Rivian Automotive, Inc. (NASDAQ:RIVN) Q1 2023 Earnings Call Transcript

Rivian Automotive, Inc. (NASDAQ:RIVN) Q1 2023 Earnings Call Transcript May 9, 2023

Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Rivian’s First Quarter 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. Please note that today’s conference is being recorded. I will now hand the conference over to your speaker host, Tim Bei, Vice President of Investor Relations. Please go ahead.

Tim Bei: Good afternoon, and thank you for joining us for Rivian’s first quarter 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 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 has provided in our shareholder letter.

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

RJ Scaringe: Thanks, Tim. Hello, everyone, and thanks for joining us today. I would like to highlight key developments during the first quarter as well as discuss progress on our key value drivers. We had a strong start to the year as our team delivered on our targets, including continuing to ramp R1 production, integration of the Enduro motor and LFP battery packs and improved operating efficiency. This quarter, I’ve asked Frank Klein, our Chief Operations Officer; and Nick Kalayjian, our Chief Product Development Officer, to join us for Q&A, given the importance of the launch and ramp of our Enduro motor platform. Last week, our R1S was awarded the highest possible safety rating of TOP SAFETY PICK+ from IIHS, joining our R1T which earned the award earlier this year.

This makes the R1S the only large SUV and the R1T the only electric pickup to achieve this rating in 2023. During the first quarter, we produced 9,395 vehicles, which reflects continued quarter-over-quarter growth in R1 production. As of March 31, we’ve now produced nearly 35,000 vehicles since the start of production. Our team drove further improvement in the ramp of our consumer platform while successfully launching new technologies into our commercial ramp platform. Production during the first quarter was in line with our expectations, and as a result, we are reaffirming our production outlook for the year of 50,000 total units. In addition to production, we made significant progress on our technology and product development road maps during the first quarter.

As described during our last earnings call, we took the EDV line down for most of the first quarter to implement our in-house and our drive units as well as LFP battery packs. Our Enduro production line is our first use our internally developed plant software platform designed to aid in the rapid bring up of equipment and our robotics. This platform offers greater control over our equipment and visibility into thousands of data points across all parts of the manufacturing process. Enduro’s providing cost improvements that will result in a significant reduction in our bill of materials. We expect to start implementing the Enduro motor into our R1 vehicles as a dual motor configuration during the second quarter of 2023, which will contribute to expanding our addressable market by enabling lower-priced future R1 variants.

As a reference, the introduction of the Enduro and LFP battery pack in EDV enabled us to reduce the EDV bill of materials by approximately 25%. Our core priorities for 2023 are unchanged. The team remains focused on ramping production for our R1 and RCV platforms, driving cost reductions, developing the R2 platform and future technologies and delivering an outstanding end-to-end customer experience. Growing production volume improves fixed cost leverage at our large-scale manufacturing plant in Normal, Illinois. This is crucial to realizing the long-term structural cost advantages of our vertically integrated strategy and represents the primary lever on our path to sell each vehicle profitably. While challenges remain, we’ve become a stronger, more agile company through this process.

The duration and magnitude of our impact is directly linked to our ability to produce vehicles profitably. We have a strong sense of urgency in achieving this goal, driving lower costs will be enabled by integration of new technologies such as Enduro and LFP battery packs as well as our company-wide program designed to maximize efficiency across key cost elements of material costs, logistics, labored overhead, indirect costs and capital expenditures. Beyond our push to drive operational efficiency, innovation that’s deliver both improved performance and range as well as simplified production, our core focus of our development teams. Much of the work we are doing in R1, including Enduro drive units simplified network architecture and updated sensor set and compute directly translates to our R2 platform.

We are utilizing R1 to help capture and drive earnings to ensure a smooth ramp of R2. This alignment of technical road maps between R1 and R2 will help further drive long-term cost efficiencies. Finally, we continue to progress the purchase process and service experience. This year, we expect to grow our physical go-to-market infrastructure, including our mobile and physical service footprint, charging through our Rivian Adventure Network and Rivian spaces. Further, we plan to increase engagement with our preorder customers and drive additional demand by expanding our demo drive program, offering more opportunities for potential customers to experience Rivian vehicle. Overall, the progress we’re making against our core value drivers of ramping production, driving costs down, developing new technologies and platforms and enhancing customer experience positions us well to continue executing on our goals for the remainder of the year as well as into 2024.

With that, I’ll pass the call over to Claire for more details on our financial and operating performance for Q1.

Claire McDonough: Thanks, RJ. The team’s achievements during Q1 established an important base of new technologies that will benefit Rivian for quarters to come through greater material cost reduction, enhanced range efficiency and access to additional market segments. Technologies such as Enduro and LFP are critical to achieve our long-term target cost structure across current vehicle platforms as well as R2. Turning to our first quarter results. We produced 9,395 vehicles and delivered 7,946 vehicles, which was the primary driver of the $661 million of revenue we generated. During 2022, we took measures to drive greater efficiency, which remains our focus for 2023. Compared to our fourth quarter of 2022, Q1 gross profit per delivered vehicle improved 46%.

Cash SG&A expenses were relative flat, while cash R&D increased slightly, primarily due to restructuring expenses. Total gross profit for the quarter was negative $535 million, which was impacted by a net charge for LCNRV write-downs on inventory and losses on firm purchase commitments. The cumulative inventory write-downs and losses on firm purchase commitments of $822 million is comprised of $561 million of write-downs related to inventory on hand and $261 million of losses on firm purchase commitments. Given we are now in a new fiscal year, the LCNRV charge of $229 million, you will see on our statement of cash flows is reflected of the charge on new inventory purchased and firm purchase commitments entered into in Q1. The cumulative LCNRV and firm purchase commitments of $822 million represents a $98 million decrease versus the prior quarter due primarily to significant reductions in material costs for the EDV and an increase in average selling price for our R1 vehicles.

As the cumulative LCNRV inventory write-down decreases, we expect to see an increase in net inventory balances and over time, a net decrease in cost of goods sold per vehicle. We forecast reaching positive gross profit in 2024 and therefore, expects by the end of 2024, we will no longer have material LCNRV inventory charges and losses on firm purchase commitments associated with our production at our Normal plant. Total operating expenses in the first quarter of 2023 fell to $898 million, as compared to $1.1 billion in the same period last year. The primary driver of the reduction in operating expenses was related to decreases in stock-based compensation. We continue to prioritize investments in our core and vehicle technologies and customer experience while also driving additional focus and cost optimization across the business.

Adjusted EBITDA for the first quarter of 2023 was negative $1.1 billion as compared to negative $1.1 billion for the same period last year. Capital expenditures were $283 million in Q1 of 2023 as compared to $418 million during the same period last year. We ended the first quarter of 2023 with $11.8 billion in cash, cash equivalents and restricted cash. Importantly, during the quarter, we took steps to reinforce our robust liquidity position. Maintaining a strong balance sheet is a key priority. It provides a buffer during volatile industry conditions and mitigates risk while scaling significant growth capital projects. It also allows us to focus on delivering against our long-term growth plans, including the path to positive gross profit in 2024 as well as the launch of our R2.

During the first quarter of 2023, we issued green convertible senior notes due in 2029, which generated proceeds of approximately $1.5 billion. In mid-April, we announced an amendment to our asset-based revolving credit facility, which doubles the available revolving commitments to $1.5 billion extends the maturity to 2028, improved borrowing availability by more efficient lending on some current assets and increases our permitted indebtedness provisions to expand debt capacity. In aggregate, these transactions have increased Rivian’s liquidity profile by over $2.4 billion, provide debt maturity beyond the launch of R2 and are reflective of our diversified approach to funding the business. We remain confident that our cash can fund operations through 2025 and believe with these recent additions, we have strengthened our balance sheet as we approach the launch of R2 in 2026.

I also want to take this opportunity to reiterate our gross profit bridge from Q1 2023 to Q4 2024. We continue to target positive gross profit in 2024. Excluding the impact of LCNRV and firm purchase commitments, we expect approximately half of the improvement will be driven by greater volume and utilization of our installed capacity. Our 2023 production guidance of 50,000 units implies a doubling of capacity utilization, which will result in significantly lower fixed cost per vehicle, and we expect production volumes to increase further in 2024. The remaining half is split between increases in average selling prices and material cost reduction. Lower material costs will be enabled by the integration of new technologies such as Enduro and LFP battery packs, which delivered about a 25% material cost reduction for our commercial vehicles in Q1 versus Q4.

In addition to the engineering design-driven cost reductions we also expect to realize commercial cost savings as we negotiate with our suppliers. The increase in average selling prices is based upon the gradual improvements we expect to achieve as we complete the fulfillment of our pre-March 2022 preorder base as well as the introduction of new technologies that produced improved performance and capabilities. While gross margin is expected to remain negative in 2023, Q1 represented significant progress versus Q4 2022 with gross profit loss per delivered vehicle nearly cut in half. This was due to cost of goods sold improvements and higher average selling prices. During the first quarter of 2023, cost of goods sold benefited from lower LCNRV, freight and material costs versus Q4 2022.

While performance for any particular quarter may vary, we expect these trends to persist throughout 2023. We are reaffirming all aspects of our 2023 guidance. Most notably, we are reaffirming 2023 total vehicle production of 50,000 units and 2023 EBITDA guidance of negative $4.3 billion, which represents an improvement of $900 million versus 2022. Additionally, we expect capital expenditures for 2023 will be $2 billion. In closing, I want to reiterate our confidence in our long-term financial targets. We see a clear path to our approximately 25% gross margin target, high teens EBITDA margin target and approximately 10% free cash flow margin target. With that, let me turn the call back over to the operator to open the line up for Q&A.

Q&A Session

Operator: Thank you. Now first question coming from the line of John Murphy with Bank of America. Your line is open.

John Murphy: Good afternoon guys. Just wanted to ask a first question on pricing. I mean, RJ, sort of your entire strategy, you’ve kind of looked at the lifetime revenue opportunity of the vehicle and really thought about that in a holistic way. And I think I have a pretty good view of that. There are some folks that are taking that view and saying, “Hey, listen, I can cut my upfront price on the vehicle and not make that much money on it and make up the profitability on the back end from that lifetime revenue and profit opportunity. I’m just curious, as you think about the company and the strategy and the philosophy of running it if you would ever think of embracing something like that, and then maybe as a sort of a second part of that question, you’re talking about raising pricing. So you’re kind of going in the opposite direction. How should we think about the cadence of the roll-off of the pre-March 2022 preorders that had the price protection?

RJ Scaringe: Thanks, John. It’s – these are, I think, really relevant questions here for us as we think about the pricing of vehicles. In the case of R1, this is our flagship product. So from a flagship product point of view, we’ve introduced with what we call a large pack and with our quad motor. And over the course over the next several months, we’re going to be launching our Max pack, which introduces a higher price variances R1, and it will also be introducing our Enduro motor with Enduro drive unit, which introduces our entry configuration. And so we’re both going to be growing pricing on some variants, but also offering some of our lower price variants at the same time. And for us, really important with that is giving customers and we see this for the data, giving customers what they’re looking for.

And a significant portion of our customers are looking for the best of the best when it comes to R1 platform in terms of wanting to get the maximum range and maximum performance. And so we are really looking forward to getting the Max pack out there, and that will contribute to growing ASP. But as you said, the other element is the growth in post-March 1 orders or as Claire noted, the pre-March first orders have a lower price and as we start to come off of those orders and into newer orders, that’s going to naturally start to shift pricing up, we’re already seeing that in Q1 of this year. So those two together give us a lot of confidence in ASP growing over time for the R1 platform. Now more broadly as we think about the business in terms of revenue opportunities beyond the initial sale.

This is something we also believe strongly and it’s driving a lot of the investment we’re making into our technology platforms, of course, around not only our full software stack, but importantly, and what we’re building with autonomy. And as I noted in my opening comments, a lot of work is underway right now in our next-generation platform for new sensor set, updated sensors, I should say, as well as updated compute, which will allow us, as we look at future variants and future products to really over deliver when it comes to the Level 2, Level 3 self-driving feature set and enable our ability to monetize as well. So that we certainly see as part of the business in the long term. And above and beyond self-driving, there are other opportunities to create meaningful recurring revenue.

And some of those, we’ve started to launch and initiated already with our insurance product, with some of the financing products that we have. So we do see the business, as you pointed out, very holistically across the life cycle of the products.

John Murphy: Just to follow-up, RJ, you would never cut price on the front end to drive the hardware sale to get the profit back over time on sort of the software and services side over time. You believe you need to earn adequate margins and returns on the front end, even though you have this opportunity in the back end. Is that a fair statement?

RJ Scaringe: For us with the R1 platform, this – our strategy isn’t to – certainly have been to do that. But longer term, as the business evolves, we’ve – and I’m sure we’ll talk about this today in the Q&A portion. We’re putting a tremendous amount of focus on driving cost efficiencies into our R2 platform. That’s how the vehicle is architected. That’s how we’re looking at part consolidation. It’s how we’re thinking about everything from network architecture to easy topology across the vehicle to drive cost efficiencies to facilitate obviously, a much lower-priced vehicle, but also to give us flexibility in the long-term to look at different revenue streams and different revenue opportunities. But as it stands on R1, as I reiterate at the start, we do see ASP continuing to expand and grow both because of – we’re pulling a new post-March 1 customers as well as the expanded number of offerings that bring in things like Max pack and certainly, we will be continuing to the feature set to allow us to fully access customer demand.

John Murphy: Okay. And if I could just ask one follow-up here on the virtual factory technologies that you used for the Enduro motor launch. Can you just kind of explain what that actually means? And how you can use that in the future and how much that saves you in the launch process as far as time and money?

RJ Scaringe: Yes, this is an important development. Our team has been working hard in its Enduro represents for us really the sort of a full embodiment of what we believe we’re capable of in terms of both product engineering as well as our manufacturing engineering teams and the close integration between those teams led to a lot of innovations, which we’ve talked about in previous calls, in terms of part consolidation and part – or overall design simplification. But what’s not necessarily seen in the product is how we’re manufacturing it and the bring up of this line has gone very smoothly. It’s ahead of schedule. We’re actually ahead of our ramp curve, which is a great thing. But a lot of that’s been facilitated by really careful planning from the teams, but also what I referred to in the opening comments, we’ve developed a platform that allows us to very seamlessly bring up all the PLCs, all the controllers and all the robotics and the equipment associated with that much more seamlessly by creating effectively an extraction layer that we control from a plant software point of view.

And we can access equipment much more seamlessly and we can bring up the equipment much more seamlessly than when we’re working through a variety of third-party platforms to do those things.

John Murphy: Very interesting. Thank you very much.

Operator: Thank you. And our next question coming from the line of Adam Jonas with Morgan Stanley. Your line is open.

Adam Jonas: Hey everybody. So my first question is for Frank. You’re coming up on one year at the company as COO. When you think about the next 12 months, where do you see the greatest opportunity to improve efficiency at Normal? And what would you point out as the greatest risk to execution from here? Thanks, Frank.

Frank Klein: Yes. Thanks, Adam, for the question. I mean my priority, certainly for the next 12 month is to continue focusing on the ramp-up in Normal, certainly driving down the cost, as RJ and Claire already mentioned, and certainly also already preparing the ramp-up of our R2 platform. And this is, I think, will give us a competitive advantage as we are already as a team, jointly together with Nick working on the next generation R2 and really preparing that. And you’ve seen we’ve already, in the last few months shown that we are in line with the expectation on the Q1 production numbers, and we really anticipate continuing the ramp-up of the R1 line. And we will really see in the second half of this year that we should see the numbers being really close to our installed capacity.

Again, on the cost initiative, yes, I mean we still see a significant gap on what we should be paying our suppliers and what we’re currently paying. So what we have done in the last few months is starting to engage the discussions with every single supplier and to show them the gap, and we’re working on closing the gap within the next few months. So this is really my priority, I think we have a great plan in place. So right now, for me, it’s literally just executing the plan that we put together as a team.

Adam Jonas: Thanks, Frank. And RJ, just a follow-up for you. Now that you’ve been released some exclusivity on the EDV. Are you able to provide any update on status of discussions with other commercial customers at a high level in the last few months? Thanks.

RJ Scaringe: Thanks, Adam. We’re, at this point, continue to focus from a production point of view on really the single customer with Amazon. And in terms of looking beyond the exclusivity into other customers, we do see a broad set of needs in the commercial space. And as you all know, these are long lead time discussions and negotiations, especially for some of these larger contracts. So those have been underway for some time now, and certainly play into the long-term plan for the platform, and it’s been something we’ve been working very closely with Amazon on to allow us to pursue these other customers as quickly as possible.

Adam Jonas: Thanks, RJ.

Operator: Thank you. And our next question coming from the line George Gianarikas with Canaccord. Your line is open.

George Gianarikas: Hey good afternoon everyone. Thanks for taking my questions. I was wondering if you could help us understand a little bit with a little more granularity, some of the leverage you could have to EV commodity prices coming in, you’d mentioned in the past that your contracts from 2018, 2019 are expiring. Any additional color would be greatly appreciated.

RJ Scaringe: This is important. Frank referenced it a bit in his previous comment, but a lot of our – the vast majority of our bill of materials from when we started production, were negotiated in contracts in the 2018, 2019 time frame. So that was a few years before we started production. Certainly, we didn’t have the negotiating leverage that we have today. And as we wind the clock forward through to today, the level of excitement and engagement that we have from suppliers is – it’s absolutely night and day. So there’s a tremendous amount of passion to drive towards – help us drive towards profitability. Really, as the suppliers see us as a significant partner going forward and are excited not just about R1, but are certainly very excited about the R2 platform as well.

So as Frank talked about, these are negotiations that are happening real time, and we’re working closely with our partners to find appropriate cost down paths to achieve our targets and to achieve the long-term profitability on R1 but also to set up the relationships to be profitable very rapidly in R2.

George Gianarikas: As a follow-up, asking for Frank, any curious on timing for the Max pack durations for the R1 platform? Thanks.

Frank Klein: Yes. My dad has been asking me that a lot lately, too. So I think there’s a tremendous amount of excitement for the Max pack and we are working very hard to bring that forward. I think as I noted at the beginning, it certainly also helps us grow ASPs. So there’s a lot of reasons in addition to your friend and my satisfaction of pulling Max pack in as quickly as possible.

George Gianarikas: Thank you.

Operator: Thank you. And our next question coming from the line of Rod Lache with Wolfe Research. Your line is open.

Rod Lache: Hi everybody. I know that you are not talking about backlog anymore on the consumer side, but I was hoping, RJ, you might be able to just give us some color, first of all, on what you’re seeing in terms of demand trends on that side of the business?

RJ Scaringe: Sure. Thanks, Rod. Well, backlog still extends well into 2024. I think important to note here is just the engagement we have with customers and the level of satisfaction that our early customers the first 35,000 or so customers are having really creates a powerful flywheel where our biggest, and I would say, most important advocates are the buyers of our vehicles. And so with that said, we continue to see that through the online forms. We see that through the communities that are performing and we even see that through third-party recognition. J.D. Power had is awarded with the highest level of customer satisfaction of any vehicle in the 2023 ratings, which was great, and it’s really reflective of the brand. We’re working so hard to build, but also the experiences we’re trying to create across the full life cycle of the ownership experience.

Now with that said, the work that we’re going to continue to do over the course of this year will – and I noted this earlier, will help us expand brand visibility and brand awareness. So the additional physical spaces that we’re building out, the sales infrastructure or service infrastructure that we’re building out will continue to contribute to that, that growing flywheel of awareness and growing flywheel of demand.

Rod Lache: Great. Thanks for that. And Claire, I want to make sure that we’re thinking about the underlying gross profit ex LCNRV impact correctly? Because I think that we’re seeing some signs of improvement here even with the downtime that you took and before – probably before the impact of this the 25% decline in BOM on the RCV. In the past, you’ve suggested that we look at the difference in the LCNRV charge, so that would be $98 million this quarter. So broad strokes, would you say that on the gross profit line and a clean run rate was a bit over $600 million loss on 8,000 units delivered versus $760 million or so on kind of similar delivery volume last quarter. And is that the run rate from which you’re bridging to breakeven? Or you talked you were referring to the full year guidance?

Claire McDonough: Rod, that’s correct. That’s the run rate that we’re working on. As I mentioned in my prepared remarks on the Q1 walk from current Q1 gross profit, excluding the impact of LCNRV to where we expect to be in Q4 of 2024. And as you rightfully noted, we saw a 17% improvement quarter-over-quarter as we went from Q4 to Q1.

Rod Lache: Okay. So it sounds like you’re confirming that. And is your bridge – are you sort of holding commodities somewhat flat in your guidance bridge? Or how do you sort of think about as we’re seeing lithium carbonate hydroxide costs falling? What – how are you sort of factoring that into your bridges at this point?

Claire McDonough: Sure. The way I would characterize it is within the forecast guide to that Q4 2024, the expectations are for more of a normalized state of commodity costs. So we – said another way, we haven’t expected material reductions in commodity costs, even though we, in the course of the last quarter, have seen significant declines in the cost of lithium carbonate. – in lithium hydroxide as well.

Rod Lache: Great. Thank you.

Operator: Thank you. And our next question coming from the line of Alex Potter with Piper Sandler. Your line is open.

Alex Potter: Great. Thanks guys. So my first question is on the 25% reduction in the bill of materials as a result of the LFP pack and Enduro, which I think is an interesting data point. You expect something similar when you start rolling those technologies out with R1? And if that comes alongside a price hike, it seems like the impact on gross margin could be pretty material. I just don’t know if it has such a big impact on the bill of materials for R1 as well.

RJ Scaringe: Yes, Alex, thanks for the question. As Claire noted, we’re excited to see the 25% reduction that we referenced starts to make its way into the numbers in Q2 as the EDV line comes back on, and we’ll see those numbers in Q2. But for R1, this is a really important development. It’s part of a broader set of developments that when we talk about a lot of the R&D work on the innovation that we’re driving a big portion of this is focused on driving cost out, driving simplification of the product and I’d like to invite Nick just to talk a bit about some of the work that we’re doing there, inclusive of Enduro, but there’s a host of other work streams that we’re going to start to see come to light.

Nick Kalayjian: Yes. Thanks, RJ. So the Enduro drive unit is a significantly less expensive product and diversifies our supply chain, which brings additional value. When we think about the EDV experience that we’ve been able to deliver on over the last quarter with the ramp of Enduro and the integration of LFP. And that 25% reduction is really impactful, and we expect to see something similar in R1 as we look over the next couple of quarters in the beginning of next year.

Alex Potter: Okay. Great. Second question on CapEx. I saw that you maintained the $2 billion guidance, but that’s a pretty – that implies, I guess, a pretty material step up versus what you spent in Q1. So just wondering maybe qualitatively and/or quantitatively, if you can talk through what that money is earmarked for in the back half? And if there’s any potential to maybe defer some of that in order to protect the cash balance? Thanks.

Claire McDonough: Sure, Alex. As we think about the cadence of our CapEx, as you can imagine, with the $2 billion guide that we have, that implies significantly higher levels of CapEx over the remaining three quarters of the year. And for us, our expectation is, we’re going to make significant investments, predominantly in tooling as we think about some of the next-generation technologies that will start to be introduced throughout the course of 2023. And then importantly, as we’ve talked about in prior earnings calls before – throughout the course of 2024 as well. And so I would say that’s one of the primary drivers of our CapEx spend. Beyond that, there’s incremental payments associated with the commissioning and utilization of our Enduro line, where we have the lines fully running today, but all of that cash is not yet out the door at Rivian.

And then beyond that, as RJ alluded to continued build-out of our go-to-market infrastructure as we’re building out incremental service centers, charging network, things of that nature as we continue to grow and scale the business in aggregate. Based off of your second part of your question on availability to defer CapEx, given the sort of lumpy nature of our CapEx deployment and spend, there certainly is some likelihood especially as we think about some of the Georgia CapEx initiation that some of that could fall into 2024 relative to 2023.

Alex Potter: Perfect. Thanks guys.

Operator: Thank you. Our next question coming from the line of Dan Levy with Barclays. Your line is open.

Dan Levy: Hi. Good evening. Thanks for taking the question. First I want to ask about the constraints that Normal. In the past, I think you said the largest constraint on production was on power semi. So just want to get a sense of where that stands. And we’ve heard about tightness on silicon carbide, I know you used both silicon carbide and IGBT, but how much is the tight silicon carbide supply still a challenge for you?

RJ Scaringe: Thanks, Dan. One of the things we’ve sort of embedded in our comments here and that we should add some more color to is with the bring up of the Enduro drive unit, it doesn’t – it’s not only providing us with a lower-cost propulsion platform, but it also helps us diversify our supply chain with regards to the power modules. So bringing on additional suppliers of both silicon IGBT, but also silicon carbide and that was very intentional. And we’ve designed the ramp-up of that such that it helps alleviate some of the constraints we have on our existing quad motor silicon carbide supply, which we’ve talked about in the past as being one of the major ramp constraints. This is also something that as we look forward into R2, we’re spending a lot of time on to make sure that these constraints aren’t there.

And Nick’s team in designing our next-generation inverters and power modules have spent a tremendous amount of effort to ensure that we really consider some of the long-term constraints that we see in this space.

Nick Kalayjian: I think the comments earlier about when we sourced a lot of the components for R1 are really relevant in power semis as well. The supply base for our original launch configuration was a relatively smaller set of players than who we’re working with today for both silicon and silicon carbide. And as we move into Enduro and we move into those larger, more mature suppliers, we build out that capacity today, and we build those relationships towards the future as we think about our R2.

Dan Levy: So is it fair to say that as you’re sort of addressing the silicon carbide issue in a variety of ways and then as this is addressed, your patent production should increase dramatically, which is implied, I think, within your guidance in any case?

RJ Scaringe: Yes, that’s right.

Dan Levy: Okay. Great. Thank you. Second question, and I think you’ve addressed this somewhat with Enduro and LFP, but wondering what other opportunities you have with vehicle to potentially de-content further or to help reduce the material costs? I know you’ve talked about working with suppliers to try to cut away some of the costs. But within the engineering of R1 itself, what other opportunities might there be to de-content to help improve the path to breakeven?

Nick Kalayjian: Yes. So Enduro and LFP are clearly big pieces of the puzzle. And I think we tend to talk about those because they’re customer-facing. We’re offering different range packs and drift and driving configurations. There’s a lot of work that’s also going on under the covers to make sure that we have continued cost reduction. RJ has talked in the past about moving to a zonal architecture, which really has a significant impact on the number of ECUs in the vehicle. The complexity and cost of the harness. And those both have significant impacts with Frank in the factory on our ability to reduce labor content in the vehicles. We also are looking at a series of body manufacturing updates late this year, updates to joining technology and materials to help improve yield and lower cost.

We have a new part of the Max pack and the Large pack platform coming early next year that involves some significant changes to the battery structure that really pull out costs and again drive up manufacturability. So again, some of these are really customer-facing things, but – our goal is to offer better value to customers. And then some of these things like the zonal architecture are success means nobody notices that we’ve made all these changes under the hood.

RJ Scaringe: I think the other thing just to note, Nick referred to and I referred to it, the updates we’re making to our network architecture really laid the groundwork for what we’re doing with R2. And one of the benefits of developing the – all the electronics in the vehicle and of course, the software stack in the vehicles. As we’ve now reached a level of maturity, we’re consolidating a number of those ECUs and removing not only a lot of these use from the vehicle while maintaining feature set, but also along with that, massively simplifying the vehicle harness. And all that work flows very naturally into R2, so we not only pay costs out of R1, but we derisk the launch of R2.

Dan Levy: Great. So number of that. Got it. Thank you.

Operator: Thank you. And our next question coming from the line of Vijay Rakesh with Mizuho Group. Your line is open.

Vijay Rakesh: Yes. Hi. Just a couple of quick questions. On the Enduro dual-motor, Enduro and the LFP, what mix are you assuming of your shipments or deliveries will be on those as you ramp those to the year or?

RJ Scaringe: In the case of our commercial vans, 100% of the commercial vans are moving to LFP pack configuration and the Enduro drive unit. As it pertains to the R1 platform, we expect a drive train level between what we call our origin, the quad motor and Enduro, the dual-motor to be about a 50-50 split. We have the flexibility within our production capabilities to flex that up or down some. But as you heard from myself and Frank earlier, the supply chain constraints around the power semi is really a key consideration and that flexibility of our production lines to respond to any supply constraints that may come up is really important. Now in the case of our R1 battery pack, we will be introducing what we call our standard pack, but that’s going to be a little later than this year.

Vijay Rakesh: Got it. And on the – you mentioned the higher ASP sales. Just wondering how that is ramping. Is all your deliveries post-March 31st to April 1st on the hire ASP vehicles or…

RJ Scaringe: Yes. The pre-March first vehicles have a lower price point. And we’re actively with every vehicle we deliver of those, we – it’s one less, and we start to work towards a growing mix of post-March 1 reservations and progress . So over the course of really the next year, we hope to work through those pre-March 1st quarters and get into newer post March 1, 2022 orders.

Vijay Rakesh: Got it. Thank you.

Operator: Thank you. And our next question coming from the line of Tom Narayan with RBC Capital. Your line is open.

Tom Narayan: Hi, yes. Thanks for the taking the question. And apologies if you answered this, just a quick question on the guidance, the EBITDA guidance. If I take the Q1 adjusted EBITDA and annualize it, I get a number that’s only, I think, 6% below your full year guide. I know deliveries should probably ramp higher and you have these cost outs. Just curious as to maybe is there a quarterly cadence dynamic that’s leading to that EBITDA guidance for the full year?

Claire McDonough: Sure, Tom. As we think about the overall EBITDA cadence overall, it’s driven by a couple of key factors. First and foremost, while we’ll be improving our overall cost of goods sold per unit, we are still running at a loss position throughout the course of 2023. And so as we go throughout the course of the year this year, we’ll see some variability, both in terms of how rapidly we’re taking down the LCNRV charges throughout the course of the year, which is one factor as it pertains to our adjusted EBITDA that we’ll be reporting. And then the other factor that we’ll have as well is really as we think about sort of the three key drivers as ramp material costs at ASP and the trajectory that we expect to see as we continuously improve on each of those core drivers as the year progresses on, but we’ll be delivering greater volumes of vehicles albeit at lower loss positions as we continue to scale throughout the year.

Tom Narayan: Okay. And just kind of a high-level question. wondering for RJ, wondering how you think about the kind of long-term market opportunity for your consumer offering in light of what appears to be maybe increasing competition from legacy OEMs particularly in trucks and SUVs. Does that change kind of how you view the market opportunity longer term? Or do you view it as kind of different kind of world. Certainly, these legacy OEMs are getting more competitive with – specifically with EVs across these vehicles?

RJ Scaringe: Yes. Thanks, Tom. Yes, today, with the R1 product, we’re seeing demand relative to others that are in similar segments or similar price points, it’s significantly outpacing sort of similarly priced vehicles. So at this price point, the R1 platforms, really the leader in terms of overall share. And that level of excitement and demand that we’re seeing there is reflective of the way we’ve approached the brand and the features and the overall product design. And of course, we hope to carry that into much lower price point with the R2 platform. And the R2 platform, while it we’ll have a number of other players that are offering products that are in that price range of $40,000 to $50,000. The way we’re thinking about it and the things we’re excited about with regards to the product is just how unique we can make it in terms of capturing the core essence of everything we’ve shown with the flagship product with a product that ultimately delivers on a high level of performance, both on and off road, a tremendous amount of capability and the ability to sort of enable and inspire folks to take the kinds of ventures where you need to fit your pets, your kids your gear into the vehicle.

So we, of course, haven’t shown R2 yet. We’ve all seen it. So we’re – we have asymmetric information on what it looks like and what it is. But I can say we have a tremendous amount of confidence around the product we’re developing and how that not only fits our brand so nicely, but we think really provides an extension to the addressable market relative to what we’ve done with R1.

Frank Klein: Yes. I think quarter sorry, it’s important as well to extend the vision of what we’re doing well beyond the electric powertrain. Legacy OEMs are moving in this direction, which is great for the overall mission. But we really do focus on that overall customer experience and what we can deliver with a combined hardware, software platform. The fact that we’ve been shipping a product for less than two years and influencer like Marcus Brown, he would say best SUV in the world. We have a software experience and overall customer experience that we’re really proud of, and we think differentiates beyond just being an electric vehicle.

Tom Narayan: Yes. I guess, relative today, we haven’t really seen what the legacy OEMs have done yet, right? I mean a lot of these launches are still yet to come. 2024, specifically, we’re going to see a couple more – and then obviously, as we get further in the decade, that’s what I was referring to. I mean today, obviously, it’s not as robust, especially in the U.S., but in the coming years, you – I would think that competition intensifies more. That’s kind of what I was referring to.

RJ Scaringe: I think the other thing to keep in mind and Nick references, is in the not-too-distant future, everything will be electric. So being electric alone isn’t a sufficient differentiation point. It really ties into the – ultimately what’s the way the product comes together, the interplay between software, the electronics in the vehicle, of course, the dynamic performance of the vehicle, the packaging and the architecture of the vehicle. And Frank referred to and I referred to it, but how manufacturable the vehicle, which ultimately drives the cost structure for what we’re building. So given the significant change in the electrication offers, though, it does create new opportunities in terms of how we architect the vehicle, how we design the cost structure and then the types of driving dynamics and experiences that can be delivered.

Tom Narayan: All right. Great. Thanks.

Operator: Thank you. Our next question coming from the line of James Picariello with BNP Paribas. Your line is open. Jim, your line is open.

James Picariello: I think the reception cut out for me. Can you hear me?

RJ Scaringe: Yes. We can. Yes.

James Picariello: Okay. I think this was asked, but I just want to clarify, given the 25% bond savings, it will be meaningful – as we think about next year, what could the mix of your total R1 production be tied to LFP and Enduro, I imagine you have some visibility into that based on your reservations. And – can you just remind us if there’s going to be an impact to the lines as you integrate into on LFP and into R1 similar to what we saw for EDV this past quarter? Thanks.

RJ Scaringe: As I referenced, we expect from an Enduro, so the dual motor versus the quad motor on our one to be roughly a 50-50 split. And in the case of commercial vans, 100% of those will be with the Enduro Drive unit. In terms of how we plan to ramp up R1 with Enduro, it’s important to note that while we brought the EDV line down in Q1 for the integration of both Enduro and the LFP was also we were bringing up the Enduro line and the significant cost savings that, that propulsion package delivered really led us to make the decision to bring on EDV while we brought those lines up and ramped them. I’d like to just invite Frank to have a few comments on the ramp of Enduro and how that now will soon be feeding R1 as well as EDV and I referenced this before, but a big part of it beyond just plant software, beyond the equipment, beyond the design of the product is also the operations and the team and how the team is working and how we’ve set up training and the programs around that.

Nick Kalayjian: Yes. Thanks, RJ. I mean, the Enduro ramp-up, we started production at the beginning of February and we’re already exceeding our anticipated ramp-up curve. So from ramping up the Enduro, I don’t see significant challenges ahead of us. And the differentiating factor between introducing EDV, the Enduro into the EDV versus R1 is that on the EDV, we did shut down the line. And on R1, we plan on continuing producing the R1 while we are introducing the Enduro motors into the R1 product. We’ve already actually built several Enduro Motors into the R1, just to really test the production, and it really works seamlessly. So I don’t see a major impact on the ramp-up curve of the R1 as we introduce Enduro as a significant change to the R1 product.

RJ Scaringe: Yes. As Frank said, the one – the Enduro has been we’ve introduced – we’ve produced quite a few, and we’re bleeding or blending those into the line for R1. I can I’ve been driving an Enduro, R1S now for the past month, and it’s really incredible. I can’t wait for customers to get their hands on it. So as Frank said, the risk around the Enduro bring up in R1 is really well managed and we’ve been very intentional around how we’ve ramped that line and how we plan the integration of Enduro into R1.

Nick Kalayjian: And we have really put a lot of emphasis in preparing the team and training the team offline and online to make sure that the team is capable and ready to ramp up our one with the Enduro motor as well.

James Picariello: Got it. That’s super helpful. And then just two quick ones. Is the first half of next year, still the time frame for normal capacity re-rating to the R1 and then is there any update on the Georgia plant incentives outcome? Thank you.

RJ Scaringe: Yes, on the first question, yes, that is the plan. We plan on re-rating there R1 line in 2024 as we also use that opportunity to modify the line to incorporate the technical changes that Nick mentioned. So this will happen in 2024. So we’re already in preparation of this on the one hand, with the equipment suppliers preparing the team. So that’s going according to plan.

Claire McDonough: And then on your second question on Georgia-related incentives. A couple of weeks ago, the Georgia all it court sided with the state in a ruling over the tax abatement for the project and ruled in favor of the state’s position. So the tax fund four of the five aspects of the appeal, the court ruled in favor of Georgia and therefore, Rivian’s benefit as part of that ruling overall. So great momentum as we sit here today on progress in Georgia.

James Picariello: Understood. Thank you. Congrats.

Operator: Thank you. And our next question coming from the line of Jordan Levy with Truist. Your line is now open. Jordan Levy, your line is open.

Jordan Levy: Apologies my cut off for a second. I’m wondering just quickly if we could talk about the build-out of the adventure network and the importance of growing that and any potential benefits that might be able to be realized from the IRA as you build that out?

RJ Scaringe: Yes. Thanks, Jordan. We’re excited about building out more of our RAN network or Rivian Adventure Network. And today, we’ve been deploying into what we think it was like the first batch of sites to really ensure the uptime ensure the equipment is working as planned. And just as reference, this is the charging increment, the DC fast chargers. We’ve designed those internally, we also build those in normal. So we have a production line dedicated to building those charters. We’re going through making some updates to the product as well to facilitate it becoming an open network. And Nick, this is something your team is working really hard on. We just had a review on it last week. It’s – I couldn’t be more excited about getting more of these out there. Can you just provide some more commentary on some of the work that you’re doing there?

Nick Kalayjian: Yes, sure. So just to put some numbers behind it, we have 27 sites open today, which represents about 150 chargers in locations across the country. We’ve picked these to be sort of relevant to our customer base as we think about routes from places like the Bay Area Tahoe or LA up to Mammoth. Those units as already referenced, are showing really strong uptime and that’s really the key. The customer feedback about the overall user experience has been excellent. The number one complaint is why aren’t there more of them. So that’s what we’re working hard to accomplish, but we really want to scale that based on solid data that we have, the uptime that we’re going to have a dependable network. And then we expect later this year, we’ll be able to accelerate the number of installs and then again, continue that some minor modifications to the equipment to be able to open the network up beyond Rivian customers.

Claire McDonough: And we look forward to be in a position to take advantage of that money funding, there’s $5 billion of net funding available. And then in addition to that, the charging and fueling infrastructure program, which has an incremental $2.5 billion available. So we’re excited to use some of those government grants to accelerate our rollout of the RAN network.

RJ Scaringe: And we’re uniquely positioned because U.S. produce chargers at our Normal facility.

Jordan Levy: Thanks so much.

Operator: Thank you. I will now turn the call back over to RJ Scaringe for any closing remarks.

RJ Scaringe: Well, thank you, everyone, for joining the call. We enjoyed talking about some of the progress we made in the last quarter. We’re certainly, as you heard from all of us, very much looking forward to the quarters and years ahead. We have a lot of work to do in terms of continuing to drive our production ramp and drive costs down. We’re operating with an incredible level of focus and urgency as we drive towards that. But the excitement that we’re seeing from customers and the passion that we’re seeing from customers that want to get future products is certainly innovating force for all of us within Rivian. And we’re looking forward to continuing to show progress quarter-over-quarter as we work towards not all profitability, but significantly higher volumes. So thank you, everyone for joining and look forward to the next call.

Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.