Rivian (NASDAQ:RIVN) Automotive Inc. (ticker: RIVN) discussed its second quarter financial and operational progress, emphasizing advancements in production, strategic partnerships, and a clear path to profitability. In the earnings call, CEO RJ Scaringe and CFO Claire McDonough detailed the company's developments, including the production ramp-up of the second-generation R1 vehicles and the forthcoming R2 platform.
Rivian also highlighted its joint venture with Volkswagen (ETR:VOWG_p) Group, expected to yield material cost savings, operating efficiencies, and future revenues. The company reaffirmed its production guidance for 2024 and outlined investment plans and cost reduction strategies aimed at achieving long-term profitability targets.
Key Takeaways
- Rivian is ramping up production for its second-generation R1 vehicles and developing the R2 platform, launching in the first half of 2026.
- The company is focusing on vertical integration and cost reductions through material and supplier cost savings.
- Rivian's joint venture with Volkswagen Group is anticipated to bring additional benefits, including cost savings, operating efficiencies, and future revenue streams.
- Financial performance improvements include a 41% increase in cash flow from operations and a reduction in gross profit loss per vehicle by about $6,000.
- Rivian maintains its 2024 production guidance of 57,000 units and delivery expectations of low single-digit growth.
- The company is operating the R1 line on a two-shift operation and the commercial van line on a limited one-shift operation.
- In 2025, Rivian's normal facility will shut down for over a month to integrate new equipment for the R2 launch.
- Rivian has over $200 million in regulatory credits under contract for 2024, contributing to revenue potential.
Company Outlook
- Rivian reaffirmed its 2024 production guidance and delivery expectations, with a focus on achieving a 25% gross margin target, a high teens adjusted EBITDA margin target, and approximately a 10% free cash flow margin target.
- The plant shutdown in 2025 for R2 integration may cause fluctuations in gross margins due to lower production volumes.
- The company is investing in expanding its spaces, service infrastructure, and fast-charging network to enhance customer experience and brand exposure.
Bearish Highlights
- The company reported a gross profit loss per vehicle delivered but has made progress in reducing this loss.
- There will be a temporary shutdown of the plant in 2025 to facilitate the integration of the R2 platform, which may impact financial results.
Bullish Highlights
- Rivian's joint venture with Volkswagen is expected to close in the fourth quarter of the year, with terms to be disclosed at that time.
- The company expects to see a progression in gross profit through variable cost improvement, fixed cost leverage, and an increase in revenue per delivery unit.
- Suppliers are eager to scale beyond Rivian's product line through the joint venture, which has already shown positive effects on the supply chain and technical integration.
Misses
- Specific demand trends since the refresh were not discussed, and no concrete metrics were provided.
Q&A Highlights
- Executives emphasized the strong demand for regulatory credits, which could generate more revenue than anticipated.
- Rivian is building out its Adventure Network, which will be open to non-Rivian customers, indicating a broader market approach.
- The company has clear visibility on cost reduction efforts due to contracts with supplier partners.
Rivian Automotive Inc. remains focused on its strategic goals, cost reduction efforts, and the expansion of its product line and customer experience offerings. With strong partnerships and operational improvements, Rivian is steering towards a future of profitability and growth in the electric vehicle market.
InvestingPro Insights
Rivian Automotive Inc. (RIVN) has been actively communicating its strategy to ramp up production and pursue profitability. The company's financial health and market performance are key to understanding its future prospects. Here are some insights based on recent data and InvestingPro Tips.
InvestingPro Data indicates that Rivian holds a market capitalization of approximately $14.73 billion. Despite a significant revenue growth of 68.2% in the last twelve months as of Q2 2024, the company has a negative P/E ratio of -2.49, reflecting its current lack of profitability. Additionally, the gross profit margin stands at -41.1%, highlighting the challenges Rivian faces in terms of cost efficiency.
Two InvestingPro Tips relevant to this discussion are:
1. Rivian holds more cash than debt on its balance sheet, which is a positive sign for the company's financial stability and its ability to invest in future growth.
2. However, analysts do not anticipate Rivian to be profitable this year, which aligns with the reported negative P/E ratio and gross profit margin.
It's also worth noting that Rivian's stock has experienced a strong return over the last three months, with a total return of 44.39%, indicating a potential rebound in investor confidence. For readers interested in a deeper dive into Rivian's financials and market performance, there are additional InvestingPro Tips available at https://www.investing.com/pro/RIVN, providing further insights into the company's valuation and future outlook.
Full transcript - Rivian Automotive Inc (RIVN) Q2 2024:
Operator: Good day, and thank you for standing by. Welcome to the Rivian Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Tim Bei, Vice President, Investor Relations.
Tim Bei: Good afternoon and thank you for joining us for Rivian's second quarter 2024 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 is provided in our shareholder letter. Just before the call, we published our shareholder letter, which includes an overview of our progress over the recent months. I encourage you to read it for additional details 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. During our call, I will highlight key developments in the second quarter and provide an update on the progress we're making against our value drivers. Prior to discussing quarterly details, I want to reinforce the key messages conveyed in depth during our recent Investor Day. To achieve the full potential of our vision, we need to aggressively drive towards profitability. The fundamental levers underpinning this goal include the recent transition to our second generation R1 and the subsequent introduction of our mid-sized platform, which underpins R2. I am encouraged by the progress ramping up our second generation R1 vehicles as well as developing R2, which we expect to launch in the first half of 2026. The ability to dramatically reduce costs in a condensed timeframe and drive continual improvement in the customer experience is based on our intentional approach to vertical integration. From the beginning, we have vertically integrated certain components of the vehicle, driven by the desire to create superior customer experiences and deliver long-term structural cost advantages. The success of this is demonstrated by a recent J.D. Power APEAL Study where Rivian received the highest score and the most satisfying brand across the automotive industry. We spent years developing key technologies such as our software, electrical hardware, economy, and propulsion. The significant cost and performance benefits from these technologies gives us confidence in our ability to continue developing and building highly desirable vehicles across the R1, R2, and R3 product lines. As a testament to our industry-leading technology platform, on June 25th, we announced the expected joint venture with Volkswagen Group. The announcement validates our technology platform and is expected to substantially expand the market applications for our software and associated zonal electrical architecture. Ravian's proven electronics and software platform is expected to serve as the foundation for future software development in the partnership. The technical workstream to prepare the integration of our electrical architecture and software technology stack into Volkswagen Group products is moving along very well and we expect to close the joint venture in the fourth quarter of this year. As the auto industry transitions to smarter, more connected, more complex, and integrated vehicle architectures, we strongly believe our technology is best positioned to deliver a modular and scalable platform that will help create highly compelling products and services that we expect will accelerate consumer shift to electrification. I also want to take this opportunity to acknowledge our team, who has continued to execute on our second generation R1 ramp of production and deliveries, R2 development, and the formation of our joint venture with Volkswagen Group. During the second quarter of 2024, we successfully completed the retooling upgrade in Normal. This was a pivotal operational event for the company. The upgrade introduced new technologies and cost-focused material changes into the R1 vehicle platform, while also incorporating manufacturing process improvements that are expected to improve cycle time, utilization, and cost. For example, we have reduced complexity and lowered the cost associated with the vehicle body with a heavy emphasis on removing parts, processes, and steps. These changes have reduced nearly 1,500 joints and contributed to an expected 30% improvement in the R1 production line rate. Following completion of the retooling upgrade, we resumed production and are encouraged with the early progress of ramping our second generation R1 variants. The new R1 vehicles have hundreds of design, engineering, and performance upgrades, with the most significant being an entirely new zonal architecture, new compute and autonomy platform, new in-house drive units, and a re-engineered suspension system. The introduction of the second-generation R1 platform, combined with commercial cost downs and commodity tailwinds, are expected to enable significant material cost reduction. Importantly, I want to emphasize there is more to go. We are focused on reducing R1 costs beyond 2024 through lower material costs and conversion costs. As we continue to source materials for R2, we are seeing opportunities to further reduce the cost of R1 through additional supplier cost reductions. In addition, we believe the expected joint venture with Volkswagen Group will allow us to achieve more favorable pricing from suppliers. This includes components, chipsets, printed circuit board assemblies, and all the associated content that relates to those hardware systems. I want to delve in further on our new second generation drive units which represent a significant change in capability and cost. The second generation R1 includes our Ascent motor system which underpins our new Tri-Motor and Quad-Motor. These motor configurations in addition to our Dual-Motor released in 2023 mean all motors on all Rivian vehicles are now designed, engineered, and manufactured fully in-house. The 850 horsepower Tri-Motor variants are expected to start deliveries towards the end of the third quarter. The Tri-Motor variant is equipped with two Ascent motors in the rear and one Enduro motor in the front for a blend of exceptional power and range. The Tri-Motor R1T delivers 0 to 60 miles per hour in 2.9 seconds while offering an estimated range in conserve mode of approximately 400 miles. The Quad-Motor is designed for peak adventure with four Ascent motors. The Quad-Motor delivers 1,025 horsepower and 0 to 60 in less than 2.5 seconds and achieves the quarter mile in less than 10.5 seconds. Feedback on our second generation R1 has been very positive. It is a fundamentally better vehicle while simultaneously costing less to build. We're excited to get more of our second generation products to customers and available for demo drives in the coming quarters. At Rivian, we wake up every day thinking about ways to make our products better. This is based on our sense of urgency in transitioning the world towards a fossil fuel free future. This is possible by creating products that are deeply exciting to consumers, products that carry attributes and design characteristics that pull people out of internal combustion vehicles because they're experiencing something that isn't just better for the environment but also really enjoyable and desirable to use every day. I would like to thank all those who continue to support our vision, including employees, customers, partners, suppliers, communities, and shareholders. With that, I'll pass the call to Claire.
Claire McDonough: Thanks, RJ. During the second quarter of 2024, we made significant progress driving greater cost efficiency, further strengthening our balance sheets, validating the differentiated nature of our technology stack, and establishing new business opportunities. During the second quarter, we produced 9,612 vehicles and delivered 13,790 vehicles, which represented the primary driver of the $1.2 billion of revenue we generated. As expected, second quarter production was impacted by plant downtime associated with the retooling upgrade. Our deliveries were strong as we sold through the majority of inventory of our first generation R1s. Due to strong Q2 performance, which led to our lower starting finished goods inventory balance and the continued ramp of production throughout the third quarter, we expect our third quarter deliveries to be below our second quarter results, and production volumes to be in line with our first quarter levels. Total gross profit was negative $451 million. Our gross profit loss per vehicle delivered was approximately $33,000, which includes approximately $15,000 of depreciation and amortization expense and $1,200 of stock-based compensation expense. In addition, we incurred approximately $2,400 per vehicle delivered in the quarter related to our cost of revenue efficiency initiatives, which we do not anticipate being part of our long-term normalized cost structure. We expect to see significant cost reductions in our R1 platform during the second half of 2024 as we ramp the production and deliveries of our second generation R1 vehicles. Additionally, the reduction in our LCNRV write-down for the quarter compared to Q1 2024 reflects the progress we are making in association with our material cost reductions and operational efficiencies associated with our second generation R1 vehicles. We remain confident in our path to deliver modest positive gross profit in the fourth quarter of 2024 and for the full year of 2025. Importantly, our team is already focused on driving incremental costs out of our R1 platform to help achieve our long-term gross profit target of 25%. The key drivers of our long-term R1 profitability include reducing material costs, leveraging our fixed costs, and scaling our revenues per delivered unit through product mix and pricing, software and services, and other revenues. During the second quarter, we also announced the intention to form an equally controlled and owned joint venture with the Volkswagen Group to create next-generation electrical architecture and best-in-class software technology. In association with this deal, Volkswagen Group have made an initial investment of $1 billion into Rivian with up to $4 billion in planned additional investments for a total deal size of $5 billion. The incremental investments are subject to the completion of definitive agreements, the achievement of certain milestones, and the receipt of regulatory approvals. Assuming all criteria are met, we expect that the full $5 billion is intended to flow to the benefit of Rivian. In addition to the $5 billion of capital to Rivian, We anticipate incremental benefits through cost savings on materials, operating expense efficiencies, and future revenue opportunities associated with the joint venture. The initial and planned investments by Volkswagen Group, in addition to our cash, cash equivalents and short-term investments are expected to provide the capital to fund Rivian's operations through the ramp of R2 in Normal, as well as the mid-sized platform in Georgia, enabling a path to positive free cash flow and meaningful scale. As RJ mentioned, we expect the deal to close in the fourth quarter of this year, and we will provide additional details at that time. During the second quarter, we improved our cash flow from operations by 41% as compared to the first quarter of 2024. This improvement is reflective of our continued focus on cost and greater working capital efficiency across the business. As compared to the first quarter of 2024, we reduced our gross profit loss per vehicle by approximately $6,000 and made progress on reducing our gross inventory balance. We believe these trends will result in further improvements in our cash usage for the second half of 2024. As we look ahead, we are reaffirming our 2024 production guidance of 57,000 units, delivery expectations of low single-digit growth as compared to 2023, EBITDA guidance of negative $2.7 billion, and capital expenditures of $1.2 billion. As a reminder, coming out of the retooling upgrade, we are currently operating the R1 line on a two-shift operation, which results in 56,000 units of annual run rate output. Our commercial van line is currently running on a limited one-shift operation, which has the potential to deliver a run rate annual output of 15,000 units. As we look ahead for 2025, we expect that our normal facility will not be producing vehicles for more than one month during the second half of the year as we upgrade and integrate new equipment into the plant ahead of our first half of 2026 R2 launch. We continue to see a clear path to a long-term, approximately 25% gross margin target, high teens adjusted EBITDA margin target, and approximately 10% free cash flow margin target. I wanted to again thank our team, partners, customers, suppliers, and shareholders for the tremendous support. With that, let me turn the call back over to the operator to open the line for Q&A.
Operator: [Operator Instructions] Our first question comes from George Gianarikas with Canaccord Genuity. You may proceed.
George Gianarikas: Hi. Good afternoon, and thank you for taking my questions. Maybe just to start, can you just please talk about your geographic strategy, particularly in Europe in light of the recent VW relationship?
RJ Scaringe: Thanks, George. As it stands today, the R1 products are being sold throughout the United States and Canada. And our EDV products, our commercial van products, are primarily focused in the United States, but we have made some deliveries in Europe and specifically in Germany. Now with regards to our future products with R2 and of course R3, those have been developed really at their core to fit not only the US market but to also fit the European market. You can really see it as you look at the R2, R3 combination of what we believe capturing a sweet spot in terms of both addressing demand for midsize SUVs in both US and European markets, but also with R3, capturing a smaller crossover market. And so, as you've heard us talk about many times, this is one of the things we're so excited about with the R2 platform is just the growth in the addressable market for us as a business.
George Gianarikas: Thank you. Maybe as a follow up on the VW relationship, I know you're still working through the details, you mentioned that. But is there any update on the potential to transfer some of your OpEx into that JV? Thank you.
RJ Scaringe: Yes. As you said, we haven't announced the specifics around the joint venture, inclusive of any associated cost sharing. But I think importantly, I'd want to call out is how this relationship was formed. It's really formed on the basis of leveraging the technical platform that we built around our network architecture, our topology of ECUs, and of course our software stack, and allowing and enabling that technology to really scale well beyond Rivian's product line and to allow enable us to get to global scale across multiple markets very quickly. So we're ecstatic about the impact that can drive in terms of helping to create exciting products that give consumers choices to move towards electrification. We're also excited about the scale that that provides us from a sourcing point of view and a supply chain point of view as we think about the components and the assemblies that go into those systems.
George Gianarikas: Thanks.
Operator: Thank you. Our next question comes from Mark Delaney with Goldman Sachs. You may proceed.
Mark Delaney: Yes, good afternoon. Thanks very much for taking the questions. First, I was hoping to better understand how the company is tracking toward the target of positive gross margin in the fourth quarter and have the drivers changed at all, especially as we've seen things like a 2.99% incentive that you're utilizing and perhaps that changes the mechanics to the positive gross profit bridge?
Claire McDonough: Thanks, Mark. There are still three key drivers to our path to positive gross profit in Q4. The first is the variable cost improvement. We spent a lot of time at our Investor Day talking about the material cost reduction roadmap associated with our new Gen 2 technology introductions, material cost reductions that we've had through supplier negotiations, as well as the commodity cost tailwinds that we anticipate seeing throughout the course of the second half of this year into 2025 as well. The second driver is our fixed cost leverage, and this is enabled by the retooling upgrade that we had in normal, which has improved our production line rate by approximately 30%. And this together with the increased Q4 production volumes we anticipate seeing, as well as our reduction in depreciation expense across the business, will help drive this fixed cost leverage. And the last key driver for us, as we talked about in the past, is an increase in revenue per delivered unit. And this we'll see through the introduction of our Tri-Motor R1s that you heard RJ speak about in his prepared remarks, as well as non-vehicle revenue growth from the sale of regulatory credits and the introduction of our pre-owned Rivian sales. We continue to remain confident in our path to positive gross profit in Q4. And it's important to note that our Q2 results had very limited sales of our Gen 2 vehicles. So you're not actually seeing any of the flowthrough of the improvements that we've made throughout our production line or our material costs, yet flow through the results themselves as we look at the Q2 actions as a whole.
Mark Delaney: Thanks for that, Claire. My second question was how to better think about the material cost improvements you're looking to achieve, such as the 20% for the Dual-Motor Large Pack second gen R1 compared to the first gen. I think those cost improvements did not incorporate some of the potential savings you think you may be able to realize now that you have the VW news out there and some of the response you've seen from suppliers. So I realize it's still somewhat early, but can you share a bit more on the magnitude of potential material cost improvements you may see as you're able to execute on some of that expanded opportunity? Thank you.
RJ Scaringe: Yeah. Thanks, Mark, for the follow up. You're absolutely right. There's -- the 20% that we've referenced in cost reduction on the bill of materials for a like for like vehicle, that's based upon technical changes made to the vehicle and supplier negotiations that we drove over the last 18 months. There's certainly more room to go in terms of applying some of the leverage that we're going to see not only with the relationship we're building with Volkswagen, but also with the scale that comes with R2. And so we do see continued progress as we drive towards the long-term goal of 25% gross margin for our normal facility. And it's -- these continued cost efforts that we're talking about here reducing our bill of materials, we also see improvements happening in our conversion costs at the plant. And those conversion costs are both the continued progress around efficiency improvements within the plant, but also over time, the enhanced fixed cost leverage that's going to come from bringing R2 to production -- to be produced in normal as well.
Operator: Thank you. Our next question comes from Philippe Houchois with Jefferies. You may proceed.
Philippe Houchois: Yes, good afternoon. Thank you very much. Couple of questions for me. One is [indiscernible] mentioned an EDV in the release. Could you give us an update on how your customer trials are going on and might have kind of an idea of when you might have first customers outside of the Amazon (NASDAQ:AMZN) deal.
RJ Scaringe: Thanks for the question, Philippe. The EDV program is something that for us is -- we're really excited about the impact of it in terms of reducing carbon emissions on a per mile basis is outstanding over internal combustion vehicles. And we've been able to really prove the robustness of the platform and the strength of the offering through our relationship and partnership with Amazon. And having a large deployed fleet of these before we started running the pilot programs we've talked about in the past with non-Amazon customers was really helpful as we were [finding] (ph) not just the vehicle, but also the software surrounding the vehicle. And so as we've talked about in the past, over the course of this year, we've been running pilots in anticipation of more significant ramp-up in 2025. And this focus on pilots is really reflective of the nature of this business where these are large decisions around large numbers of vehicles for a lot of these bigger fleets. And it's appropriate that we build effective working models for how the vehicles are serviced, what digital support the vehicles have, what infrastructure changes are necessary for each respective fleet. It's a lot different than adding a single charger in your garage when you buy an R1, when you're thinking about adding many chargers and a lot of new power into, let's say, a fulfillment center, distribution center, an operating center, if you're a business that's running 20, 30, 40, 50, maybe 100 plus vans out of it. So these are great learnings that we've been driving off the basis of what we put together with Amazon. And, we are looking forward to starting to talk about other customers beyond Amazon.
Philippe Houchois: Right. Thank you very much. If I can squeeze another one. On this Volkswagen relationship, did I understand correctly, you expect it to close in Q4. And at that point you will disclose to the extent you agree with Volkswagen, you will disclose the terms of the JV and we might be able to get some -- lot of questions around the accounting and the JV and how much of the cost might be shared with the JV in each region. Will we get that information in the fourth quarter?
Claire McDonough: Yes, exactly. So we'll be filing the definitive agreements associated with the Volkswagen technology joint venture. Once the JV is closed, which we anticipate being in Q4 this year, and we will provide additional clarity on some of the financial impacts of the JV to Rivian's longer-term financial forecast and trajectory, as RJ pointed to, we do anticipate seeing beyond the capital that the Volkswagen Group will provide incremental benefits including material cost savings, operating expense efficiencies, and future revenues associated with the joint venture.
Philippe Houchois: Great. Thank you very much.
Operator: Thank you. Our next question comes from Dan Levy with Barclays. You may proceed.
Dan Levy: Hi. Thank you for taking the questions. I wanted to go back to Mark's question earlier, and maybe you could just help us unpack some of the ASP dynamics in the quarter because we know that there was some discounting that you needed to use to clear out some of the old inventory. And I guess wondering really what the -- how we should think about the right starting point for where you were on an ASP perspective in the second quarter, if we forget about some of the discounts? And just based on what you're seeing, I believe you need to hit flat ASPs from where you were in 1Q to hit the gross margin. So just anything on the right way to look about ASPs and the discounting needed for your targets.
RJ Scaringe: Thanks, Dan. The challenge with introducing an update or a second generation to a product, while still, of course, producing the first generation is always and exactly what you just referenced which is, that we -- [indiscernible] if we stop production, immediately start production, have no inventory in the system. So, it's inventory of our Gen 1 vehicles. And we did have some attractive pricing on some of those variants of our Gen 1 vehicles to essentially, as you said, clear them through the system as we then start producing and delivering our Gen 2 vehicles. We don't look at that as a long-term shift in pricing, but rather reflective of the step change we've seen in the Gen 2 vehicles in terms of performance and capability. And we've been very clear in just talking about the differences between the vehicles. And we're really pleased with the results that we saw in Q2. You saw that the number of deliveries exceed production by quite a bit, and that was really the burn down or burn through of the Gen 1 inventory. Now, in terms of ongoing expectations for ASP, the other thing I'd want to call out here is that with the introduction of the Gen 2 vehicle, Claire references that we have a Tri-Motor and we have a Quad-Motor. And the Quad-Motor performance is extremely high. It's a big step forward relative to our first generation Quad. Acceleration is a lot quicker, the range and efficiency is improved, the thermal performance for -- particularly for off-road really intense driving is outstanding. And that allowed us to move the Quad-Motor up-market and the Tri-Motor to really occupy the price position and the price space where we saw the first generation Quad operate. And so that was very intentional. And the goal was between the Dual-Motor, the Tri-Motor and the Quad-Motor to create a wide band of pricing starting at just over $70,000 and going up over well into over $100,000. That allows us to not only offer vehicles to folks that are very price-sensitive, but also to give products to customers that want the best of what we can build. And so those changes happening at the drivetrain level certainly help maintain ASP, but importantly we also have a new trim package that we've just launched which is a more premium trim from what we'd originally had. We call this the Ascent trim. But this trim package which is built into the Tri and the Quad-Motor configurations is another element of providing customers with a variant or a choice that is at a higher price point but of course delivering more content and more features.
Claire McDonough: Maybe just adding a couple of additional points of color back to prior comments that we've made in the past. In our Q4 earnings call, we had said that we expected that our ASP for the vehicles themselves would be consistent Q4 of ‘23 relative to Q4 of ‘24. We still expect that to be the case as we sit here today. And then the other point as we think about the seasonality of the business is consistent with Q4 of last year, it's far more indexed towards R1 sales relative to commercial van sales, which in aggregate lifts the overall revenue per delivered unit because of some of the Amazon related seasonality that we expect to continue to be the case in Q4 of this year. And then back on RJ's final comments, we'll have sales of our Tri-Motors in Q4, which will allow us to stretch up the higher end of ASPs to complement our starting price point, which is still $69,900 for our Standard packs for R1T.
Dan Levy: Got it. So it sounds like there's some positive mix assumptions in there. Thank you. Just as a follow-up, I wanted to go to the VW investment and wondering, from a -- the fact that you got this money in what I think many of us consider to be a more sort of efficient manner than going through the capital markets, what does this allow you to do from a product plan or capacity perspective that previously wasn't on the table if you were going to be fully reliant on the capital markets?
RJ Scaringe: A really important part of what this deal represents for us is it really eliminates a lot of the risk that was seen around our balance sheet and allows us to focus the launch of R2 still in Normal, still using our Normal facility. But as you've heard Claire and I both talk about as part of our Investor Day, not only have the balance sheet to support launching R2, but also the balance sheet to support taking us through positive cash flow. And we recognize the importance of that focus on driving efficiency into the business, both in terms of how we operate the business, but also in terms of how we deploy capital from a CapEx point of view and investment point of view. And the organization is hyper focused on driving towards profitability and hyper focused on the launch of R2 and what that represents for us in terms of the scaling that comes with it.
Dan Levy: Great, thank you.
Operator: Thank you. Our next question comes from Joseph Spak with UBS. You may proceed.
Joseph Spak: Thanks. Good afternoon. RJ, maybe you could just dive a little bit more into what is exactly happening in the plant and what's impacting the R1 line, R2 work during next year. And then, Claire, can we expect that the R1, given that most of the changes are already done, can ramp back up pretty quickly so we can understand the shape of gross margins next year because it sounds like you guys are planning for maybe some sequential improvement until that downtime, maybe a downtick in the third quarter and then a recovery in the fourth quarter. I just want to make sure that's -- we're properly calibrated there.
RJ Scaringe: Sure, Joe. As we think about the operations next year, this is looking at 2025, we we've said we're going to be taking the plant down for roughly a month while we make some of the changes necessary to integrate the R2 production into the plant. Some of that work has already happened. We did some of the preliminary work in the most recent shutdown in conjunction with the move from Gen 1 to Gen 2 on our R1 platform. But the shutdown that's going to happen in the second half of next year will make the splicing together of certain parts of the plant possible. That's part of our plan. We'll be working around that. But as we did with the Gen 1 to Gen 2, we wanted to provide very early guidance around this and make sure expectations were appropriately set for what will have to happen in the plan next year to integrate R2.
Claire McDonough: And then based off of the second part of your question as well, given the shutdown, there will be some choppiness to the financial results as we look through not just a quarter sequential improvement in our results as we look at the gross margin trajectory. As I mentioned in my prepared remarks, we still maintain that we'll have a modest positive gross profit for the entire year of 2025 in particular, but certainly with the shutdown itself in the second half, we'll feel some of the impacts of lower absorption of labor overhead and depreciation like we experienced in Q2 of this quarter, given the lower production volumes that we had in the normal facility itself. But to RJ's point, more akin to the November shutdown that we had to do some of the pre-work for our Q2 shutdown, we were able to get right back up to line rate based off of the aftermath of that shutdown. So, we expect we won't see as sort of staged of a ramp back up from a production standpoint given the fact that we'll have already ramped up our supply chain which is one of the gating factors as we've gone through the course of ramping up new technologies in our redesigned Gen 2 product.
Joseph Spak: Okay. Thank you for that. And as a second question, I don't know if you guys really ever, you certainly don't talk about this -- talk about it this way. I'm curious if you ever look at it or think about it this way. But you call out some of the impacts to the gross loss per vehicle from stuff that's not in the cost structure this quarter. I know that's offset a little bit by regulatory credits, But if we also take out D&A and stock comp, it seems like you're actually much closer to a cash gross profit breakeven level. Is that something that directionally is correct? And it seems like if that's true, you would actually even hit that before you would hit your modestly gross profit positive number in the fourth quarter.
Claire McDonough: Yeah, Joe, that's absolutely right and we wanted to call out in my prior prepared remarks just the impact we had roughly $15,000 of depreciation per unit, $1,200 of stock based comp per unit, and then another roughly $2,400 of other costs of revenue initiatives in the quarter. So that was roughly $14,000 of loss per unit if you make those three respective adjustments. So we certainly would anticipate hitting, sort of a cash breakeven prior to positive gross profit.
Joseph Spak: Okay, thank you.
Operator: Thank you. Our next question comes from Alex Potter with Piper Sandler. You may proceed.
Alex Potter: Great, thanks. Claire, just a quick one following up on that last question, that these, I guess, “other initiatives”, the $2,400 a unit, just in layman's terms, what is that?
Claire McDonough: In layman's terms, the way I would characterize it is, as you can imagine with the significant changes we made in suppliers with the introduction of swapping out roughly half of our material cost as we move from Gen 1 to Gen 2, there are certain costs associated with contract modifications or amendments that we've made and that's largely what is reflected there.
Alex Potter: Okay, very good. I guess my second question is on the Volkswagen joint venture. So presumably, I know you've got yet some work to do when it comes to hashing out the financials and all of these things and we'll await information on that in Q4. But in the meantime, presumably you've got engineers, you've got procurement people who are sort of eager to start doing something, design or getting better supplier negotiations underway. Are they basically being instructed to sit tight and not do anything until the ink is dry? Or are they allowed to sort of go out into the world and start, I guess, restarting supplier negotiations, for instance, with the heft of Volkswagen behind them or working collaboratively with Volkswagen engineers to actually design the platform into Volkswagen vehicles or do they basically just have to sit tight?
RJ Scaringe: From a supplier point of view, we absolutely are already seeing some of the tailwinds associated with our Volkswagen joint venture and partnership. This is, you can imagine at the component level and at the electronics level within the vehicle where we see a lot of suppliers we have long relationships with that are very excited about this and see this as an opportunity to scale beyond just the Rivian product line for the technology we've developed but beyond that into the Volkswagen Group product portfolio. So that's been a really encouraging early readthrough in terms of how it's perceived and overall looked at by the supply chain. From a technical point of view, we talked about this even with the announcement of deal, Volkswagen Group CEO and I, Oliver and I, just spoke around how the teams have been working really well together. And this is not, it's not as if we do a deal of this scale and of this magnitude without having done work together and without having done a lot of, beyond diligence, but into the actual creation of work content or work product, if you will. And so Wassym is on the call here, I'm going to invite him to just talk about this, but our software team and our hardware team have been working towards a number of elements that deliver on the first set of products, but the first of which is integrating our platform technically into Volkswagen Group products. But, Wassym, let me have you talk a bit about this.
Wassym Bensaid: Yeah. Thanks, RJ. We're actually extremely excited with the progress that we're making in the integration, electrical architecture integration analysis. Our engineers have been working very closely with the Volkswagen Group and we actually have a driver with demonstrator now that contains the Rivian electronic components, the Rivian software stack and we're moving forward really, really well in understanding how our technology will scale up and down in the entire Volkswagen Group portfolio.
Alex Potter: Great. Thanks very much. Appreciate it.
Operator: Thank you. Our next question comes from Ben Kallo with Baird. You may proceed.
Ben Kallo: Thank you. My first question is more near term. Just, RJ, if you could talk about demand trends you've seen since the refresh. And then my second question is, your brand is important to everyone, but to you guys, you've done a good job of building a brand. Can you talk to us about how you measure that internally or any way that you can put context to, how you built your brand and how that extends to future models. Thank you.
RJ Scaringe: Thanks, Ben. Ultimately, our first set of products, R1, was our handshake with the world. And they were received really positively. This is two years ago, and it was exciting as we introduced the Gen 2 of our R1 products to see how strong the media reaction was to those products. And you're recognizing we took a great vehicle and made it even better. And that is something that we saw echoed across a variety of different media outlets from lifestyle to automotive to more pure technology outlets, but recognizing the strength of what we've built. And that really serves as a wonderful foundation for the continued growth, as you put it, of how we're building and developing our brand and how we're perceived. And there's lots of ways for us to measure that. We certainly look at things internally. We have a whole host of internal metrics that we track regularly. But I think important for the analyst and investor community is to look at ways that third parties would look at our brand. And most recently, actually, coincidentally, J.D. Power does a number of ways where they look at the strength of a brand or the strength of a product offering in the market. And we've in the past done extremely well in this, and most recently in their annual APEAL Study that looks at a combination of vehicle performance and its overall packaging, we came out number one, and as the number one rated brand in their study. And to do that after having had previous number one performance in previous years is really exciting and it's incredibly encouraging and we think bodes really well for what's to come with R2. If we can carry the same brand strength and the same market share penetration that we have at the premium segment, where we're continually one of the best-selling vehicles over $70,000 today in the US, if we can take that market share strength and brand strength and apply it with our R2 product into the sub $50,000 price category with R2 starting at $45,000 and R3 pricing not yet announced but going to be lower than R2, we're really bullish on what that represents in terms of volume. But importantly, answers are real need in the market where there's a, I characterize as a pretty severe gap in product choice for great highly compelling EVs under $50,000.
Operator: Thank you. Our next question comes from Shreyas Patil with Wolfe Research. You may proceed.
Shreyas Patil: Hey, thanks a lot for taking my question. First of all, curious what you're seeing in terms of opportunities in the sale of regulatory credits. I appreciate it can be lumpy with $17 million in the quarter, but are you seeing growing opportunities to sell right credits at this point, just given some of the struggles that we're seeing with the legacy OEMs?
RJ Scaringe: Claire referenced it just in regards to our top line in terms of revenue. But the regulatory credit environment is certainly very strong right now. And practically speaking, that means we have the potential to generate more revenue around our credits market than what we'd originally planned or anticipated. But I think more importantly, is the fact that the credits market is so strong is a reflection of the, I'd say the decision that we see a number of companies that are going to be investing less into electrification or have less product and electrified product across multiple segments and across different price points. And so that void of products actually creates this strong credit environment. And for us, I think the most important readthrough is the demand environment we see coming into 2026, 2027 is going to be very, very advantageous for us where there's a lot of latent demand. There's a lot of demand that's sitting waiting for the right type of product, the product that has the right form factor, product positioning, attributes and features. But folks have been sitting waiting for that product to show up, but haven't seen it, so they continue to buy an internal combustion vehicle or continue to buy a hybrid vehicle. We see this really large pool of demand on the surface that's just waiting. And we believe waiting for something that's very much like what an R2 is.
Shreyas Patil: Okay, great. And my second question is, in thinking about your software architecture, one of the defining elements is that it is almost entirely built in-house from the baseline operating system to the middle layer hypervisor application layers. You've talked before about legacy automakers not really having this level of vertical integration. So clearly this is a big competitive advantage. But with VW now able to access the software platform, I'm curious how you think about the long-term advantage in software. Do you still see potential to maintain an edge here over most legacy OEMs, even those that may want to replicate your approach? Or do you feel that the industry will eventually catch up and essentially this is now an opportunity for you to monetize this asset and help the industry make the transition to software defined vehicles?
RJ Scaringe: There's a few ways to speak to this. I think first, before we get to product differentiation or customer-facing advantages, building a network architecture and associate electronics stack that allows for significant consolidation of ECUs and therefore simplification not only of the number of ECUs, but also of the harness and associated wiring, infrastructure within the vehicle, that creates meaningful cost advantages relative to a traditional platform, which will have, call it 50 to 100 ECUs within the vehicle. And so we've talked about this, our Gen 1 vehicle at 17 in-house ECUs, we reduced that down to seven. And so it is a significant multi-thousand dollar structural cost advantage to have a network architecture and topology of computers that's far simpler and far lower cost than traditional approach. So first and foremost, there's a real cost advantage. Now, of course, our partnership with Volkswagen will extend that cost advantage into their respective products as well and bring with it scale and volume, which will in turn allow us to source those components and systems at a lower cost. But from a consumer-facing point of view, what it represents, owning not just the hardware, but owning the software, and owning it around a really optimized architecture as I described, is the ability to continue to make the software a lot better. So the features can not only become more rich and more robust, but they can truly improve more than just surface level skins, let's say, your cluster or your center information display, but into -- like, deeply into the vehicle and changing the way the vehicle performs dynamically, changing the way its charging profile’s set up, changing battery management system characteristics. So you can have the vehicle get better and better and better over time in a way that's very difficult when you rely on third parties to produce this complex labyrinth of ECUs and all the associated software where even small changes require coordination amongst many different players. And so things that can take us minutes can take months for a traditional approach. And so all that being said, what the customer experiences, of course, beyond the vehicle performance and the way it drives and behaves, is what they see that the digital environment, it's also something that the UI framework, the approach to digital design, the approach to user experience design, something that we've spent an enormous amount of time on, and we believe will continue to be differentiated, and is facilitated and enabled by our platform, but it requires both. And we hope that by bringing this strong platform to our joint venture with Volkswagen, it allows them to create products that are also really compelling and answer some of the points I made before around there is a real lack of choice. There's a -- I would characterize as like a pretty extreme lack of consumer choice around EVs and products in the space. And in order for us to really scale towards 100% electrification, we need to have more than just a couple of highly compelling vehicles. There needs to be essentially near the amount of choice that we have in the combustion world, which we're not even remotely near in the EV space today.
Shreyas Patil: All right, great. Thanks.
Operator: Thank you. Our next question comes from Ron Jewsikow with Guggenheim Securities. You may proceed.
Ron Jewsikow: Yeah. Good evening and thanks for taking my questions. RJ, you've talked in the past about as Rivian opens new spaces, order intake in those geographies accelerates. I know you've laid out the plan to 2025 for spaces, but is there any way to think about what is launching in the coming quarter or the second half of this year just to think about demand being an important part of your bridge to gross profit in the fourth quarter?
RJ Scaringe: Yes, we have -- as you called out, we have a number of spaces that are going to be launching over the next 6 to 12 months. And those spaces are great ways for consumers to get a chance to experience our vehicles firsthand, to sit in them, to touch them, and play with all the features. But beyond just our spaces, we've also really over the last six months begun activating our service infrastructure to support expansion of our demo drives program. And so we have over 60 service locations that month over month, quarter over quarter, we're growing the number of those locations that do more than just service. And they not only provide service, but they support test drive and demo drives as well as of course delivery and other sales related activities. And then beyond our spaces, our service infrastructure, we're also continuing to build out our Rivian Adventure Network, that's our DC fast charge network, and that's another touch point for customers to experience the brand. Today, that network is close to being for Rivian only, but later this summer we'll be opening our network up. So, it'll allow non-Rivian customers to use the network as well, which is a great way for folks to experience Rivian as a brand and get exposure to the products and exposure to us as a company.
Ron Jewsikow: Yeah, thanks for that. And maybe just to follow up on Shreyas’s question on credit revenues is, do you feel like the $17 million this quarter or I suppose you probably know this, if the $17 million this quarter kind of fully encapsulates or values of your zero emission vehicles or is there kind of more to come as we model towards the back half of this year and gross profit breakeven?
Claire McDonough: Yeah, Ron, as we mentioned at Investor Day, we have over $200 million of regulatory credits under contract right now for 2024 itself. And there are additional contracts in place for 2025 and beyond as well. So $17 million is really just the tip of the iceberg as we think about the opportunity for 2024 and the sale of our regulatory credits.
Ron Jewsikow: Thanks for taking my questions.
Operator: Thank you. Our next question comes from Stephen Gengaro with Stifel. You may proceed.
Stephen Gengaro: Thanks. Good afternoon, everybody. I think, two for me. The first, when we talk about the gross profit progression and the expectations for the fourth quarter and beyond, the three kind of key points that were laid out, Claire, can you just talk about, are there any that you have more or less confidence in and/or are more or less visible at this point?
Claire McDonough: Sure. As we think about the visibility that we have into the three drivers, which for everyone's benefit is variable cost improvement, fixed cost leverage, and increase in revenue per delivery unit. On the first piece, and that one, as we sit here today, the contracts with our supplier partners are under contract. So we have clear visibility into the cost down efforts that we'll see from a material cost trajectory there. Similarly, as we think about the fixed cost leverage that will be enabled by our production ramp in the second half of the year as we increase volumes. And then the other component is the reduction in depreciation expense. As RJ alluded to earlier in the call, we're now anniversarying our three years post-order production, and so part of the reduction in our depreciation expenses is related to fully depreciating some of our initial tooling associated with our launch. So again, we have clear visibility into the trajectory on that component of it as well. And then the final component, as you think about the increase in revenue per delivered unit. On this end, again, we're ramping right now our Ascent drive unit line that will enable sales of our Tri-Motor that allow us to skew a little bit higher from a mix perspective. And then I just referenced the regulatory credits again that are under contracts for this year as well. So have a lot of visibility as we look into the second half performance.
Stephen Gengaro: Great, thanks. That's good color. I appreciate that. And the other quick one, and I'm not sure if you'll comment on this or not, CapEx for ‘25, any parameters we should be thinking about?
Claire McDonough: Yes, as we think about CapEx for 2025, as we've mentioned in the past, we estimate spend to be roughly in the, $1.5 billion area.
Stephen Gengaro: Okay, great. Thank you.
Operator: Thank you. I would not like to turn the call back over to RJ Scaringe for any closing remarks.
RJ Scaringe: Yeah, thank you everyone for joining us today. We're really excited with the progress we're making, the transition to our second generation R1 vehicles and the associated cost structure that that drives both at the bill of materials level, but also within our operations, within our plant, is a really important stepping stone for us as a business. And the efficacy through which that launch occurred really reflects the growing capability for us as a business. I'm also really excited to see what we’re -- how customers have continued to react to the product. And seeing how favorably this second generation R1 was seen and continues to be seen really sets up well for us with what's to come with R2, where R2 leverages a lot of the content, particularly around the network architecture of the ECU topology, the software stack, and even beyond that into some of the componentry architecture that we've laid out with the updates to the R1 platform. So, again, thanks everyone for joining. We're looking forward to continued progress and continued efforts on our drive to profitability and look forward to speaking to everybody soon.
Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
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