Rivian Automotive, Inc. [RIVN] Conference call transcript for 2022 q1
2022-05-11 21:15:25
Fiscal: 2022 q1
Operator: Good day and thank you for standing by. Welcome to the Rivian First Quarter 2022 Earnings Conference Call. As a reminder, this conference call is being recorded. I’d now like to turn the call over to Mr. Tim Bei, Vice President of Investor Relations. Please go ahead, sir.
Tim Bei: Good afternoon and thank you for joining us for Rivian’s first quarter 2022 earnings call. Joining us on today’s call, we have RJ Scaringe, our Founder, Chairman and Chief Executive Officer and Claire McDonough, our Chief Financial Officer. A copy of today’s shareholder letter is available on our Investor Relations website. Before we begin, I would like to remind you that during the course of this conference call, our comments and responses to your questions reflect management’s views as of today and will include statements related to our business that are forward-looking statements under federal securities laws, including, without limitation, statements regarding our market opportunity; industry’s trends; business operations; strategy and goals; our second domestic manufacturing facility; our future products, including R2; and our expectations regarding vehicle deliveries. Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our business. Except as maybe required by law, Rivian does not have any obligation to update or revise such statements if circumstances change. For a discussion of the material risks and other important factors that could impact actual results, please refer to the cautionary statements and risk factors contained in our SEC filings and today’s shareholder letter, which can be found on our website at rivian.com/investors. 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 today’s shareholder letter. With that, I’ll turn the call over to RJ who will begin with a few opening remarks.
RJ Scaringe: We are happy to be here with everyone today and look forward to discussing the progress we have been making. Just before the call, we published our shareholder letter, which includes an overview of our progress over the recent months. I encourage you to read it for additional details around some of the items we’ll cover on today’s call. As of May 9, we have produced approximately 5,000 vehicles since the start of production. We are now producing and delivering the R1T, R1S, and EDV 700, with a slightly narrower and shorter EDV 500 going through final production trials now. And we’ve done all this in one of the most challenging operating environments in decades. We have $17 billion of cash and believe we have a clear path to launch R2 in Georgia in 2025 with our current cash on hand. Our goal is to build and scale a large business that addresses both the consumer and commercial markets. Our launch of the R1 and EDV products positions us to grow rapidly as we fully ramp the 150,000 units of installed capacity in our Normal, Illinois manufacturing facility. We have a lot of work ahead, but the passion and endorsement we have seen from customers and third-parties, such as being named MotorTrend’s 2022 Truck of the Year demonstrates the impact our team can drive as we remain laser-focused on ramping production and getting more vehicles on the road. With regard to our production, we are encouraged by the acceleration of our demonstrated production rate. Our plant is now achieving cycle times 3x higher than the start of the year. These demonstrated production rates, which we expect to continue to increase, coupled with our current supply chain outlook, give us confidence in our ability to hit our targets for 2022. Equally important, demand continues to accelerate. And as of May 9, we had over 90,000 preorders for our R1 products in the U.S. and Canada. All of our orders have been attracted by organic growth and brand awareness and without any paid marketing or media. It is worth noting that since our March 1 price increase, we have received over 10,000 R1 preorders for the U.S. and Canadian market with an average price of over $93,000. These orders are in addition to the 100,000 commercial van order from Amazon. As we ramp production and deliveries of EDVs, we are excited about the impact that our close partnership with Amazon will have in the commercial vehicle space. As we have begun ramping deliveries, the feedback has been tremendous. One of my favorite parts of the week is when I sync with our customer engagement team and hear the feedback they are receiving around the vehicle, process and their interactions with our team. We love seeing photos of our vehicles in the wild, enabling customers’ adventures. Our core focus as an organization for 2022 is to get more R1s and EDVs on the road. The majority of our time is focused on ensuring our teams are driving towards ramping production and deliveries to customers. Core to this is addressing the supply constraints that we have dealt with thus far. And I’m very confident today in the relationships and associated commitment we have built with our suppliers. As we demonstrate our production ramp, our suppliers are leaning in to help ensure we can achieve our targets. Before handing off to Claire, I want to comment on our R2 program, which is being developed and planned for our Georgia facility. We are leveraging the many learnings from our R1 and RCV platforms and we are working to ensure the R2 sets a high bar in terms of affordability, unit economics, performance and efficiency. This global platform is critical for our long-term growth with a lower price point to further expand our addressable market. R2 will also leverage many of the cross-platform technologies that will be incorporated into R1 and RCV platforms, including our single-motor drive unit, which we call Enduro, and our next-generation network architecture and associated family of ECUs. I couldn’t be more excited about the ramp of the R1 and EDV vehicles as well as the products, services and technologies we have in the pipeline. With that, I will hand it over to Claire.
Claire McDonough: Thanks, RJ. I’ll start with a review of our first quarter 2022 results. In Q1, we produced 2,553 vehicles and delivered 1,227 vehicles, which was the primary driver of the $95 million of revenue generated in the quarter. As we’ve discussed in the past, the volumes being produced on our manufacturing lines are a small fraction of our current 150,000 units of annual capacity. We generated negative gross profit of $502 million in the quarter. As we ramp production, we expect high fixed costs associated with running our large-scale, highly vertically integrated facility will continue to impact our total gross profit. Our negative gross margin was impacted by inflation and the production of low quantities of vehicles on large-scale production lines as we ramp. This includes the costs associated with expedited shipping expense, labor and depreciation as well as some accounting adjustments such as lower of cost or net realizable value, LCNRV. As discussed on prior calls, the LCNRV adjustment writes down the value of certain inventory to the amount we anticipate receiving upon vehicle sale after considering future costs necessary to ready the inventory for sale. As we ramp production, we expect to leverage our labor and other fixed costs to drive improved gross margin per vehicle. While our operations teams worked diligently to ramp production of the R1T, R1S and EDV 700, our customer engagement, service and delivery teams are also accelerating efforts to enhance customer experience across the country. Additionally, our engineering and design teams continue to progress on our next-generation in-vehicle technology. Our vertically integrated approach is designed to drive long-term structural cost advantages as we expand our production and product road map. Our adjusted EBITDA for the first quarter was negative $1.1 billion. We continue to strategically invest in our plant in Normal, Illinois, lab facilities and service operations. We also expect to begin investing additional capital into our Georgia facility later this year. Our capital expenditures for the first quarter were $418 million. We ended the quarter with $17 billion of cash. While we operate a capital-intensive business, we have a high level of flexibility regarding the cadence of our growth investments. As RJ mentioned, our current priority is ramping the 150,000 units of R1 and EDV capacity to meet the tremendous demand we have for these products. We have optimized our product road map and associated operating expenses and believe we have a clear path to launch R2 in Georgia in 2025 with our current cash on hand. We are also reaffirming our 2022 full year guidance of 25,000 total vehicles produced. We anticipate a significant acceleration of production throughout the second half of the year as our demonstrated capacity improves and we accelerate the ramp-up of key shops. In addition, we are reaffirming our 2022 adjusted EBITDA guidance of negative $4.75 billion and capital expenditure guidance of $2.6 billion. Our outlook does not assume a material change in the overall operating environment. Going forward, we plan to provide production and delivery results shortly after the quarter end. We will no longer be providing intra-quarter production and preorder figures. In closing, I want to thank our team, community, customers and suppliers for another successful quarter. Thanks to our truly differentiated vehicle and technology platform, we’re seeing such tremendous feedback and enthusiasm. We have a steep climb ahead of us, but I couldn’t be more confident with the plan that we have and the path that we are on. With that, let me turn the call back to the operator to open the line for Q&A.
Operator: Sure, ma’am. Your first question comes from the line of John Murphy with Bank of America. Your line is now open.
John Murphy: Good evening, everybody. Just a first question around production versus deliveries in the quarter, production is essentially almost 2x of deliveries. I am just curious why there was such a gap between the two this quarter. Was it just a question of timing of vehicles in transit or what’s going on there? Because traditionally, because of the lack of the dealer network, we kind of assume they are going to be a lot closer.
RJ Scaringe: Thanks, John. Yes, as you said in the question, there is a gap between production deliveries and it was just that the timing effect of vehicles being built and being in transit and essentially prepped for delivery. As you said, given that we have a direct model where we sell vehicles directly to consumers, aligning up those customers, ensuring the delivery, creating a great customer experience, there is always going to be some separation between the total production number and the number of deliveries.
John Murphy: Okay, but it was nothing other than simply just processing, RJ? There is not like there is vehicles being held for any kind of quality or postproduction inspection or anything like that?
RJ Scaringe: No. In fact, when we talk about production numbers, what we are referring to is vehicles that are factory-gated. So, these have gone through a full quality inspection process. This doesn’t – production numbers do not include any partially complete vehicles. These are fully ready-to-deliver to customer vehicles.
John Murphy: Super helpful.
Claire McDonough: One point that I would just add on to that question is that because of the rate at which we are ramping production, because we are continuously scaling week over week over week, there always will be that lag effect in regard to vehicles that are ultimately in transit. So it’s something that we will continue, but won’t likely to be the same sort of percentage of ratio of produced vehicles relative to delivery.
John Murphy: Got it. And then just a second question on the run-rate of production, I mean it seems like there is about 1,800 units that were produced from April 1 to May 9 roughly. And I have to do some dumb guy’s math and just double it, that gets you to 3,600, but that doesn’t even give you the benefit for the full quarter and the acceleration. So, it seems like you are on pace to hit at least, at least in our model, 4,000 units plus in the second quarter. Is that kind of reasoning about correct? And I mean, just given that you are getting a good acceleration in production here, it seems like you might be even ahead of that. Should we think about it that way? And is there any tempering of parts specifically that might gate your ability to get there?
RJ Scaringe: That’s about the right way to look at it. I’d want to point out a couple of things. We have seen the overall production rate continue to increase. In fact, our cycle time has seen a 3x – 300% or 3x improvement since the start of the year through the course of Q1 and we continue to see that production rate improvement as we go through quarter two here. So, you alluded to it, but we are in midst of S curve. So the end of the quarter, we will be producing at a faster rate than the start of the quarter. As we look at this quarter thus far, we have – the plant has been able to outproduce our supply chain. And what gives us a lot of confidence as we look at the time ahead is the clear line of sight we have around the ramp up of our supply chain and the close relationships we have with those key suppliers.
John Murphy: Okay. And then just the last question on pricing and the price increases, I mean, obviously, the result of input cost increases, but is there margin that goes along with these price increases? More specifically, maybe are you raising your prices exactly to what your cost is or is it above that, so there is actually some sort of parallel margin that’s going along with it on a unit basis?
Claire McDonough: Right. So the way I would think about the margin opportunity that we have and you will really see this kick in from an inflection point as you think about the 2024 margin opportunity that we have, which brings together the combination of us really ramping and accelerating the production volumes within the plant, combined with the move from our sort of pre-March 1 preorder cohorts, your post March 1 cohort. And embedded in that post-March 1 cohort, there is a true step change that you will see in regard to the overall aggregate gross margin that you will see within the business. And so the growth from a gross profit margin rate over time, it’s not linear, it truly is a step change function as you think about us moving to this post-March 1 cohort. And as we talked about a bit in our shareholder letter as well, we are also now moving towards a reservation system versus the historical preorder system that we have had, which allows us to have the customer configure their vehicle closer to the delivery date, which enables us to understand the dynamics within the inflationary market at that time, but also importantly, ensure that, that customer has all of the core vehicle capabilities that we are introducing in that configuration as well. So, we think that the combination of those two factors will really help us from an ongoing margin perspective and allow us to really be nimble and dynamic as we evaluate this inflationary backdrop.
John Murphy: That’s very helpful. Thank you very much.
Operator: Thank you. Your next question comes from the line of Adam Jonas with Morgan Stanley. Your line is now open.
Adam Jonas: Hi. Claire, I just wanted to follow up. You mentioned, if I quote, you have a high level of flexibility in the cadence of your growth investments. So on the topic of cost control, your enterprise value is currently just above $0. And it’s sending the message – the market is sending the message that if you don’t get your supply chain costs under control that you might have to significantly dilute shareholders. That’s what happens when you see a zero enterprise value. Now, you reiterated the 25,000 units delivery target and the $7 billion plus kind of cash burn or EBITDA and CapEx. So my question is, if you had to control cash consumption of the business due to force majeure events outside of your control and you alluded to flexibility in cadence, but could you elaborate what levers could you pull to slow the burn and give you more runway to execute and restore confidence in Rivian in the capital markets? Thanks.
Claire McDonough: Thanks for that question, Adam. As you mentioned, we are clearly in the driver seat with $17 billion of cash on hand. And it’s important to also note that we have made foundational investments that have allowed us to rapidly scale the business in both the consumer as well as the commercial market. We have 150,000 units of capacity for our R1 and RCV platforms. And as we have talked about as well, demand remains incredibly strong with over 90,000 R1 preorders and an initial order of 100,000 units from Amazon. And as we just talked a little bit about with John’s previous question, right, we do see significant path forward as we are ramping production and able to ultimately have that step change where we are now harvesting, right, the profitability of all of those foundational investments that we have made in the production capacity that’s online and the launch vehicles that we have come to market with. And so, this ultimately gives us that flexibility to decide how we are deploying our capital on a go-forward basis. And as you mentioned, with regard to what those key levers are, we have the ability to live within our means as we think about the profitability that normal itself can deliver for Rivian that will allow us to really pace the ongoing growth of the business and ultimately allows us to have that flexibility on when and how we would raise additional capital on a go-forward basis. And as we talked a little bit about, we do believe we have the cash on hand to launch...
Adam Jonas: I understand. I understand, Claire. Let me just do one follow-up and I will shut up. For you and RJ, since your IPO, the world has changed dramatically. Investors just don’t want to fund negative EBITDA growth – EBITDA companies in this environment and the supply chain issues have gotten, to your point, significantly worse in both quantity and input cost. So has anything changed in your team’s strategy to adapt to the changes in the environment since the IPO?
RJ Scaringe: Yes, Adam, this has been something we, as a leadership team, have spent a tremendous amount of time on, of course, from a scenario planning point of view, but also just looking at the product road map and how we plan to invest and deploy capital over the coming years. And as Claire said, one of the really important things for us to recognize here is we have $17 billion in cash. We have 150,000 units of capacity with CapEx that’s installed. And it positions us well to now harvest and use that to leverage or create a significant amount of growth while we focus investment and focus our dollars on development and preparation for launch of R2. So what we’ve really done is and what we’ve been working hard on is to channel and focus our capital on a really important program from us in terms of trust and in terms of scaling, which is the R2 program, but of course, maintaining laser focus on ramping up the existing capacity that we have, such that we can fully, as Claire said, harvest the revenue associated with it.
Adam Jonas: Thanks, RJ.
Operator: Thank you. Your next question comes from the line of Joseph Spak with RBC Capital. Please go ahead.
Joseph Spak: Hi, thanks. Good afternoon. RJ, you alluded to some better visibility with your suppliers. I was wondering if you could provide a little bit more color and detail on some of those conversations with those suppliers that you mentioned had some bottlenecks last quarter that gives you that level of confidence.
RJ Scaringe: Sure. So we previously talked in our last call around some of the challenges we’ve had, inclusive of semiconductors as well as some other components. And where we stand today, a lot of those other challenges have been resolved. We’ve worked with those suppliers to ramp their production. We have clear line of sight to them being able to keep up with our continued ramp in our facility. As we noted in our opening statements, just the importance of us shifting to – or moving to a two-shift operation mid this year and of course, the suppliers seem to be capable of supporting that. With that said, we also have very tight relationships with the semiconductor suppliers, and we’ve seen some – we believe we’ve seen really the worst of it or sort of the valley, if you will, of these supply constraints. And the suppliers are leaned in. We have very high levels of visibility into what the allocations will be on a go-forward basis. And that gives us the confidence of what the ramp will look like as we look out through the remainder of this year.
Joseph Spak: Okay. And then just maybe to follow-up on Adam’s point about scenario planning and changing the strategy. Your answer made it seem like you’re being prudent about how you spend for next-generation platforms. I guess what I’m wondering is your plan involved doing a lot of things on your own or in-sourced and then throughout really the entire value chain. Has this experience and the change in capital markets led you to reevaluate whether you might rely on other partners or any sort of a bow face in terms of what you want to do versus you might let others do for you as you want to – as you go and sort of execute upon your longer-term plan?
RJ Scaringe: There is a few things to think about here, Joe. So first is our original plan had a number of additional variants, both of the R1 product as well as even propulsion platforms that were planned for the future pipeline. And what we’ve done is we’ve really looked at the incredible level of demand that we have for the R1 products as they are and recognize that there is some big technology development efforts to further advance those products, but we’ve aligned those very nicely with the R2 program. So our, what we call Enduro, this is the single-motor drive unit that’s used in the EDV platform in a front-drive application and in the R1 platform in a dual-motor or all-wheel drive application, our next-generation network architecture and associated family of ECUs, and of course, our LFP battery pack, which is going to be launching in the EDV later this year. All those technologies, we’re able to share those, not only across the R1 and RSV platforms, but a number of them really lined up nicely with the R2 program. And so what we’ve been focused on is simplifying the product plan and the product portfolio as much as possible. But we haven’t, in any way at all, shifted our focus on the need to vertically integrate our software stack, vertically integrate around our electronics and ECU topology and of course, vertically integrate around our propulsion stack. So we do believe those are really important from both a structural cost point of view, but also from a product attribute and feature point of view, but we have simplified the overall product set. And we’ve done that in a way that, as you’ve heard us talk about here, it puts us in the driver seat, so to speak, in terms of controlling our need for additional capital and ensures that we’re able to launch R2 with the capital that we have.
Joseph Spak: Thank you.
Operator: Thank you. Your next question comes from the line of Emmanuel Rosner with Deutsche Bank. Your line is now open.
Emmanuel Rosner: Thank you very much. First one super quick point of clarification. You mentioned your reservation having received 10,000 reservations since the price changes, but then obviously, the latest update at 90,000 is only up 7,000 or so versus the last update. So what are you exactly netting out of this? Is it the cancellation or the deliveries that you’ve already done?
Claire McDonough: So the net is both of those things. So our – when we report net preorders, every delivered vehicle that we have comes out of that base of preorders. And so it is the netting effect of the delivered vehicles that we’ve had throughout both last quarter as well as the quarter-to-date period as well as any embedded churn within the preorder base.
Emmanuel Rosner: Okay. That’s very helpful. Then your target to launch R2 in 2025 with current cash on hand is obviously very encouraging. How do you plan on accomplishing this? Are you modifying the CapEx trajectory? Are you – have you identified areas where you need to spend less capital? Do you anticipate lower operational cash burn than previously anticipated? I guess, how will you do that?
Claire McDonough: Sure. As we mentioned, one of the core catalysts that enable this path forward to launch R2 in Georgia with our cash on hand is both the profitability that we’re going to begin to deliver with the installed – 150,000 units of installed capacity that we have in Normal. It’s also important to note, as we think about Georgia, we’re building Georgia in a modular fashion. And so the first phase of Georgia will be an R2 line with 200,000 units, and that first 200,000 units will be what comes online in 2025. And so instead of building the full 400,000 units at once, that is certainly an embedded CapEx savings within the plan and forecast that we’re thinking about. And additionally, as you heard from RJ, a number of the strategic decisions we’ve made to really focus and prioritize our product development road map also come with embedded CapEx savings as well as we think about the CapEx forecast over the next handful of years.
Emmanuel Rosner: Understood. Very finally, how is the ramp-up of the Amazon van deliveries going? And out of the 25,000 target for the full year, how many of those would be on the commercial vehicle side?
RJ Scaringe: Yes. We’re excited to be producing and delivering the EDVs. As I said earlier, we’ve launched the EDV 700 in terms of what’s being delivered to Amazon. And so this is the roughly 700 cubic foot version of the van. We’re in the production trial stage of the EDV 500. But with regards to EDV 700, this involved, as we talked about in the previous call, a heavy amount of iteration and refinement with Amazon in terms of how it fits into their digital ecosystem and getting a tremendous amount of driver feedback through a series of trials and a series of feedback loops with drivers. So we are excited to have been through that, have made a whole host of improvements over the course of really the last year such that the deliveries that are now happening are going to start to ramp up, and you’re going to start to see a lot more of them, hopefully, coming into all of our neighborhoods delivering packages. But with that said, we haven’t provided guidance on the exact split between the R1 and the EDV product line. But broadly speaking, we would look to say well over a majority will be in the R1 with EVs making up on the order of third of total production.
Emmanuel Rosner: Great. Thank you so much.
Operator: Thank you. Your next question comes from the line of Alex Potter with Piper Sandler. Please go ahead.
Alex Potter: Okay. Great. I had a follow-up question on vertical integration and software. Your strategy, obviously, is very clear. It’s differentiated. I mean you’re trying to layer in your own in-house software on top of your own in-house electronics, including some of the sort of boring firmware, middleware and other things that customers maybe never get a chance to see. And obviously, there is another school of thought that suggests that it’s redundant for auto brands to go so deeply into some of that behind-the-scenes software and that everybody should standardize around kind of a base level third-party system and then only differentiate at the customer-facing end of the software stack. So I guess my question for you, first of all, I want to make sure I’m articulating all that correctly. But then secondly, why do you think your strategy is right and the other ones are wrong?
RJ Scaringe: Yes. Thanks, Alex. It’s a great question. When you look at a product as complex as a vehicle and in particular vehicle that’s connected with the host of sensors between cameras, radar, ultrasonics, with a whole bunch of actuators, so this is suspension, braking, motors, the traditional model is to buy, as you said, a number of compute platforms, ECUs from different Tier 1 suppliers and to put all those different ECUs together. And then the OEM essentially does some part of – at least prescribes how it should be done at the application layer. From our perspective, to create a really unique customer experience, experience in which we can fully leverage all the sensors, all the hardware in the vehicle and continually improve the vehicle over time, truly improve it, more than just putting a new color on the screen, but actually going deep into the performance of the vehicle, whether that’s referring to self-driving, whether that’s referring to performance attributes or whether that’s digital characteristics or digital capabilities of the vehicle. We feel really strongly that it’s important to both develop and control the full stack. So that’s designing and developing the compute platforms across the vehicles. So that’s all the electronics. Of course, by doing that, being able to design a very efficient network architecture and then of course, within that, building all the layers of software from the low-level operating systems all the way up to the application layer. And what’s exciting to see is the beginnings of, from a customer-facing point of view, why that matters. And so we’ve done a number of OTAs, over-the-air updates, already with customers, and these are just an early sampling of what’s to come. So, adding features like a garage door opener to the vehicle, adding enhanced self-driving features, adding additional drive modes, adding additional diagnostics platforms. So there is a host of things we can go very deep into the vehicle across platforms because all those platforms are controlled internally. And this is important, not just on the consumer side. This is also, we feel, really important on the commercial side, where it really underpins a lot of the core capabilities we embed in our FleetOS product where we can predictively analyze the need for maintenance, we can predictively manage the health of the life cycle of a vehicle. So there is a number of characteristics that are useful as well on the commercial side.
Alex Potter: Okay. Great, thanks very much. And then the second question, I guess, on Georgia and the R2. How close are you to finalizing I guess, maybe the exact bill of materials for the R2, the exact design and the layout for Georgia? It sounds like you’re working on a modular plan. I guess, anything in that regard, especially related to things like single-piece castings or any of the sort of new manufacturing techniques that we’re hearing about. How close are you to finalizing all of that in Georgia? Thanks.
RJ Scaringe: Well, Georgia’s process is a really interesting and exciting opportunity because it’s going to leverage the learnings we have from going through ramping all of our production operations in Normal. And in Normal, you can really think of it as two plants housed in one site. So we have the R1 production line. And then that was sort of our Gen 1 line, if you will. And then we have our RCV platform, Rivian commercial van platform. And with that separate body shop, separate general assembly. And so a number of learnings were already embedded into that second set of lines we built in Normal. And as we now look at Georgia, the opportunities to learn from a production line layout point of view as well as the product itself and pull all those together to create really a world-class product in terms of affordability, world-class product in terms of CapEx efficiency, that’s been – that is the major focus from a development point of view for the product teams and for the plant design teams. And so, what’s also important to note is that, that product coming to market in 2025 will have the time to even further encapsulate more learnings as we continue to go through ramp and as the vast majority of our organization continues to be focused on ramping up in our Normal facility between the R1T, the R1S, the EDV 700 and the EDV 500. But those learnings are certainly flowing into how we think about R2 and part simplification, part consolidation, like you mentioned with usage of castings. We certainly use castings in the R1 and RCV programs. But the opportunity to consolidate even more parts is something we’re excited about and driving those manufacturing and cost efficiencies into that product is going to be critical.
Alex Potter: Great. Thanks, guys.
Operator: Thank you. Your next question comes from the line of George Gianarikas with Baird. Please go ahead.
George Gianarikas: Hi, good afternoon, everyone. Thanks for taking my question. RJ, you recently ranged the alarm bell in an interview around EV materials, and several of your competitors are signing direct deals with miners of lithium and other minerals. I wonder if you can articulate your strategy and how deep their relationships go that you’re developing in that field. Thanks.
RJ Scaringe: Thanks, George. Yes, in a recent interview, I was discussing some of the longer-term strategic challenges we’re going to face as an industry as we go from less than 10 million units being produced a year, electric vehicles being produced a year to every vehicle being produced globally becoming electric. And as we think about that, we do believe there is going to be material constraints as we get to the sort of near the end of this decade. I want to be clear, though, that as we look out over the next 5 years, we do not see any battery cell supply constraints or material risks. And the way we’ve approached our battery cell strategy as well as our far upstream raw material precursor material strategy is to make sure that we have a diversified approach. So what we’ve launched with between the R1 products and the RCV-based platform products has been a high nickel cell. It’s a cylindrical form factor. But later this year, as I mentioned, we introduced an LFP chemistry, lithium iron phosphate chemistry, which, of course, is a hedge on nickel pricing, also just inherently a lower-cost chemistry and fits beautifully as a base model configuration and certainly for a commercial vehicle fits really, really nicely. As we look at diversification, it’s not just looking at high nickel or iron-based chemistries, but also making sure that we have the right selection of cell-supplier partners, and we’re very happy with the relationships that we have and continue to grow those relationships. Now to your question, though, to be very specific around raw material, and I think specifically here, lithium carbonate in the case of lithium iron phosphate battery cells and lithium hydroxide in the case of high nickel cells, these are really key areas, I believe, for anyone serious about achieving significant scale, multimillion vehicle per year scale to have secured supply chains around. And we’re working very hard to build those relationships and put together the right types of deals to secure these really critical precursor materials. I think everybody on this line can appreciate the risks around the material cost. We’ve seen the price of lithium hydroxide go up quite considerably over the last several months, and that’s affected everyone. So making sure that we have confidence on supply as we look out in the latter part of this decade and where we see risk of scarcity for those key precursor materials, that’s something we’re very focused on. And at a future time, we will be able to make some announcements around that.
George Gianarikas: Thanks. And if I may take it to the complete other side of the spectrum and ask you about your autonomous offering, and any update there, any new learnings? And how that offering is driving future product decisions? Thanks.
RJ Scaringe: Sure. So, in our launch products, we have a feature we call Driver+. And sort of the core of that feature is a highway feature where essentially the vehicle is capable of driving itself. But today, that’s geo-fenced really to highways. And we have developed that platform in-house. And as we look out over time, that capability is going to continue to grow. So, we will do that with over-the-air updates where for the existing vehicles that are already delivered to customers as well as future vehicles, that feature will extend into more roads. And along with that development, which is software based, we are also upgrading and improving the hardware set. So, what we call it – what we have talked about in terms of our next-generation network architecture, this also includes with it additional compute as well as updated cameras as well as a few other sensors on the vehicle to support continued progress above and beyond the Level 2 features set that we have today. And Claire talked about this in the context of how we will be taking orders and moving to a reservation-based process. One of the reasons for that is with our demand backlog being so large, the products we will be building in 2 years will be different than the products we are building today. And when I say different, I should say these products will be improved. We will have different hardware that’s part of some of these improvements we are going to be making from a compute point of view, from a perception stack point of view and of course, along with that, the improved network architecture that will be going into these future-state products.
George Gianarikas: Thanks guys.
Operator: Thank you. Your next question comes from the line of Charles Coldicott with Redburn. Please go ahead.
Charles Coldicott: Hi guys. Thanks for taking my questions. Firstly, on production, the shareholder letter mentions that one reason why the weekly rate of production slowed to about 250 units, I believe, per week in the last five weeks from 350 in March or at the end of March, was that you lost 25% of your plant production due to additional stoppages. Can you just clarify what was it that forced the longer period of stoppage than you had anticipated in April? Is that now over? And is May’s production rate now back to what it was in March or even above that?
RJ Scaringe: Thanks Charles. I do want to clarify some things. So – while the rate that you have calculated here, the systemic slowdown in March, the actual production lines themselves both in terms of their stability as well as their production rate has continued to improve. The challenge is, as those lines have continued to improve, we have had supply constraints that haven’t allowed us to actually fully utilize them. So, as we said, of the single-shift operation that we are on today, we lost a little more than 25% of the time. So, the number of vehicles we produced to-date this quarter is almost exactly equal to the number of semiconductors we have to support all the components that go in the vehicle. So, what’s encouraging for us looking forward here is those areas we have had shortages around, we have been working very closely with the suppliers. We have demonstrated to those semi suppliers continued progress week-over-week in terms of rate. And they are very leaned in on making sure that the constraints and line-down situations we have dealt with over the last several weeks, we are going to put those behind us as we look at ramping into the remainder of this quarter and of course, through the rest of the year. And it doesn’t – a day doesn’t go by where I am not talking to the CEO or senior team of one of those key constrained suppliers. And I can say with confidence that certainly if they are listening in, we appreciate their support. But I can say here with confidence that they are as leaned in as we had hoped for. And I would say it’s a materially different situation than we had at the start of the year where the suppliers were still trying to figure out whether or not we as a company were capable of producing and ramping. We have made it very clear through our performance that the plant is capable of running. And as I said, we hope to be running a plant on two shifts starting midyear and with that, of course, building line of sight around component allocation.
Charles Coldicott: Okay. Thank you. And then on the 10,000 orders you have received since the price change in March at an ASP of $93,000 that seems a very rich mix. I guess it means that the vast majority is quad-motor max pack R1Ts or large pack R1S-es given that price point. Were you surprised by that? Does it match the mix of the rest of the order book, albeit obviously at the older lower prices? And do you expect to sustain that type of mix for future orders?
RJ Scaringe: We see – just to clarify, there is definitely – the high ASPs indicate a preference for the dual motor, as you called out, but also – I am sorry, a preference for the quad motor. But also just to clarify, the large pack, our middle-sized pack makes up a vast majority of the configurations. So, what we see is customers have a very high willingness to spend, and there is a lot of pricing power that these vehicles have and what we have built as a brand has. And that gives us a lot of confidence as we go into the next 6 months, 12 months understanding the inflationary environment that we are in, that there is significant pricing capability on these vehicles.
Charles Coldicott: Thanks.
Operator: Thank you. Your next question comes from the line of Mark Delaney with Goldman Sachs. Your line is now open.
Mark Delaney: Yes. Good afternoon and thank you very much for taking the questions. The company is working on several new vehicle technologies. You spoke about LFP batteries, the Enduro motor, also the new network architecture and you commented on how it’s an important part of your long-term profitability objectives. Can you elaborate a bit more on how the development is going for some of these key technologies and do you expect them to still happen on time?
RJ Scaringe: Sure. As I mentioned before, Mark, we have – on our LFP pack, it first goes into our commercial vans later this year. Along with that, the Enduro motor’s first application is in the vans as well later this year. Both of those are well underway. In the case of the Enduro drive unit, we are putting that plant and that line in as we speak. So, there is the lines being built, the plants being – the additions going into our facility, and it is on track. We are pushing very hard. We are very excited to get that into our vehicles late this year. And then following introduction in the commercial van, both the LFP pack as well as our Enduro drive unit, as I said, with Enduro being used in a dual-motor setup, one in the front, one in the back, it also makes its way into the R1 product line.
Mark Delaney: That’s helpful. For my second question, wanting to better understand the opportunity in software and services, and it’s an important part of your long-term opportunity. And I think a really interesting business opportunity for the industry. Can you speak more on how that’s progressing with some of the early R1 owners? And what kind of adoption you have seen on some of your offerings such as your insurance product? Thank you.
Claire McDonough: We have seen strong take rates, especially around our offering from a financing as well as insurance perspective. And those are, as we know, we have had some questions as well around level of vertical integration. Those are two great examples of opportunities where we have partnered with strong third-parties, in the case of Chase on the financing side and then nationwide on the insurance side that allows us to build a very robust data-driven insights into the business. And importantly, through some of these data-driven insights allows us to continue to evolve the relationship that we have with our customer. And beyond financing and insurance, are really excited to also offer a whole host of software-enabled services and the FleetOS solution that we have with Amazon, there is a great benchmark as we think about the capabilities that we are bringing to bear to help them manage that end-to-end fleet solution. And in the case of FleetOS, we are also able to ultimately leverage a number of the core digital commerce investments that we have made as a company from the commercial side of the house and use those to think about, right, our consumer experience as truly how do you manage a fleet of one. And so we are really leveraging that digital infrastructure and digital backbone within the business across both the consumer as well as the commercial side of the house. And as we have talked about in the past, the 65% long-term gross margin opportunity that our software and services side of the business delivers allows us to ultimately drive and increase margins rapidly over time as we think about the compounding effects that, that can deliver from our growing car part.
Operator: And your next question comes from the line of Ryan Brinkman with JPMorgan. Your line is now open.
Ryan Brinkman: Hi. Thanks for taking my question. Relative to the 17% to 21% vehicle price increases implemented on March 1, I am curious how much of the higher pricing was meant to offset higher – obviously, higher battery metals costs or higher general inflation beyond your control versus maybe higher other more company-specific costs such as product development expense, etcetera. And what has been the trend in cost, both within and outside your control since the time that you revised pricing just prior to the last earnings call. And you discussed flexibility in your spending plans, and I appreciate your plentiful cash position, too. But have there been any examples yet of reined in budget increases or anything like that?
Claire McDonough: Sure. So, to address the first question, as we thought about the decision to increase prices, we both looked across the broader inflationary backdrop that we are seeing across our raw material costs and beyond raw material costs, just looking at how inflation was playing, whether that was the cost of freight that we are seeing across the broader market and industry backdrop as well as other increases that you are seeing more broadly from an inflationary perspective. In addition to looking at each of those factors, we also importantly benchmarked, right, the value proposition that we are bringing to market and the core capabilities that our vehicles represented to ensure we were truly bringing a compelling value proposition even at the higher prices that we were charging. And I think the momentum and acceleration of preorders that we have seen post that March 1st mark certainly emphasizes right that, that equation is certainly still intact. And it’s been amazing to see a lot of the network effects that we have seen were in markets where we have been delivering more vehicles. We have also continued to see an acceleration of preorders because truly, our customers are best salespeople out there in the market, giving their own test drives and in some cases, actually reaching out to our customer experience center to ask them for how best to address their own friend’s questions as they are educating and really empowering and educating others about what the Rivian brand is and importantly, what that driving experience feels like within the market. So, those are our key enablers for us. Importantly, we are also not standing still as we think about the priorities that we have in regard to our own cost attack initiatives as we think about our own cost of goods sold and both the commercial opportunities that we have as an organization as well as a number of the engineering developments that, again, will ultimately be reducing the overall BOM costs. And as RJ mentioned, create a lot of those foundational systems that will power R2, which is, as you know, is a more affordably priced midsized SUV that will be coming out as well. And we will also benefit for all of these horizontal technology investments that will be coming to market with over the next 2 years.
Ryan Brinkman: Very helpful. Thank you.
Operator: Thank you. Your next question comes from the line of Vijay Rakesh with Mizuho. Please go ahead.
Vijay Rakesh: Yes. Hi RJ and Claire. And so you maintained the full year guide on production. So, it looks like to hit that, you probably had to double your production – double or triple your production run rate from here. And based on the fact that it looks like you will be adding a second shift midyear, does that imply that you are assuming all the supply constraints should get resolved by midyear, by June, as you add the second shift there?
RJ Scaringe: Yes. Our production lines are capable of producing at a significantly higher rate than what our supply chain is able to support today, as you said. But the guidance we provided fully encapsulates our expectations and confidence around the supply chain. I said this in the last call, and I want to make sure I say it again here, we are pushing our suppliers as hard as possible to do more than that. We would really like to unlock the full production capability of our plant such that we can get more cars and more – or I should say, more vehicles to our customers given the significant demand backlog and given the excitement we have on both the consumer and the commercial side.
Vijay Rakesh: Thanks. And on the Amazon EDVs, I guess on the consumer side, you are able to adjust pricing based on the cost inflation there. Do you have the flexibility on the EDVs as well in terms of some flexibility with respect to commercial EV pricing, etcetera? That’s it. Thanks.
Claire McDonough: Sure. So, as you think about the Amazon contract, it’s a cost-plus agreement. And so that embeds, right, some of those overall inflationary metrics embedded in within that contract. It’s also important to note that as we think about the introduction of our LFP pack as well as the introduction of our Enduro motors in the commercial van, those are key enablers for significant cost-down opportunities for Amazon. And so that gives us a lot of confidence in regard to the ongoing margins that we can earn from that contract.
RJ Scaringe: And it’s important to note that, as Claire said, while it’s a cost-plus contract, we do also have it structured such that we keep a portion of all the savings that we accomplished with things like our LFP pack as well as the Enduro drive unit.
Vijay Rakesh: Okay. Thank you.
Operator: And that concludes our question-and-answer session for today. I will now turn the call back over to Mr. RJ Scaringe for closing remarks.
RJ Scaringe: Alright. Well, thank you, everyone, for joining the call. Enjoyed the discussion here, and I appreciate the questions from everyone that came in. Just in ending, I want to repeat a few things that came out through the course of the discussion. We couldn’t be more confident in the path that lies ahead. And we, as a leadership team, are very focused on making sure we take the $17 billion in cash that we have, the 150,000 units of installed capacity and the incredible demand we have from consumers, both on the – our customers, both on the consumer side as well as with our partner, Amazon, and taking all those core elements and ensuring we are positioning ourselves for significant growth over the coming years, but also focusing our capital deployment on ensuring that we launch R2 in 2025 and can do that with the cash that we have on hand. So, as Claire said and as I said so that we are in the driver’s seat in terms of our future growth. With that, we look forward to future discussions here and reporting continued progress as we work towards those goals. Thank you again, everyone, for joining.
Operator: And this concludes today’s conference call. Thank you all for participating. You may now disconnect.
