch of the R2, and RJ. I'm just curious: is it maybe better to focus on pulling forward the launch of the R2 and committing capital, both human and dollars, to pulling that forward and getting that high volume program up and running as opposed to tinkering with the line on the R1 and maybe circling back to that Is that possible, or is there some kind of constraint, or I'm just kind of misguided, and these things can both happen at the same time, and you can't pull the R2 forward at all?

And you still to this day that one of the most common questions. We get from customers is how quickly you kind of get my vehicle and so managing that dynamic of customers wanting to have the immediate gratification.

The vehicle to get it within a week or two along with customers that have been waiting for in some cases, two or three years.

That balance has been something we're learning to navigate and.

And we do expect to continue to have to manage that balance over the course of the year.

Okay, and just as a.

A follow up.

The World has changed so much RJ since the 2021 IPO.

Lot of ways.

More moderated demand in competitiveness some pretty uncertain.

Economic environment to boot. So I'm, just wondering has the board and the management team.

Are you still fully committed to that vertical integrated.

Go to Georgia, 400000 unit 5 billion dollar on your own strategy or at the board consider any alternative to.

To the Greenfield option in Georgia or at least some adjustments in terms of the size or whether you are going with a partner or is it pretty much the strategy from 2021 that you are.

Kind of going ahead with right now and to 'twenty four.

Yes. Thanks.

The way, we've approached our Georgia facilities to build out the plant.

Across two phases. So it is not a single 400000 unit block, but rather to 402 200000 unit blocks.

RJ: Yeah, thanks, John. We were certainly working very hard to make sure we delivered our R2 on time and, to the extent possible, pull any time we could out of the program. Yeah, I think what has us so excited about our R2 is, we look at the success of R1 in terms of how the markets have responded to the brand and to the product; it's the top-selling EV with a price point of over $70,000. And our hope, of course, is to translate the brand strength that we've demonstrated for Rivian with R1 into the R2 product and into a much lower-priced segment, I think the key thing, though, to come back to your question on R1, is just recognizing how much of the content that's going into the shutdown in Q2 actually translates to R2.

I think the.

The broader point that you raised just around overall demand for electric vehicles, how fast the market transition to electric vehicles. We do think we're in a very interesting moment in time, where.

There is a.

A lack of choice.

<unk> highly compelling EV products in that 45 to 55000 of our price range recognizing.

The average price of a new vehicle transaction and I'd say last year was around $48000.

And so when we look at the competition that exist.

We often get immediately drawn into competing what's the competition look like directly with Tesla, but we need to recognize only 7% of the market has electrified meeting really were talking about how do we get to 93% of the market that's not buying an EV to get excited about the product and.

RJ: So there's a massive consolidation of our ECUs in the vehicle. So that's all the computers in the vehicle, which we design and engineer in-house. We've consolidated them. We've reduced the number of computers by about 65%.

<unk>.

The layout of the vehicle the package the configuration the technology content.

We think creates a really interesting and very unique.

Configuration that we're very bullish and the demand for that product and of course, recognizing what we've seen in our one in and how strong review this resonate with consumers there.

RJ: And that network architecture and associated ECU topology is very closely related to what's in R2. And so it not only de-risks R2, but it's part of the development process and development sequence associated with the launch of that product. Along with that, these changes that we're making to R1 with regard to just the overall changing out of hundreds of components and associated suppliers with those components also correspond to a number of supplier engagements that we have that link to R2. And the volume that R2 brings allows us to be more aggressive in pricing with a number of those suppliers that are on the R1 program. So the two are very much interlinked.

We remain very bullish on the <unk> segment.

And the <unk> product itself and so the way that we've engaged with our suppliers to ensure that we can ramp effectively as well as laying out the production roadmap, albeit measured as I described across three phases has been very much thoughtful of the scale of the opportunity and the scale of this transition that we see happening over the over the course of this decade.

Okay. Thanks RJ.

Thank you.

One moment for questions.

Our next question comes from Joseph Spak with UBS you May proceed.

Hi, Thanks, good afternoon.

Just on on the work force reduction sort of obviously, some some tough decisions but.

And I know Claire and RJ is sort of been really focused on the.

The gross profitability, but maybe if we could just sort of focus a little bit on opex because.

RJ: And, um, and, and with that said, uh, as we think about our focus as a business, the shutdown and the updates associated with it in our bill of materials and along with the line really are sort of part one to the major focus for us as a business, which is the successful launch and rapid ramp-up of the RQ production. That's very helpful.

And I understand youre cutting the workforce by 10% here, but.

How do you get comfortable that this is that even that is sort of the right level because.

Stock comp in 'twenty three.

Just under 3 billion, if I know, it's a different world, but if I look at like where Tesla was at a sort of similar level of sales back in 2015, Youre still like 80% above that so.

RJ: One follow-up question. If you think about product cadence, you know, in the spacing of products, do you feel like the tack that Tesla is taking of a product launch that's, you know, relatively sparse but constant improvement is more appropriate in the direction you're heading? Or do you think something closer to sort of a typical four to five year product life cycle with many products interspersed is the way you're ultimately going to land as we kind of look five to 10 years in the future? Yeah, when we think about it from a customer point of view, one of the things we see is most valued is making sure that the platform, the vehicle platform, and architecture allows for a continuous stream of updates. And so in the R1 product, you know, the customer satisfaction is extremely high, the brand strength is high, and the consumer reports rate it as having the highest level of brand equity, if you will, where the likelihood of repurchase is the highest for our brand.

Maybe you could just kind of it goes a little bit more color on sort of opex in the plants that are going forward.

Yeah. Thanks, Joe, Yes, when we think about Opex theirs.

A number of components here, so just to break apart the.

Big.

Category or at all.

If we look first at R&D, if you look at it between R&D and SG&A on the R&D side, we have to recognize.

Comparing to touch on 2015, while useful and certainly when we look at these types of metrics internally as well, we're not competing against US on 2015 were competing against.

Tesla and others and 2024.

And so.

We are driving.

His incredible focus on efficiency and how we develop our products, we talk internally about being the most efficient at turning.

Turning capital into amazing products, but it does also require us to be spending appropriately in the core areas and for US. There's a few areas that we've made the decision to develop vertically in house to create what we believe to be significant structural long term advantages and thats really around the.

RJ: And a lot of that's born out of the continued updates we're making through year-long software improvements. And so we think that's a really dramatic shift in just how we think about products and sort of the overall vehicle lifecycle. That will translate, of course, into R2. And as we look at the launch of R2, learning from what we went through in launching R1 with R1T, R1S, and also the commercial vans all in parallel, we've really simplified the product portfolio cadence with R2, where there's just a single vehicle that we're launching. The number of build combinations and trim combinations is very limited, with an emphasis on managing the rapid ramp-up of the supply chain and driving operational efficiency into the R2 plan. Thank you very much.

Chronic stack in the vehicles, so the <unk> and computer topology throughout the vehicle.

The software of course, Thats running on those computers across the vehicle.

And then our high voltage architecture. So that's our high voltage battery system, all the way through the rest of the driveline so through the drive unit out to the wheels.

And it's in those areas that we see both technical differentiation that creates really.

Consumer experience.

Is markedly different and better than what we believe are sourced third party strategy will deliver but it also provides meaningful cost advantages in and the compute stack and issued topology front. The biggest opportunity here is easier consolidation and the ability to have a much smaller number of computers.

<unk> that run the vehicle and of course, because we control and design those computers. It allows us much more seamlessly to do that.

So that's first on the R&D front and a big focus as I said has been on driving efficiency into that now when you think of R&D is entirely spending within.

Adam Michael Jonas: Thank you. One moment for questions. Our next question comes from Adam Jonas with Morgan Stanley. You may proceed. My first question is, how much of the volume forecast for this year is pre-ordered versus what you expect to be sold out of inventory, to follow up. Pillow.

Within our employee base, but a big portion of this is also with suppliers and it has to do with the supplier development costs associated with let's say a seat program for.

For the <unk> or headlights for the <unk> and so a lot of the negotiations that are being driven I referenced this earlier around our one supply also link to much more strategic long term relationships with our suppliers that will feed into our two where we're asking those suppliers.

RJ: Thanks, Adam. Yeah, our backlog is something that we know there's been questions around just what that looks like. What's the topology of it?

RJ: One of the things we need to recognize is that a lot of the customers in our backlog have been there for a number of years. And as a result, it's not as if the moment someone gets to the front of the line, so to speak, and we're ready to make a delivery to them, they can take delivery at that moment. Life situation, in terms of when they're ready to take on a new vehicle. The coordination of that around what their financing expectations are, all of those factors play in. And so the way to think about our backlog is to recognize that this will continue to exist through the remainder of this year. But in parallel to delivering vehicles from our backlog, we'll also be delivering vehicles from newer orders, orders that are happening throughout this year.

Treat us much more like partners.

Instead of having to pay the suppliers so much upfront, which is a lot of what we've dealt with historically to those suppliers recognizing and clearly seeing.

The market strength that we have I mean, these suppliers are providing all of all of our competitors and they see our volumes relative to our competitors.

Especially with our one seeing it's really dominant position from a market share point of view, that's helped a lot and completely changing the nature of those discussions with suppliers, which of course, we think about it we talked about a lot in the context of Cogs, but it really does impact us on us on the Opex side through.

Through the prelaunch development costs.

Now with that said I do want to just spend a moment here on SG&A because its the other big driver of our Opex of course.

On this front.

We're at a point, where we're building out.

RJ: And so that, for us, is a transition as a business where we go from purely delivering from a backlog to having folks that are coming in with new demand and having those deliveries happen much quicker. And to help facilitate that transition, we've created a few customer-facing structures that make that a little easier. We created something we call the R1 Shop, which allows some of the more common build combinations to be put in there to allow customers to get access to those vehicles more quickly. And still, to this day, one of the most common questions we get from customers is, "How quickly can I get my vehicle?" And so managing that dynamic of customers wanting to have the immediate gratification of the buy vehicle and get it within a week or two, along with customers that have been waiting for, in some cases, two or three years, that balance has been something we're learning to navigate, and we do expect to continue to have to manage that balance over the course of the year.

Service network, we're building out.

Sales and distribution network and a number of these areas today are recognized as Opex in particular on the service side almost all of this is opex, but over time of course, our service costs become part of our Cogs structure and in fact.

Service will ultimately be a profitable part of the business.

And so clear references.

Can certainly speak to it more here.

We're very focused on not.

Minimizing the growth of our SG&A spend as we continue to scale the business. So while the business is scaling in the number of vehicles we're supporting.

In the field.

Grows dramatically over the next couple of years, we're working very hard to to really maintain a lean.

SG&A side of the organization and that has the tailwind of a lot of those costs that are embedded in SG&A today.

As I said, becoming Cogs and actually becoming profitable.

Thanks for that and then maybe just.

On.

Capex I think last quarter, you sort of talked about.

'twenty three 'twenty four average.

Below $2 billion.

RJ: The EV world has changed so much, RJ, since the 2021 IPO and in a lot of ways, with moderated demand and competitiveness and pretty uncertain economic environment to boot. So I'm just wondering, has the board and the management team, Are you still fully committed to that vertical integrated, go to Georgia, $400,000 unit, $5 billion on your own strategy? Or, at the board level, consider any alternatives to the greenfield option in Georgia or at least some slight adjustments in terms of the size or whether you go in with a partner or is it pretty much the strategy from 2021 that you're kind of going ahead with right now into 24. Thanks. Yeah, thanks.

I guess, that's technically true, but it's pretty significantly below.

2 billion with $1 75 guidance so.

Was there is there sort of a further shift in capital spending.

And if so what does that relate to.

<unk>.

Sure. So as we think about the broader context and first in prior message you heard RJ talk about we're focused on driving efficiency across the entire company as a whole and so as we look at what we've been able to achieve.

Given these efforts across the company, it's allowed us or enabled us to not just shift out capex, but dramatically reduce the required capex within the business as a whole and so thats by pressurizing. It does say areas of investment whether it's how efficient we're able to invest in some of that.

Great activities in normal and taking capex out there.

Whether it's as already mentioned.

Engaging with suppliers around product tooling investments, whether it's continuing to tweak around the efficiency of all of our go to market operations investment between sales and service locations as well as all of our enterprise Tech and logistics infrastructure.

RJ: Um, yeah, the way we've approached our Georgia facilities to build out the plant across two phases, so it's not a single 400,000 unit block but rather two 200,000 unit blocks. I think the broader point that you raised just around overall demand for electric vehicles, and how fast the market is transitioning to electric vehicles. We do think we're in a very interesting moment in time where there is a lack of choice of highly compelling EV products in that $45,000 to $55,000 price range, recognizing that the average price of a new vehicle transaction in the United States last year was around $48,000. And so when we look at the competition that exists, You know, we often get immediately drawn into competing, you know, what the competition looks like directly with Tesla, but we need to recognize that only 7% of the market is electrified, meaning really, we're talking about how do we get the 93% of the market that's not buying an EV to get excited about the product.

As well and so I think what you're seeing from US is it's really just continuing to drive that mentality of efficiency and culture of efficiency across not just capex, but really our operating expenses, how we're managing our cost of goods sold.

Equally as we're thinking through the way in which we will manage our inventory balances as well, which are four key focus is across the business.

Thank you.

Yeah.

Thank you.

One moment for questions.

Our next question comes from Rod Lache with.

Wolfe Research you May proceed.

Hi, everybody.

There's a comment in your release about the 2024 forecast requiring an improvement in the the order rate and he said, it's going to be driven by planned go to market strategies I wanted to ask about that.

Is it reasonable to assume that the Q1 deliveries that you're projecting here is kind of reflective of the current quarter run rate's around 12000 or 135 a day.

RJ: R2, the layout of the vehicle, the package, the configuration, the technology content, we think creates a really interesting and very unique configuration that we're very bullish on the demand for that product. And, of course, recognizing what we've seen in R1 and how strong Rivian has resonated with consumers there, we remain very bullish on the R2 segment and the R2 product itself. And so the way that we've engaged with our suppliers to ensure that we can ramp effectively, as well as laying out the production roadmap, albeit measured as I described across two phases, has been very much thoughtful about the scale of the opportunity, the scale of this transition that we see happening over the course of this decade. Thanks, everybody.

What is the impact that you're seeing from some of the strategies you've unveiled like the standard variance in leasing and can you talk a little bit about how you are going to get the word out or advertise what youre offering.

Yes.

Sure.

Thanks Rod.

You referenced it but it's important to note here.

We've just recently launched.

Our standard pack variant, which we've long talked about but ultimately it's now available to customers and we're really encouraged by the reaction to that and some of the early read through on just what that does in terms of demand generation. It's also worth noting an implicit in your question is a key element here.

Which is the center pack is not only driven demand for.

Operator: Thank you. One moment for questions. Our next question comes from Joseph Spak with UBS. You may proceed. Thanks, good afternoon.

For our more price sensitive customers, but it's actually increased we have seen an increase in demand for our quad <unk>.

Large pack as well.

Joseph Spak: Just on the workforce force reduction, sort of obviously some tough decisions, but, and I know Claire and RJ have sort of been really focused on the, you know, the gross profitability, but maybe if we could just sort of focus a little bit on OPEX, because, you know, and I understand you're cutting the workforce by 10% here, but how do you get comfortable that you're, this is even the right level of because, you know, I know it's a different world, but if I look at where Tesla was at a sort of similar level of sales back in 2015, you're still like 80% above that. So maybe you could just go to this for a little bit more color on sort of, you know, OPEX and the plans there going forward. Yeah, thanks, Joe.

And that really links to.

The continued growth and awareness for what we're building in.

When we think about how strong.

Our customers like the product and how.

The brand excitement for customers bid, so high with the likely to repurchase being a significant three the highest across the entire auto industry.

It's really a key element for us in terms of driving knowledge of the brand's knowledge of the products.

And driving awareness up.

That said a lot of investment that that I was referring to in the letter and in my opening comments has to do with building out more of a go to market infrastructure. Today, we have 11 spaces. We have just over 50 service locations.

We're now offering.

Test drives through our service locations along with some of those spaces.

But getting customers in our vehicles is by far and away. The most effective way to not only drive brand awareness, but but to two.

RJ: Yeah, when we think about OpEx, there are a number of components here. So just to break apart the big category of it all, you know, if we look first at R&D, if we look at the relationship between R&D and SG&A, on the R&D side, we have to recognize that comparing to Tesla in 2015, while useful, and certainly we look at these types of metrics internally as well, we're not competing against Tesla in 2015; we're competing against Tesla and others. And in 2024,

To convert that brand or that experience into actual via quarters, maybe vehicle sales.

So a lot of activity is going to be playing out over the course of the next few months to continue building up those functional capabilities within the business and also the infrastructure associated with supporting.

Physical interaction with the products.

Okay.

Just given what Youre seeing right now can you discuss the rationale behind expanding the capacity by 30% and at the end of this year.

Any update on EV demand outside of Amazon.

Yes.

RJ: And so we were driving an incredible focus on efficiency and how we develop our products. We talk internally about being the most efficient at turning capital into amazing products. But it does also require us to be spending appropriately in the core areas. And for us, there are a few areas that we've made the decision to develop vertically in house to create what we believe to be significant structural long-term advantages. And that's really around the electronic stack in the vehicle. So the ECU and computer topology throughout the vehicle, the software, of course, that's running on those computers across the vehicle, and then our high voltage architecture. So that's our high-voltage battery system all the way through the rest of the driveline, so through the drive unit out to the wheels.

The plant.

Tom we have coming in.

In second quarter of next quarter.

Uh huh.

I think a lot of the thinking around that tends to drive towards what's happening in the plants.

I've said, it before but just to repeat here for clarity.

One of the most important parts of a shutdown is actually what's happening within our supply chain. So we're we're making a number of supplier changes a number of component changes along with supplier changes that lead to significant reductions in our material cost.

The scale and amount of change in our supply chain and for our bill of materials means that the coordination of the restart.

Of the plant and winding down of the existing inventory, bringing up of new inventory.

Requires a multi week shutdown.

And with that multi week shutdown, we are making improvements to line as well I do want to make that.

Very clear and the improvements are really focused on line rate.

The ability to run the line at a higher speed and therefore.

RJ: And it's in those areas that we see both technical differentiation that creates, really, a consumer experience that's markedly different and better than what we believe a source, you know, third-party strategy would deliver. But it also provides meaningful cost advantages. And on the compute stack and ECU topology front, the biggest opportunity here is ECU consolidation and the ability to have a much smaller number of computers that run the vehicle. And, of course, because we control and design those computers, it allows us much more seamlessly to do that.

Or more in a more efficient manner.

And that increased line rate will ultimately translate to lower conversion costs reduced hours per unit.

Within the plants as we look at.

We look at operating post shutdown through the rest of this year.

And the EV demand.

Yes. This is something we've.

We've talked about in the past, we're really excited to have new customers.

Running pilot programs.

We have more of these pilot programs coming online, there's more and more.

Images of our commercial vans being spotted with with different.

Different logos on the side.

RJ: So that's first on the R&D front. And a big focus, as I said, has been on driving efficiency into that. Now we think of R&D as entirely spending within our employee base. But a big portion of this is also with suppliers. And it has to do with the supplier development costs associated with, let's say, a seat program for the R2 or headlights for the R2.

But as we've said in the past for these large fleets.

The complexities associated with transitioning to an electric vehicle fleet. We expect these to start as pilots and then over the course of this year trend transition into larger scale orders.

And we don't anticipate and we've been careful.

Guide to say that there really.

The significant step up in demand associated with non Amazon customers.

See that next year and the 225 time frame.

Great. Thank you.

Thank you.

RJ: And so a lot of the negotiations that are being driven, as I referenced this earlier, around R1 supply also link to much more strategic, long-term relationships with our suppliers that will feed into R2, where we're asking those suppliers to treat us much more like partners. Instead of having to pay the suppliers so much up front, which is a lot of what we've dealt with historically, those suppliers are recognizing and clearly seeing the market strength that we have. I mean, these suppliers are providing all of our competitors, and they see our volumes relative to our competitors.

One moment for questions.

Our next question comes from George Jenne, <unk> with Canaccord Genuity you May proceed.

Thank you for taking my questions I'd like to just to go back to one of the previous questions just to understand that the Q1 delivery.

Cadence of down you said down 10% to 15% sequentially.

Can you just kind of help us understand the reasons behind that is there anything to do with just.

The supply or was it a informed by the comments you made around demand. Thank you.

Thanks George.

Clara references center in opening remarks.

During this quarter a lot of the.

Some of the supplier.

Changeovers that were working on were going to start to feel the impact of them and we saw it in.

Some of the onetime charges that there'll be accumulated already in Q4, we're going to feel more of that in Q1.

RJ: Especially with R1, seeing its really dominant position from a market share point of view, that's helped a lot in completely changing the nature of those discussions with suppliers, which of course we think about it, we talk about it a lot in the context of COGS, but it really does impact us on the OPEC side through the pre-launch development costs. Now with that said, I do want to just spend a moment here on SG&A because it's the other, you know, big driver of our OPEX, of course. And on this front.

And along with that we're going to be building several thousand vehicles that that won't be won't be deliverable to consumers.

So we won't be factory, gaining those vehicles in Q1.

And so thats. The reason you see the production guide lower in Q1 than what it was and then what we achieved in Q4.

And so while the plant won't be.

Be shut down in Q1, we are going to start to feel the impacts of the scale of the supplier changeover that we're making.

And that ultimately is going to translate into into our deliveries as well.

So with that said, where we're going to be doing everything we can to once the parts available to get those vehicles built in and make those deliveries.

RJ: We're at a point where we're building out a service network; we're building out goods, sales, and distribution network. And a number of these areas today are recognized as OPEX. In particular, on the service side, almost all of this is OPEX. But over time, of course, our service costs will become part of our COGS structure. And in fact, service will ultimately be a profitable part of the business. And so, clear references, and we can certainly speak to that more here.

As quickly as we can in the second quarter.

Thank you.

Maybe as a follow up just to understand.

I think over 70000 cars on the road to date.

I'm sure you've learned a lot from them being on the road a lot of data collection.

What has that data collection informed view of both product performance and maybe what youre going to put into the <unk>. Thank you.

Yeah.

There is a lot.

<unk>.

One of the things Thats been.

Most surprising us is just watching how customers are interacting with the overall digital experience in digital ecosystem of the vehicle.

And we track really closely how the experience of interacting in the vehicle translates into the mobile app and the use of the mobile app within the vehicle.

RJ: We're very focused on not, you know, minimizing the growth of our SG&A spend as we continue to scale the business. So while the business is scaling, and the number of vehicles we're supporting in the field grows, you know, dramatically over the next couple years, we're working very hard to really maintain a lean SG&A side of the organization. And that has the tailwind of a lot of those costs that are embedded in SG&A today, as I said, becoming COGS and actually becoming profit. Thanks for that, and then maybe just on.

And or I should say to access and work with the vehicle and so as we look at some of the features that are coming even in this year is to enhance the digital experience in the vehicle.

Around dynamics around usability around activities that you can.

Due in the vehicles so some of the entertainment entertainment functions.

And continuing to make those those.

Those interactions easier and more seamless.

And the way, we build our software roadmap, there's a strategic call. It long form element that looks at how everything puzzles together.

Joseph Spak: CapEx. I think last quarter, you sort of talked about, you know, a 23-24 average below $2 billion. And I guess that's technically true, but it's pretty significantly below $2 billion now with the $175 guidance. So was there, is there sort of a further shift in capital spending? And if so, what does that relate to?

In terms of partnerships in terms of some of the capability that goes in but then there's also a very active dialogue with customers, where we're not only active on forms, but we have user groups that sent us feedback points and we addressed those in.

I get a lot of joy out of our release notes that come out every three or four weeks with every over the update that we dropped it.

Claire: So as we think about the broader context, first and foremost, as you heard RJ talk about, we're focused on driving efficiency across the entire company as a whole. And so as we look at what we've been able to achieve, given these efforts across the company, it's allowed us or enabled us to not just shift out CapEx but dramatically reduce the required CapEx within the business as a whole. And so that's by pressurizing the areas of investment, whether it's how efficient we're able to invest in some of the re-rate activities in normal and taking CapEx out there.

And then the feedback and the excitement that comes with that.

With all that said a lot of the learnings of.

Of of what's gone into our one beyond software around drive ability around how the vehicles are being used around the importance placed on safety have played into really helping to shape, how we're prioritizing.

Cost of cost of goods sold spending if you will on our two.

And we're very excited to show the <unk> product, we think it really captures the most important.

Sort of elements are the essence of <unk> as a brand and as a product but in a smaller form factor package and of course at a lower price point, but it's still very much Arabian and we've you know we've.

Claire: Whether it's, as RJ mentioned, engaging with suppliers around product tooling investments, whether it's continuing to improve the efficiency of all of our go-to-market operations investments between sales and service locations, as well as all of our enterprise tech and logistics infrastructures. And so I think what you're seeing from us is we're really just continuing to drive that mentality of efficiency and culture of efficiency across not just CapEx but really our operating expenses, how we're managing our cost of goods sold, and equally as we're thinking through the way in which we'll manage our inventory balances as well, which are our four key focuses across the business. Thank you.

<unk> had lots and lots of debates over the last 24 months around what the content needs to be in the vehicle to deliver on that review and Miss If you will.

While at the same time, recognizing that certain tradeoffs seem to be made to achieve the lower price point.

Thanks.

Thank you.

One moment for questions.

Our next question comes from Dan Levy with Barclays. You May proceed.

Hi, good evening, Thank you for taking the questions.

I wanted to start with.

A question on your bridge to gross margin breakeven and I wanted to just contrast that versus.

Prior commentary you gave which is.

That half of the improvement would come from.

From volume.

Cost absorption quarter from cost improvements and the cost from a quarterly priced I recognize the starting points are.

Different.

Given a seemingly weaker volume environment.

And I think.

Maybe some questions on the pricing what are the incremental offsets that youre seeing thats still enable you to get to this gross margin breakeven is it just further improvements or breakthroughs on price than what you previously anticipated and maybe if you could just comment for a second if you've reached.

Rod Lache: One moment for questions. Our next question comes from Rod Lache with Wolf Research. You may proceed. Hi, everybody.

<unk> margin breakeven in the fourth quarter on our lung or something but I believe you previously targeted thank you.

Thanks, Dan as you heard in my prepared remarks at the bridge the largest piece of the bridge lapsed from Q4 2003 to Q4 of 2024, and which we expect to be modestly positive in gross profit is variable cost and so that is enabled by <unk>.

RJ: There's a comment in your release about the 2024 forecast requiring an improvement in the order rate, that it's going to be driven by planned go-to-market strategies. I wanted to ask about that. Is it reasonable to assume that the Q1 deliveries that you're projecting here are kind of reflective of the current order run rates, around 12,000 or 135 a day? What is the impact that you're seeing from some of the strategies you've unveiled, like the standard variance and least. And can you talk a little bit about how you're going to get the word out or advertise what you're offering? Sure. Well, thanks, Rod.

As you heard Archie speak about the continued opportunity we have to renegotiate prices with suppliers. We now have the carrot of <unk>, which is coming next which has been an enabler for us too.

Get to lower material costs across the board from a commercial context, we also have.

Largely unchanged the planned engineering design changes that drive ample cost efficiency that will go into the product as part of that the key to shut down and then the areas where we've seen an incremental opportunity is really what we've seen across the board from the commodities context.

RJ: Yeah, you referenced it, but it's important to note here we've recently launched our Standard Pack variant, which we've long talked about, but ultimately, it's now available to customers, and we're really encouraged by the reaction to that and some of the early read-through on just what that does in terms of demand generation. It's also worth noting, and implicit in your question is a key element here, which is the Standard Pack has not only driven demand for our more price-sensitive customers, but it's actually increased; we've seen an increase in demand for our quad and large pack as well. And that really links to the continued growth and awareness of what we're building. When we think about how strong our customers like the product and how brand excitement for customers has been so high, with the likelihood of repurchase being, by a significant degree, the highest across the entire auto industry.

Lithium prices have continued to soften across the board and had been more of a tailwind.

And this bridge relative to the last bridge that we provided a year ago on our Q4 2022 earnings call as well as.

As we look at the other element is as you rightfully noted.

The lever of fixed cost absorption is a smaller bucket for us today as we think about the continuation of driving more operational efficiency as the lever versus.

Massive step change in the underlying volumes.

With our 2024 guidance and then the last element on ESP, you've seen us take and an incremental $12000 of revenue per delivered vehicle Q4 over Q4, <unk> from 2022 to 2023 and so we've already made very thing.

Again progress against a lot of the AFP side of the equation and so what we indicated in our prepared remarks was really more directed on some of the non vehicle.

RJ: It's really a key element for us in terms of driving knowledge of the brand, knowledge of the products, and awareness. And so with that said, a lot of the investment that I was referring to in the letter and in my opening comments has to do with building out more of our go-to-market infrastructure. Today we have 11 spaces, we have just over 50 service locations, and we're now offering test drives through our service locations along with some of those spaces.

Related services revenue opportunity.

Continuation of sales of regulatory credits RJ spoke about the service opportunity just now as we build the car park and more what's today is sitting in SG&A starts you'd be con Cogs, our warranty expense and that's another key enabler for us as well and as well that the opportunity for radian.

RJ: But getting customers in our vehicles is by far and away the most effective way to not only drive brand awareness but also to, to, convert that brand or that experience into actual vehicle orders and vehicle sales. And so a lot of activity is going to be happening over the course of the next few months to continue building up those functional capabilities within the business and also the infrastructure associated with supporting physical interaction with the product. Given what you're seeing right now, can you discuss the rationale behind expanding the capacity by 30% at the end of this year and any update on EDV demand outside of Amazon? Yeah, and within the plant, you know, the shutdown we have coming in the second quarter, you know, next quarter. I think a lot of the thinking around that tends to drive towards what's happening on the planet.

Continue to offer additional software related revenue streams in the future that will add to that broader AFP driver within the business as a whole.

To your second question around the contribution margin of the vehicles we were.

We're very close and achieving positive contribution for our current priced.

Vehicles, Inc.

Q4, and the direct line of sight as is evidenced by our continuation of committing to to our Q4 positive gross profit as we look to the future and the impact that the material cost reductions will have driven by or shut down in Q2.

Great. Thank you and then maybe if we could just have a follow up on the.

Demand side, and specifically how do you think about elasticity of demand here and I get it that most of the incremental volume you're looking at beyond the order book is coming from the go to market strategy, but beyond that.

If that doesn't that doesn't.

Realize as planned how do you think about the pricing are you looking to hold firm on price and maybe limit some of the volume upside or do you think that there would be potential for pricing actions.

RJ: I said it before, but just to repeat here for clarity, one of the most important parts of the shutdown is actually what's happening within our supply chain. So we're making a number of supplier changes, a number of component changes along with supplier changes that lead to significant reductions in our material costs. And the scale and amount of change in our supply chain and through our bill of materials means that the coordination of the restart of the plant and winding down of the existing inventory, and bringing in new inventory requires that multi-week shutdown. And with that multi-week shutdown, we are making improvements to the line as well. I do want to make that very clear, and the improvements are really focused on line rate and the ability to run the line at a higher speed and, therefore, in a more efficient manner.

Thank you.

Yes.

Thanks George.

You're constantly monitoring and looking at the pricing environment and understanding.

Really what the.

What the overall macro environment is looking like and how to manage that the.

To date, we've just recently launched our lowest price variant of our one with the center pack.

And.

As I indicated we've.

We've seen very encouraging reaction to that so so there is.

Demand elasticity as a function of price for sure.

But at this point, where we feel comfortable without pricing on the on the standard pack in this but again. This is something in this environment. We have to go in eyes wide open and recognize.

How the rest of the markets reacting and how the rest of the markets behaving.

Thank you.

Thank you.

One moment for questions.

Our next question comes from Mark Delaney with Goldman Sachs. You May proceed.

RJ: And that increased line rate will ultimately translate to lower conversion costs, you know, reduced hours per unit within the plant as we look at operating post shutdown through the rest of this year. Yeah, this is something we've talked about in the past. We're really excited to have new customers running pilot programs. We have more of these pilot programs coming online. There are more and more images of our commercial vans being spotted with different logos on the side. But as we've said in the past, for these large fleets and the complexities associated with transitioning to an electric vehicle fleet, we expect these to start as pilots and then, over the course of this year, transition into larger-scale orders. And we don't anticipate, and we've been careful to guide to say that really the significant step up in demand associated with non-Amazon customers, we'll see that next year in the 2025 timeframe.

Yes. Good afternoon, thanks for taking the question.

I think first to better understand your drivers around the software and services part of the business I think about 15% of the gross profit improvement by the fourth quarter of this year is coming from software and services, you've got a number of offerings there that you've spoken about things like insurance targeting.

Targeting regulatory credit sales, maybe you can rank order for us what you think some of the largest drivers are in.

In terms of getting to that 15% coming from software and services this year.

Sure. The biggest driver there is driven by the increases that we saw in regulatory credits in aggregate.

And so for US we had $73 million for the entire year and sales of regulatory credits in Q4 alone had $39 million and that was the largest driver but beyond that we continue to see growth across.

Yes, the maintenance and repairs from a service standpoint, our continued efforts in remarketing and over the longer term the opportunity to sell iridium in the retail market as well, which we think is an important value driver for the business overall.

RJ: Thank you. One moment for questions. Our next question comes from George Giannouritis with Kennecord Genuity. You may proceed. Thank you for taking my questions. I'd like to just go back to one of the previous questions, just to understand the... Q1 delivery cadence of down, like you said, down 10 to 15% sequentially. Can you just kind of help us understand the reasons behind that?

Also been encouraged by the financing revenue streams.

Evidenced by both the ongoing.

Straight financing of our vehicles. In addition to the introduction of leasing, which we launched in November of this year, which has been a key enabler for us to driving greater share of our financing penetration across all right man soldiers as well and equally as we think about the insurance.

George Giannouritis: Is there anything to do with just the supply, or was it informed by the comments you made around demand? Thanks, George. Claire referenced this in her opening remarks. Some of the supplier... a deliverable to consumers, uh, so we won't be factory gateging those vehicles in Q1. And so that's the reason you see the production guide lower in Q1 than it was in and then what we achieved in Q4. And so while the plant won't be shut down in Q1, we are going to start to feel the impacts of the scale of the supplier changeover that we're making. And that ultimately is going to translate into our deliveries as well. So with that said, we're going to be doing everything we can to, once the parts are available, to get those vehicles built and then make those deliveries as quickly as we can in the second quarter. Thank you.

Business.

That's an annuity type business as we've seen very strong renewal rates for existing customers that are now entering their second year. While we're also able to capture a significant portion of new customers as well and so we're continuing to see strong tailwind from each of the key drivers across the board and are excited.

Have a broader roadmap of of more of these are software enabled services in the future.

That's helpful color. My second question I was trying to understand how fixed the input cost environment might be for 2024. At this point you spoke about some changes in things like lithium and battery pricing I mean that that can move around a little bit.

Throughout the year I mean have you already gotten firm commitments on some of these materials.

Only with suppliers you oftentimes either.

RJ: Maybe as a follow-up, just to understand, you have, I think, over 70,000 cars on the road today, and I'm sure you've learned a lot from them being on the road, a lot of data collection. How has that data collection informed you about product performance and maybe what you're going to put into the R2? Thank you. Yeah, oh, that's a, uh, there's a lot.

There is a volume requirement in order to get a certain price.

He spoke around a partnership approach that some of the suppliers are taking and wanting to be.

<unk> be involved with the <unk> and some of the longer term opportunities with <unk>, but can you extend your volumes end up less than the 57000.

Target is there some risk as well around what the input costs you'll be paying.

Yes.

Referenced already but I mean, the raw material costs.

RJ: One of the things that's been... Most surprising to us is just watching how customers are interacting with the overall digital experience and digital ecosystem of the vehicle. And we track really closely how the experience of interacting in the vehicle translates into the mobile app and the use of the mobile app within the vehicle, or I should say to access and work with the vehicle.

The battery supply chain have changed dramatically in the last year, specifically with him lithium hydroxide.

<unk> by about Forex from north of $80, a kilogram to just over $20 a kilogram today. So that that has a very significant impact on our overall cost structure.

But getting into just thinking about the overall.

Supply chain.

Sort of help for us and overall material costs, we're just seeing a dramatically different environment for sourcing than what we had previously.

RJ: And so as we look at some of the features that are coming even this year, it's to enhance the digital experience in the vehicle around dynamics, around usability, around activities that you can do in the vehicle, so some of the entertainment functions, and continuing to make those interactions easier and more seamless. And the way we build our software roadmap, there's a strategic, let's call it a long form element that looks at how everything puzzles together in terms of partnerships, in terms of some of the capability that goes in. But then there's also a very active dialogue with customers, where we're not only active in forums, but we have user groups that send us feedback points, and we address those.

And when we think about when we sourced or one and a lot of the bill of materials that we've been.

Operating off of and the contracts you've been operating off of to date. Those are contracts that went in place in 2019 2020.

We're revision was in a very different negotiating position with those suppliers and where the industry was in a very different.

Positioned to be making commitments to us fast forward to today.

Those same suppliers are highly engaged very enthusiastic about the about the product.

And and if.

<unk> very much firsthand some of the challenges of supplying other products and some of the products from large established Oems have have not.

RJ: And I get a lot of joy out of our release notes that go out every three, four weeks with every over-the-air update that we drop, and then the feedback and the excitement that comes with that. With all that said, a lot of the learnings from R1 beyond software around drivability, around how the vehicles are being used, around the importance placed on safety, have really helped to shape how we're prioritizing cost of goods sold, or spending, if you will, on R2. And we're very excited to show you the R2 product. We think it really captures the most important sort of elements or the essence of Rivian as a brand and as a product, but in a smaller form factor package, and of course, at a lower price point. But it's still very much a Rivian, and we've had lots and lots of debates over the last 24 months around what the content needs to be in the vehicle to deliver on that Rivian-ness, if you will, while at the same time recognizing that certain trade-offs need to be made to achieve the lower price point. Thank you.

Nearly as well as what they thought they would or what those other manufacturers thought they would.

On a relative basis looking at those and comparing it to us they now see us as.

A large customer and they see what's coming with our two and that that gives us really meaningful negotiating leverage and in many cases, we've been able to negotiate with our existing suppliers meaningful cost reductions that remove.

Any of the <unk>.

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Especially with us being a new company.

But in cases, where we haven't been able to do that we've been very active on resourcing suppliers and bring on.

Ending supplier relationships and bring on new suppliers and we have a relentless focus on driving our cost of goods sold down through those activities now in cases, where we're either changing the part design or changing out a supplier.

It's not as if we can press a button and it happens immediately.

There's both the tooling time, there's the bring up of the supplier and then theres the coordination of the transition.

The shutdown as I said this is this will be the single largest consolidated set of.

Supply chain changes that we've we've had by far since we started production.

Dan Levy: One moment for questions. Our next question comes from Dan Levy with Barclays. You may proceed. Hyde, good evening.

And we had a similar set of changes we made on EV.

Claire: Thank you for taking the question. I wanted to start with a question on your bridge to gross margin breakeven. And I wanted to just contrast that prior commentary you gave, which is that half of the improvement would come from volume, you know, just cost absorption, a quarter from cost improvements, and a cost from a quarter from price. I recognize the starting points are different, but given a seemingly weaker volume environment. And I think, you know, maybe some questions on the pricing. What are the incremental offsets that you're seeing that still enable you to get to this course margin breakeven? Is it just further improvements or breakthroughs on price than you previously anticipated? And maybe you could just comment for a second.

Early part of 2023, when we shut the line down in and out of that.

We achieved a material cost reduction of 35%.

But the scale of the changes we're making on our one is meaningfully bigger in terms of number of suppliers. The number of components with the shutdown that we're planning here in the second quarter of this year.

Thank you.

Thank you.

One moment for questions.

Yes.

Our next question comes from Emmanuel Rosner with Deutsche Bank You May proceed.

Alright, Thank you very much.

I was hoping you can help me understand better how the.

The introduction of the centers.

Helps with your targets and strategy I would say.

The previous plan. Thank you may have shared with us was perhaps to introduce it once you've actually had a chance.

To incorporate some of the cost savings and potentially lower battery packs and efficiencies et cetera, but I guess by doing it now.

Dan Levy: I think there's a variable margin break even in the fourth quarter on R1, which is something that I believe you previously mentioned. Thanks, Dan. As you heard in my prepared remarks, the bridge, the largest piece of the bridge left from Q4'23 to Q4'2024, which we expect to be modestly positive in gross profit, is the variable cost. And so that is enabled by, as you heard RJ speak about, the continued opportunity we have to renegotiate prices with suppliers. We now have the carrot of R2, which is coming next, which has been an enabler for us to get to lower material costs across the board from a commercial context. We also have, which is largely unchanged, the planned engineering design changes that drive ample cost efficiency that will go into the product as part of the Q2 shutdown.

The price point is probably like $90000 below the large pack, but the battery pack is not that much smaller like <unk> smaller so it feels like it's a large price costs without much of.

Cost to bill of material of it and so I'm curious does it help you with volume scale in terms of getting to that breakeven gross gross margin where does it fit in the equation.

Yes, Emmanuel as you said the standard package.

<unk> been part of our strategy to have the three different battery pack sizes and.

Ultimately it helps us access the most price sensitive customers.

We pulled it into this quarter really with the intent of.

Of answering what we're seeing is a real customer requests and a lot of our <unk>.

Customers looking forward to that configuration, but.

But we also.

Are able to use this as a chance to really better understand the overall demand curve and when we look at the.

Dan Levy: And then the areas where we've seen incremental opportunities are really what we've seen across the board from a commodities context, where lithium prices have continued to soften across the board and have been more of a tailwind today in this bridge relative to the last bridge that we provided a year ago on our Q4'202 earnings call as well. As we look at the other elements, as you rightfully noted, the lever of fixed cost absorption is a smaller bucket for us today as we think about the continuation of driving more operational efficiency as the lever versus a massive step change in the underlying volumes associated with our 2024 guidance.

The different configurations that we offer up until recently, we really had our Mac and we had our large pack with Quad motor and then our Max pack. So we were due.

Built out the high price side of our portfolio, but we hadn't brought in.

The more affordable variance of our one.

And so we're really encouraged by is not only the excitement around that for as I said, our most price sensitive customers, but the.

The fact that it's driving awareness, which somewhat maybe.

Not immediately obvious but what it is driving is more demand for our quad motor large pack as well. So we've seen a step up in new orders for the quite large which is.

Is supported by folks that are becoming aware of the vehicle are becoming aware of the brand.

Getting drawn in by standard pack, but then recognizing that they would actually be willing to pay for the upgrade in range or the upgraded performance that comes with all of the large pack or the quad motor.

Claire: And then the last element on ASP, you've seen us take an incremental 12,000 dollars of revenue per delivered vehicle, Q4 over Q4 from 2022 to 2023, and so we've already made very significant progress against a lot of the ASP side of the equation. And so what we indicated in our prepared remarks was really more directed at some of the non-vehicle related services revenue opportunity. So that's the continuation of sales of regulatory credits.

Understood and then as a follow up and staying on the <unk>.

A pricing if im looking at your.

Gross margin walk towards breakeven in the fourth quarter obviously.

The only piece about pricing there is sort of like this.

Adjacent revenue and it's a positive one.

Is there any risk of.

Downside risks from pricing on existing to equal I mean, I'm thinking about specifically the introduction of the Sandoz packs.

Claire: RJ spoke about the service opportunity just now, as we build the car park and more of what today is sitting in SG&A starts to become COGS or warranty expense. And that's another key enabler for us as well, as will the opportunity for Rivian to continue to offer additional software-related revenue streams in the future that will add to that broader ASP driver within the business as a whole. Onto your second question around the contribution margin of the vehicles, we were very close to achieving positive contribution for our current priced vehicles in Q4 and see a direct line of sight, as is evidenced by our continuation of committing to our Q4 positive gross profit as we look to the future and the impact that the material cost reductions will have driven by our shutdown in Q2.

This is obviously cheaper than the vehicles, you were selling before and so to a certain extent all else equal.

That would put some pressure on pricing. So any reason why that would not be part of the world.

As we think about the AFP lever throughout the course of the year, we will see fluctuations.

And that will mirror our production ramp so we'll start following our shutdown in Q2 with production of our standard pack vehicles across the board.

When you see higher Asps in Q4, driven by a higher concentration of Max box that were available in that period, you will see some fluctuations throughout the course of the year, but by the time, we get to Q4 of next year, we will have that full suite of offerings as a whole and it allows us to drive.

More.

More equal levels of Asps on the <unk> portfolio as a whole which is embedded within that Q4 of 2020 for bridge and then as I spoke about the increase from there is really driven by many of the non vehicle revenue streams, which will be additive in aggregate.

Dan Levy: And then maybe we could just have a follow-up on the demand side, and specifically, how do you think about the elasticity of demand here? And I understand that most of the incremental volume you're looking at beyond the order book is coming from the go-to-market strategy, but beyond that.

As we're servicing a larger car park within the market.

Understood. Thank you.

Thank you I would now like to turn the call back over to RJ for any closing remarks.

RJ: If that doesn't materialize as planned, how do you think about the pricing? Are you looking to hold firm on the price and maybe limit some of the volume upside? Or do you think that there will be potential for pricing? You know, we're. Thanks, George. We're constantly monitoring and looking at the pricing environment and understanding really what the overall macro environment is looking like and how to manage that. To date, we've just recently launched our lowest price variant of R1 with the center pack. And, as I indicated, we've seen a very encouraging reaction to that. So there is demand elasticity as a function of price, for sure.

Well, thanks, everyone for spending.

Spending the time with us today, and the thoughtful questions and discussion we are able to have.

We're incredibly excited about the strength of.

Customer excitement for our brand and what we're building as a company.

And with that looking forward to continue to make progress on our on our drive towards profitability of the business.

And an important component of that is of course, the unveiling and showing of our two product lines, which will be showing a march 7th.

And that will embody a lot of the learnings that we've talked about in the context of launching and ramping our one.

In a product that we think really fits the market and really fits the largest <unk>.

<unk> of demand.

Thats available today, so with that thank you everyone for the time and look forward to our next call.

RJ: But at this point, we feel comfortable with that pricing on the center pack and this, but again, this is something in this environment where we have to go in eyes wide open and recognize how the rest of the markets are reacting and how the rest of the markets are behaving. Thank you. One moment for a question. Our next question comes from Mark Delaney with Goldman Sachs. You may proceed. Yes, good afternoon.

Thank you for your participation you may now disconnect.

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Mark Delaney: Thanks for taking the question. I think first, I'm hoping to better understand your drivers around the software and services part of the business. You know, I think about 15% of the gross profit improvement by the fourth quarter of this year will come from software and services. You've got a number of offerings there that you've spoken about things like insurance, charging, regulatory credit sales. Maybe you can rank order for us what you see some of the largest drivers are, you know, in terms of getting to that 15% coming out of software and services. Sure. Sure, the biggest driver there is driven by the increases that we saw in regulatory credits in aggregate. And so, for us, we had 73 million dollars for the entire year in sales of regulatory credits, and Q4 alone had 39 million dollars. And that was the largest driver.

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Claire: But beyond that, we continue to see growth across maintenance and repairs from a service standpoint. And our continued efforts in remarketing, and over the longer term, the opportunity to sell Rivian in the resale market as well, which we think is an important value driver for the business overall. We've also been encouraged by the financing revenue streams as evidenced by both the ongoing Straight financing of our vehicles, in addition to the introduction of leasing, which we launched in November of this year, which has been a key enabler for us to drive a greater share of our financing penetration across all Rivian sold as well. And equally, as we think about the insurance business, that's an annuity-type business, as we've seen very strong renewal rates for existing customers that are now entering their 2nd year.

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Claire: While we're also able to capture a significant portion of new customers as well. And so we're continuing to see strong tailwinds from each of the key drivers across the board and are excited to have a broader roadmap of more of these software-enabled services in the future.

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Mark Delaney: My second question was trying to understand how fixed the input cost environment might be for 2024. At this point, you spoke about some changes in things like lithium and battery pricing, which can move around a little bit throughout the year. I mean, have you already, you know, gotten firm commitments on some of these materials? And similarly, with suppliers, you oftentimes have a volume requirement in order to get a certain price.

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RJ: You spoke about a partnership approach that some of the suppliers are taking and wanting to be involved with R2 and some of the longer-term opportunities with Rivian. But to an extent, your volumes end up being less than the 57,000 production target. Is there some risk as well around what the input costs you'll be paying are? Thanks. Yeah, Mark, you mentioned this already, but I mean, the raw material costs within the battery supply chain have changed dramatically in the last year, specifically lithium hydroxide, which is down by about 4x from north of $80 a kilogram to just over $20 a kilogram today.

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RJ: So that that has a very significant impact on our overall cost structure. But getting into, just thinking about the overall supply chain, sort of health for us, and overall material costs, we're just seeing a dramatically different environment for sourcing than what we had previously. And when we think about when we sourced R1 and a lot of the building materials that we've been operating off of and the contracts we've been operating off of to date, those are contracts that went in place in 2019, 2020, when Rivian was in a very different negotiating position with those suppliers and where the industry was in a very different position to be making commitments to us. Fast forward to today, those same suppliers are highly engaged, very enthusiastic And they've experienced very much firsthand some of the challenges of supplying other products, and some of the products from large established OEMs have not done nearly as well as what they thought they would or what those other manufacturers thought they would.

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RJ: And on a relative basis, looking at those and comparing them to us, they now see us as a large customer, and they see what's coming with R2, and that gives us really meaningful negotiating leverage. And in many cases, we've been able to negotiate with our existing suppliers meaningful cost reductions that remove any of the price premium that we would have been paying before, especially with us being a new company. But in cases where we haven't been able to do that, we've been very active in resourcing suppliers and bringing on, you know, ending supplier relationships and bringing on new suppliers.

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RJ: And we have a relentless focus on driving our cost of goods sold down through those activities. Now, in cases where we're either changing the part design or changing out a supplier, it's not as if we can press a button, and it happens immediately. There's both the tooling time, there's the introduction of the supplier, and then there's the coordination of the transition.

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Emmanuel Rosner: And the shutdown, as I said, this will be the single largest consolidated set of supply chain changes that we've had by far since we started production. And we had a similar set of changes we made on EDV in the early part of 2023 when we shut the line down and out of that. We achieved a material cost reduction of 35%, but the scale of the changes we're making on R1 is meaningfully bigger in terms of the number of suppliers and the number of components with the shutdown that we're planning here in the second quarter of this year. Thank you. One moment for questions. Our next question comes from Emmanuel Rosner with Deutsche Bank. You may proceed. Thank you very much; I was hoping you could help me understand better how the introduction of the standard packs helps with your targets and strategy.

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RJ: We pulled it into this quarter really with the intent of answering what we were seeing as a real customer request and a lot of our customers looking forward to that configuration. But we are also able to use this as a chance to really better understand the overall demand curve. And when we look at the different configurations that we offer, up until recently, we really had our Mac, we had our large pack with quad motor, and then our max pack.

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RJ: So we had built out the high price side of our portfolio, but we hadn't brought in the more affordable variants of our one. And so what we're really encouraged by is not only the excitement around that for, as I said, our most price-sensitive customers, but the fact that it's driving awareness, which may not be, not immediately obvious, but what it is driving is more demand for our quad motor large pack as well. So we've seen a step up in new orders for the quad large, which is, you know, supported by folks that are becoming aware of the vehicle or becoming aware of the brand, getting drawn in by the standard pack, but then recognizing that they'd actually be willing to pay for the upgrade in range or the upgrade in performance that comes with either the large pack or the quad motor.

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RJ: And then as a follow-up, then staying on the topic of pricing, if I'm looking at your gross margin walk, you know, towards, you know, break-even in the fourth quarter, obviously, the only piece about pricing there is sort of like this, you know, adjacent revenue, and it's a positive one. I don't, is there any risk of, downside risk, you know, from pricing on existing vehicles? I mean, I'm thinking about specifically the introduction of the standard pack.

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Emmanuel Rosner: You know, this is obviously cheaper than the vehicles you were selling before. And so, to a certain extent, all else equal, that would put some pressure on pricing. So, any reason why that would not be part of the walk?

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Claire: Manuel, as we think about the ASP lever throughout the course of the year, we'll see fluctuations that will mirror our production ramp. So we'll start following our shutdown in Q2 with production of our standard pack vehicles across the board. So while you see higher ASPs in Q4 driven by a higher concentration of max packs that were available in that period, you'll see some fluctuations throughout the course of the year.

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Emmanuel Rosner: But by the time we get to Q4 of next year, we'll have that full suite of offerings as a whole that allows us to drive more equal levels of ASP on the R1 portfolio as a whole, which is embedded within that Q4 2024 bridge. And then, as I spoke about, the increase from there is really driven by many of the non-vehicle revenue streams, which will be additive in aggregate as we're servicing a larger car park within the market. Understood, thank you.

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RJ: Thank you. I would now like to turn the call back over to RJ for any closing remarks. Well, thanks, everyone, for spending the time with us today and the thoughtful questions and discussion we were able to have. We're incredibly excited about the strength of customer excitement for our brand and for what we're building as a company. And with that, we look forward to continuing to make progress on our drive towards profitability as a business. And an important component of that is, of course, the unveiling and showing of our R2 product line, which we'll be showing on March 7th. And that will embody a lot of the learnings we've talked about in the context of launching and ramping R1 in a product that we think really fits the market and really fits the largest segment of demand that's available today. So with that, thank you everyone for the time and look forward to our next call. Thank you for your participation. You may now disconnect. E.T., Scott Cairns, Jim Crow, James P., and William B.

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Operator: We're going to be talking about the the the the the the the the the the the the the the the the the the the the the the the the the the the the the Eric Schmidt. Good day, and thank you for standing by. Welcome to the Rivian fourth quarter and full year 2023 earnings conference call. At this time, all participants are in a listen-only mode.

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Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

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Tim Bae: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tim Bae, Vice President of Investor Relations. Good afternoon, and thank you for joining us for Rivian's fourth quarter and full year 2023 earnings call. Before we begin, matters discussed on this call, including comments and responses to questions, reflect management's views as of today. We will also be making statements related to our business operations and financial performance that may be considered forward-looking statements under federal securities laws. Such statements involve risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are described in our SEC filings and in 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.

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Tim Bae: Just before the call, we published our shareholder letter, which includes an overview of our progress over the recent months. I encourage you to read it for additional details on some of the items 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.

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RJ: Hello, everyone. Thanks for joining us today. During our call, I'll highlight key developments during the fourth quarter, provide an update on the progress we're making against our value drivers, and discuss steps Rivian is taking to adapt to evolving market conditions in our industry. Before I dive in, as part of our ongoing focus on driving cost efficiency, I'd like to thank our sponsors. We announced internally today the difficult decision to reduce the number of salaried employees by approximately 10%.

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Good day, and thank you for standing by welcome to the <unk> fourth quarter and full year 2023 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session. Please press star one one on your telephone and wait for you.

RJ: These difficult decisions, among other initiatives I plan to discuss, enable us to maximize the amount of impact we can have as a society. We hold the deep conviction that the entire automotive industry will electrify over the long term. This means, as an industry, replacing roughly 1.5 billion internal combustion passenger cars across the planet over the next couple of decades. Rivian's mission is to accelerate this transition. A major goal with the launch of R1 was to build a brand that deeply resonates with customers, beyond our active owner groups and the R1S being the top selling EV in the US priced over $70,000. An owner satisfaction survey conducted by Consumer Reports showed Rivian as the number one automotive brand with the highest likelihood for customers to purchase again.

Name to be announced to withdraw your question. Please press star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today.

Tim <unk> Vice President.

<unk> of Investor Relations.

Good afternoon, and thank you for joining us for <unk> fourth quarter and full year 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.

RJ: We intend to harness this brand strength as we launch R2, which we'll be unveiling on March 7th. R2 represents the essence of our brand while targeting the significant midsize SUV segment, a massive market with limited compelling EV options beyond Tesla. R2 has been developed with vertically integrated propulsion platforms, electronics, and software to create an incredible user experience.

<unk> financial performance 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.

RJ: Our team is laser-focused on the factors within our control that will drive Rivian's long-term value. These include driving cost efficiency, optimizing our production and deliveries, investing in differentiating technologies, enhancing the Rivian customer experience, and maintaining a strong balance. The progress we've made ramping production and driving greater cost efficiency was significant in 2020. During the full year, we more than doubled production deliveries and exceeded our initial production guidance by more than 7,000 vehicles. The team achieved this while also successfully managing the complex integration of new engineering design changes, including our in-house drive units for both the EDV and R1 platforms, LFP battery packs for EDV, and new vehicle variants, such as our Maxi-Trucks. Ramping production and introducing new technologies across multiple vehicle platforms has presented challenges, but importantly, our team has gained significant learnings in a compressed time frame.

During this call we will discuss both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP financial measures is provided in our shareholder letter just before the call. We published our shareholder letter which include an overview of our progress over the recent months.

I encourage you to read it for additional details around some of the items. We will cover on today's call with that I'll turn the call over to RJ, who will begin with a few opening remarks.

Thanks, Tim Hello, everyone and thanks for joining us today during our call I'll highlight key developments during the fourth quarter provide an update on the progress we're making against our value drivers and discuss steps <unk> is taking to adapt to evolving market conditions and our industry.

Before I dive in as part of our ongoing focus on driving cost efficiency.

We announced internally today, the difficult decision to reduce the number of salary employees by approximately 10%.

These difficult decisions among other initiatives I plan to discuss enable us to maximize the amount of impact we can have as a company.

We hold the deep conviction that the entire automotive industry will electrify over the long term this means as an industry.

RJ: This experience will be foundational as we execute against our 2024 plan. We took significant steps toward driving greater efficiency in 2023. Gross profit per vehicle improved by approximately $81,000 when comparing the fourth quarter of 2023 to the fourth quarter of 2022. As we start 2024, I want to emphasize our team's continued sense of urgency and ownership mindset in driving further efficiency throughout the organization. During our second quarter shutdown, we plan to incorporate additional material cost downs with the integration of new design engineering changes in the R1 platform, deliver further supplier cost reductions, capture the flow-through of commodity price improvements, and further optimize our manufacturing spend.

Replacing roughly $1 5 billion internal combustion passenger cars across the planet over the next couple of decades.

<unk> mission is to accelerate this transition major goal with the launch of our one was to build a brand that deeply resonates with customers.

And our active owner groups and the <unk> being the top selling EV in the U S priced over $70000 and owner satisfaction survey conducted by consumer reports showed <unk> is the number one automotive brand with the highest likelihood for customers to purchase again.

We intend to harnesses brand strength as we launch our two which will be unveiling our March seven.

Our two represents the essence of our brand while targeting a significant mid sized SUV segment.

And massive market with limited compelling EV options beyond Tesla.

<unk> has been developed with vertically integrated propulsion platforms electronics and software to create an incredible user experience.

Our team is laser focused on the factors within our control that will drive <unk> long term value. These.

These include driving cost efficiency, optimizing our production and deliveries investing in differentiating technologies enhancing the customer experience and maintaining a strong balance sheet.

RJ: We believe these steps position us to achieve modest gross profit in the fourth quarter of 2025. As we start 2024, I want to address the broader industry context which I referred to during our third quarter call. Our business is not immune to existing economic and geopolitical uncertainties, most notably the impact of historically high interest rates, which has negatively impacted many people.

The progress we've made ramping production and driving greater cost efficiency with significant 2023.

During the full year, we more than doubled production deliveries and exceeded our initial production guidance by more than 7000 vehicles.

The team achieved this while also successfully managing the complex integration of new engineering design changes, including our in house drive units for both the <unk> and our own platforms LSP battery packs for EV and.

And new vehicle variants, such as our Max back.

RJ: In this fluid environment, we appreciate the expressed interest in demand visibility from the investment community. The conversion of orders to sales can be impacted by several factors, including delivery timing, location of the order, monthly payments, and customer readiness. Our order bank has notably reduced over time as deliveries have more than doubled in 2023 versus 2022, along with the impact of cancellations due to both the macro environment and the customer factors I just referenced. After 2024, we expect our total deliveries to be derived from our existing backlog as well as new orders generated during the year. Our key focus is on increasing demand to achieve our 2024 delivery. Our go-to-market strategy is built on growing brand awareness, enabling our direct-to-consumer experience, and importantly, providing more opportunities for consumers to experience our award-winning R1T and R1S vehicles firsthand. We are Scaling Our Rivian Spaces program, which is our equivalent of a retail location, and today we have 11 sites open across North America, most of which have opened in the last six months.

Ramping production and introducing new technologies across multiple vehicle platforms has presented challenges, but importantly, our team has gained significant learnings in a compressed timeframe.

This experience will be foundational as we execute against our 2024 plan.

We took significant steps towards driving greater efficiency in 2023 gross.

Gross profit per vehicle improved by approximately $81000 when comparing the fourth quarter of 2023 to the fourth quarter of 2022.

As we start 2024, I want to emphasize our team's continued sense of urgency and ownership mindset and driving further efficiencies throughout the organization.

During our second quarter shutdown, we plan to incorporate additional material cost downs with the integration New design engineering changes and the armed platform deliver further supplier cost reductions capture the flow through of commodity price improvements and further optimize our manufacturing expenses.

We believe these steps position us to achieve modest gross profit in the fourth quarter of 2024.

As we start 2024, I want to address the broader industry context, which I referred to during our third quarter call. Our business is not immune to existing economic and geopolitical uncertainties, most notably the impact of historically high interest rates, which has negatively impact demand.

In this fluid environment, we appreciate the expressed interest and demand visibility from the investment community.

The conversion of orders to sales can be impacted by several factors, including delivery timing location of order monthly payments and customer readiness.

Our order bank is notably reduced.

Over time as deliveries to more than doubled in 2023 versus 2022, along with the impact of cancellations due to both the macro environment and the customer factors I just referenced.

For 2024, we expect our total deliveries to be derived from our existing backlog as well as new orders generated during the year.

Our key focus is on increasing demand to achieve our 2020 forward delivery targets.

Our go to market strategy is built on growing brand awareness, enabling our direct to consumer experience and importantly, providing more opportunities for consumers to experience Our award winning <unk> and our awareness vehicles firsthand.

RJ: These sites have garnered over 130,000 visitors so far in 2025. Complementing our space footprint, our more than 50 service centers serve as another location for current and potential customers to experience our vehicles. We've provided over 13,000 demo drives already in the first quarter and consider this to be one of our key demand building strategies. We've also expanded the lineup of our vehicles and recently introduced our standard range variant, which provides an accessible price point for more potential Rivian customers.

We're scaling our review and spaces program, which is our equivalent of retail space retail locations.

And today, we have 11 sites open across North America, most of which have opened in the last six months.

These sites have garnered over 130000 visitors so far in 2024.

Complementing our spaces footprint or more than 50 service centers serve as another location for current and potential customers to experience our vehicles.

We provided over 13000 demo drives already in the first quarter and consider this to be one of our key demand building strategies.

We've also expanded the lineup of our vehicles and recently introduced our standard range variant, which provides an accessible price point for more potential revenue and customers. We are encouraged by the early results.

We are encouraged by the early results. The steps we're taking in 2024 will be foundational in positioning Rivian as a leader in the transition to electrification. The opportunity ahead is significant. We're taking deliberate action to drive additional cost efficiency as we continue building our go-to-market capabilities and develop our R2 plan. I would like to thank all those who continue to support our vision, including employees, customers, partners, suppliers, communities, and shareholders. With that, I'll pass the call. Thanks, RJ. I'd like to reiterate our excitement for the long-term success of... Over the course of 2023, we made significant progress in all four key values, driving greater cost efficiency and continuing to optimize.

The steps, we're taking in 2024 be foundational and positioning <unk> as a leader in the transition to electrification.

The opportunity had a significant we're taking deliberate actions to drive additional cost efficiency as we continue building our go to market capabilities and develop our two platform I.

I would like to thank all those who continue to support our vision, including employees customers partners suppliers communities and shareholders.

That I will pass the call to clear.

Thanks R J I'd like to reiterate our excitement for the long term success of Radian over the course of 2023, we made significant progress in all four key value drivers.

Diving greater cost efficiency continuing to optimize production.