All right, let's get settled in. RJ, good morning.
Good morning.
Thanks for being here. Everybody, my name is Daniel Roeska. I'm the head of Bernstein's European Auto team. We've got RJ here from Rivian. Thanks very much for making this happen.
Yeah.
Thanks for bringing the car.
Yeah.
I kind of expected different cars, but you brought the new one.
Yeah. We brought our next generation products, R2 and R3.
Yeah. When are they coming?
So, just as context, we have our, our first set of products, the consumer products, we call R1. So R1T, R1S, those are flagship products. We launched those about two years ago, and they've been in market now for a bit, and doing really well. We can talk about that in a bit. But, the follow-up to those is what we call R2 and R3. R2 is a smaller SUV, and R3 is a smaller crossover, both in the mid-size category. But R2 launches in the beginning of 2026.
Okay.
So it sounds like it's a long way away, but there's a lot of things coming together to make that happen. So we're really excited and working tirelessly to get that to market. And then R3 follows R2 at a lower price point than even R2.
Yeah.
- at the mid-size crossover space.
Now, I jumped right in because there were cars downstairs, so I apologize.
Yeah.
Maybe you can take a step back because you rightly kind of outlined the entire portfolio.
Mm.
Maybe take us back for the audience, what's the opportunity here? Right as a starting point, what is the market opportunity? Why are you focusing on these types of cars?
Yeah
... in, you know, what has been kind of a 10, 10 years to IPO and now-
Yeah
Three years since the IPO.
Yeah, yeah.
Right? You stayed pretty much on track with the vision you had.
Yeah, yeah. Yeah, I mean, the core philosophy of how we were building the company was to really think about the products as enablers for the brand. And as a consumer-facing brand, what was most important with the first set of products, the flagship products, R1T, R1S, was to really establish who we are, be our handshake with the world, and their level of performance and capability both on-road and off-road, everyday utility, efficiency, establish who we are. And today with R1, we're the fourth highest selling EV brand in the United States, which is awesome because that's with only a flagship product with an ASP of about $90,000. The R1 is the best-selling EV in the premium segment, and then R1S is the best-selling large SUV, EV or non-EV, in California.
The product's been really well received by consumers, which is awesome. The hope is to take that brand success and market share strength, where we have, you know, highest level of market share in the over $70,000 price category for EVs, and over $70,000 at all in the case of California, and translate that market share into price points that have a much larger addressable market. The largest addressable market that we see, and we believe will continue, is in the mid-size SUV space, and that puts us, price point-wise, below $50,000, north of $40,000, so in that $40,000-$50,000 range.
And then linked to that at a platform level is introducing a crossover product that brings us into the, you know, price points to start with $30,000, you know, the 30s, you know, high 30s, mid- to high 30s. And so the technology set to do that is shared between those two vehicles, but a lot of it, the heavy lifting in terms of vertical integration around software, vertical integration around electronics, removal of any dependency whatsoever on Tier 1 suppliers for electronics, for ECUs, was done with R1. We're now translating that to R2 to really achieve structural cost advantages long-term.
Great! Sorry, let me start over. With the platform you're basing the R2 and R3 on, what were some of the most important structural changes you made from the R1 to the R2?
Yeah, the R1 vehicle—it's worth noting what we launched end of 2021 had, and what we were building up until very recently, we just went through a long one-month shutdown, where we changed a bunch of things with our plant, but importantly, we changed out a significant majority of our bill of materials to either new suppliers with new designs, existing suppliers with new designs, but essentially negotiated the entirety of the BOM. And what we launched with in 2021 was a BOM that was negotiated—a bill of materials that was negotiated largely in 2018, 2019.
Mm.
And so our leverage and our strength in those negotiations is very different than what we have today. And, as we go into R2, leveraging the relationships we have with suppliers, the fact that we're no longer... Like, I remember when we were negotiating contracts for R1 back in 2018, 2019, you know, the senior-most folks we'd get a lot of suppliers would be like a, maybe a senior manager or VP of sales or something. And we had to really convince companies that, like, this company, Rivian, that no one had heard of, and for which there was no product and for which there was no customers, was worthy of aggressive pricing. We had to pay a startup tax or startup premium, if you will, on those days.
We've largely removed that with what we're just now relaunching with the updates to the R1 product. But R2 takes it further and essentially allows us to say, "Look, at..." They see it because they're suppliers. So we're the best-selling vehicle in these price categories. We're gonna take that market success and apply it into something where there's been essentially no competition for, you know, the singular player there today with Tesla, with the Model Y and, and, and Model 3, and how successful they've been, but create a very different alternative in that price category for customers. And what we've seen is suppliers really react positively to that.
Mm-hmm.
And so the biggest difference between R2 and R1 is really, I would say, the strength of the supply base and the strength of the cost that we're able to build into the supply base. Now, architecturally, not surprisingly, there's more part consolidation, so the use of things like high-pressure die castings, asking certain systems or parts to do more than one task. So the top of our battery pack, for example, is the floor of the vehicle.
Mm-hmm.
We completely own the, and have vertically integrated the high-voltage electronics-
Mm-hmm
... high-voltage system, so drive units, battery pack. All the ECUs are in-house. We use a zonal architecture, so there's very few ECUs that run the whole vehicle. There's one in the front, one in the middle, one in the back. So in terms of, like, your compute stack-
Yeah
... and harness complexity, very, you know, much simpler than any of the other products out there, certainly even simpler than what we did with R1. And then every system is just like they're grinding focus, looking at how we can take cost out through part elimination or part consolidation.
If you think about what you did with the retooling on R1 now, can you put that in some numbers for us?
Yeah.
Kind of give us a sense of what part was maybe simplifying the product a bit and what part really was the renegotiation with suppliers?
Yeah, it's probably 60%-70% renegotiating with suppliers,
30% some of the part changes, but some of them are significant. I'll take. You know, let's take the body architecture. It's an easy one to visualize. A lot of the initial R1 body was using aluminum-
... in some of the core body structures, so like the floor of the vehicle was aluminum. And so we moved the vast majority of the body, doesn't look materially different from the outside.
We're now using steel in the floor. It takes, in those cases, like 90% of the cost out of the parts-
Mm
... and out of the system. And so that was, you know, through design, but then we simultaneously renegotiated with suppliers making those parts and/or providing those raw materials. And as that flowed into, let's say, the battery, the battery pack, we went from... And we talked about this. We actually had presented this at a technical conference. We went from 41 components in the battery pack down to 16.
Mm-hmm.
We used large, high-pressure die castings in the front and the rear of the pack. Those changes alone took thousands of dollars of cost out of the pack and modules, but we also did that along with renegotiating much more aggressively with how those parts were coming in.
Yeah.
That happened. I talked about battery pack, I talked about the floor of the vehicle, but every single system in R1 went through that same pressurization of, Can we make the parts simpler? Can we use lower-cost materials? Then, how do we renegotiate with suppliers, to achieve that?
Now after the shutdown, you're ramping back up.
Are you seeing the cost changes kind of out and through on the points?
Yeah, I mean, from an investor perspective the second quarter is going to be messy because we had we shut the plant down for approximately a month. We are just we'll be having delivered just a, you know, very small number, a very small percentage of these newer vehicles in terms of price cost in Q2. So you won't see a lot of those benefits until we get to Q3. But absolutely, a nd the thing about the thing about Bill of Materials savings is these are contractual. It's not as if we're, like, sitting here hoping or wishing our cost was lower. These are things we've negotiated over the last 24 months, so there's not there's not risk around them.
They're deterministic. And the improvements we made in the plant, in conjunction with those changes, were to change the line layout, increase the amount of automation. So we have hundreds of new robots have gone to the plant, and along with that, increased the line rate by 30%. And, you know, that implicitly creates more efficiency and less hours per unit. So there's also, beyond just the BOM being, the Bill of Materials being lower, the cost of goods sold, the non-Bill of Materials cost of goods sold is also come down quite a bit as well.
How are you going to use that kind of extra headroom or better profitability on the vehicles for the remainder of the year? Are you kind of going to ship more and push a little bit onto the market share, or-
No
... what's the balance here?
Really, for us, we won't see significant changes in the overall pricing. What we'll see is we have a few variants we're launching that allow us to have a broader price band.
Our lowest price stays about the same, but we actually create versions of the vehicle that are more premium. So we have a more premium interior we're launching.
We have even greater levels of performance on some of our powertrain configurations that, for customers that want the highest performance, highest capability version of the vehicle, we have something for them-
that drives more price into the vehicle. But for us, it's really key for the long-term roadmap to what we've continually guided to, of a 25% gross margin on the product and getting to a positive gross margin this year.
And then one step further on R2 and R3 platform, what... You know, how much can you lower costs still going to those products?
Well, pricing-wise, R2 will be on the order of going from a $90,000 ASP down to pricing that starts in the mid-$40,000s. So this is a substantially lower-cost vehicle to build, and something that still really embodies the essence of Rivian and has a set of attributes and features that make it highly compelling. And so to do that, we had to make trade-offs, and some of those trade-offs are around content, some of those trade-offs are around performance. But we work really hard to make sure that those trade-offs aren't things the customers are feeling in a really negative way. I'll use a couple of examples.
The suspension on R2 uses a strut, so it's a MacPherson strut, which is a lower-cost way to accomplish, you know, the suspension, you know, features in the front. But in R1, it's a double A-arm front suspension, which has some packaging advantages in terms of overall height, but it's a meaningfully more expensive architecture than a strut. The other good example is just take the doors, and we actually have an R2 downstairs, so you can look at it relative to R1. The rear glass on an R2 door has a single piece of glass that goes up and down. There's no, there's no div bar, there's no fixed glass portion, and so it looks a little simpler, and in fact, it is. There's a lot less parts in the door assembly and in the closures than what we had in R1.
No, I think if you look at the cars, R2, R3 downstairs, you can really see some of the simplicity in the doors and the packaging-
Like, extreme focus.
Like, every single part has to earn its way onto the vehicle because we're so hyper-focused on cost on the vehicle.
If you think about those price points you mentioned, where does that sit then in profitability? You know, are those cars in a steady state run rate environment, would you expect them to have the same margin, a lower margin than an R1?
Similar, similar margin. And on R2, I should say also like R1, there's the base level version, in R1, that starts at around $70,000, in R2, that starts at around $40,000 or $45,000 dollars. But we add margin as we add features.
So the tri-motor R2s will be our most profitable version. It's one motor in the front, two in the back, you know, incredible levels of performance on and off-road. And that's, we're working around that product to make sure that's a nice profit driver for us, along with the base version, which is also profitable, but the blended average between all the different variants, you know, we're working really hard to still deliver to that north of 20% gross margin.
Yeah. If you think about the next 4-5 years, I mean, the U.S. market alone is seeing quite a bit of new crossovers and SUVs coming out on the electric side in the next two years.
Looks like everybody's rushing in.
How does, you know, how does that make you feel? Where do you think, you know, or who's gonna be your fiercest competitor, you think, in two, three years' time?
Well, it's worth it... It's worthwhile to take a step back and look at where we are on electrification. And as much as it seems like we're, like, there, we've electrified it. We're really far from market, really in any way, being saturated. So today, new car sales, electric vehicles represent around 8% of new car sales. And so when we talk about R2, the obvious thing to pull out of that is to say, "Well, how is that gonna compete with a Model Y?" It's the highest volume EV in that price segment. They're both SUV-ish. Model Y is more of a car-like SUV versus our R2, but absolutely, like, there will be cross-shop. But the reality is, we're not necessarily competing with the Model Y, which has 60%+ market share.
We're competing with the 92% of customers that haven't decided to go to electric. And in our view, a lot of the reasons we've seen adoption slow in terms of its growth rate, and I want to be clear, slow in terms of its growth rate. So electric vehicles are still growing, it's just not growing as fast as it was. But there is a true lack of choice, and there are a lack of... There may be EVs in price points that are similar, but they're not compelling enough. They don't have the right combination of features or attributes that really warrant someone making a switch from an ICE vehicle to an EV. And Tesla has done that, where they have a highly compelling product, but you have to accept the form factor that it is, which is a car-like SUV.
You have to like the brand positioning, you have to like the way it looks. And so we think there's some realistic limit or saturation to how many customers are gonna have form factor elasticity or design preference elasticity to go to a Model Y from something else, which is a lack of choice.
And so we think R2 represents a real opportunity to give customers a real choice that's distinct and different than Model Y. One of the unfortunate outcomes of Model Y's success, I think, is that a number of the EVs that are coming to market over the next few months or few years are very Model Y-like. They have a very similar vehicle profile, they have very similar seating package, they have very similar use case, they have very similar capability set. And we think the market needs more variety and more diversity in terms of features, content, form factor, design, and brand presentation.
In order to get from 8% electrified to 100% electrified, we don't believe every customer is going to want to be in the same thing. We think customers will want lots of choice.
Yeah. But I mean, you'll, you'll be getting choice and including kind of more, more hybrid or plug-ins as well.
How does that... You know, if you look at your launch timeframe to 2026, 2027. It would make me feel anxious.
Kind of, what do you... You know, how do you think the market will have evolved by the time those vehicles hit the shop floor, basically?
... in 2026?
Are you asking, so, like, just in terms of hybrids?
... Or, well, in general, right? Because you're asking customers in two years, right?
to buy into an electric product.
when there probably will be more choice than just the Model Y.
Yeah. Yeah, I think, to be clear, I think it's really important we have more choice. I think the, for many reasons. I mean, from the point of view of, like, my kids, we need to have a planet that starts to really bend the curve around CO2 emissions, and to do that, we need to properly electrify. And to do that, we need choice. We haven't had choice, so we've had a singular dominant market share player in the space today. But I also think that as you see more choices for EVs, it'll actually help drive more EV demand.
Knowing what's coming, we feel really confident about R2. But I'd also say that, we don't need 100%-- we don't need 100% market share. It's such a large market that we would be... If we could have any semblance of the success we've had in R1 in terms of market share, where, just to again restate it, I mean, our R1S is the highest market share product in its category. It's higher market share than Tesla. It's certainly higher market share than any of the other incumbent OEMs. And as a brand, we're the fourth highest market share in the United States at around 5% today.
So if we can maintain even a semblance of that market share with a much larger denominator, with a much larger addressable market, we will certainly be selling well beyond every vehicle that we can produce from a capacity point of view. So, that's the interesting part of just being so early in this transition. Again, we're—this is like 1995 in the internet days. It's really early. It seems like we're deep into it, but we're still very early days in electrification.
Early, early majority at the very best.
Yeah.
Yeah.
Could you talk a little bit about kind of the other components beyond product choice you think that are needed to really get electrification going?
So I think by far and away, the biggest is choice, which we've talked about already. A second, which has been, it's been a point of a lot of discussion recently is charging and charging infrastructure. And to date, so recently, I should say, Tesla's charging network has been a significant differentiator for them, and for the right reasons. It's an outstanding network. If you were to look at the metrics to measure the quality or the efficacy of a network by, I'd say that the most important metric is uptime, meaning when you show up to the charger, does it work?
Tesla's network runs at about 99% uptime, and it's in stark contrast to the other networks that are available, where uptimes, depending on the network, could be anywhere from 50%-65%, which sounds like, Oh, that's not that bad, like, one out of two chargers works. But if you're a customer and you show up at that charger and you have to plug in, and it doesn't work, you have to move cars or wait for an hour because only half the chargers work, it's super frustrating. And so recognizing that a few years ago, we started to develop our own. We developed entirely in-house our own charging infrastructure. We built DC fast charging hardware. We actually build it in the same plant that we build our vehicles, and we start to deploy our own network.
It's really robust hardware. The uptime for our network today, which is about 4% the size of Tesla's network, so we're just getting started building. We call it the Rivian Adventure Network. We have about 500 dispensers today. The uptime is 98.5%, so it's very nearly the same as Tesla. But while we were building that out, what's happened is Tesla's opened the network up, so we're one of a couple of manufacturers who are now actively on that network. There's a shortage of adapters between Tesla's NACS charger and the CCS connector, but those are shipping now, which is great. And then over time, we're gonna be switching to the NACS connector, along with moving our network, our charging network, over to that.
But with the fact that our customers can access Tesla's network, Tesla customers can access our network, which is really important for our network because our network can achieve profitability much faster as we have a large carpool, car, car park that can access it. This is an area we think has to change, and over the next 2 years, we're working on this to both grow our network and, of course, being part of Tesla's network allows us to limit that as a, as a purchase consideration, at least as a point of differentiation between us and Tesla. But I think generally, people have to have a lot more awareness around this.
We have to put out there that these networks are out there, are available, and perhaps most importantly, if you don't drive an EV, you don't realize this, but you actually don't really use these networks that often. Like, so far, customers, 95% of their charging is happening at their home. Less than half of our customers have ever used a DC fast charger, so, like, there's not... The once-a-year road trip, which today drives a lot of your purchase decisions, is more in a lot of customers' heads than it is in real everyday use. And so the necessity of that network is to say, you can do the road trip, but what's really important is your home charging solution needs to be thought through.
If you think 10 years down the road, do you think the auto industry will still be running charging networks? I get, I think it's very apparent why you, others, need to invest in the networks now to get adoption up.
Once we're at a higher adoption rate, is that something where you think you're gonna earn money, or is that kind of more a service you need to provide at this point in time to get it going?
That is a good question. So if you'd asked me that question five years ago, I would have said emphatically that charging networks will emerge and be funded independent of car companies. Investors will pour money into building this infrastructure and strong infrastructure providers will start to build those networks out. That hasn't happened. So it's been a very underinvested in space. The companies that do exist haven't done it well. And amazingly, you know, Tesla's the dominant provider of charging today. But amazingly, we find ourselves with our RAN network in our earliest days of starting to deploy this one of the largest networks outside of Tesla. And so when I say that, I say it with a smile because it's remarkable that how quickly we've become a bigger network.
And if you look at high-speed charging, so above 150 kW, and certainly as you look at charging at 900 volts, our charging networks built around 900-volt or up to 900-volt architecture. Like, there is a real world where this is a really tight duopoly. Maybe there's 3 or 4 players, but there's not any evidence to date that third-party networks will be built as robust as they need to be. And it is a business that you can derive a lot of profitability from over time. So I'd say it's, in some ways, it's to be seen, but none of the data today supports the networks. You know, it supports the thesis that the networks outside of car companies are gonna be really strong.
Yeah. All right. So we talked about kind of product availability, and breadth. We talked about charging. Can you talk a little bit about policy? Some of the-
Some of the countries where we've seen the highest EV adoption.
We've had very strong policy support. Now, the U.S. has moved to some policy support, but if you were kind of to give a message, say, what, you know, what do you think policymakers should or could do differently here?
This is a big question, and there's changes happening here that are really hard to predict. So depending on who wins, White House has some big implications, but in all directions. So we've got international trade, which is a massive consideration, in particular, the role that China plays outside of China. It's a large question, and we've seen trade policy and tariff policy, certainly, It may be the singular item for which the right and the left are aligned, you know, Republicans, Democrats are aligned in the United States, which is an anti-China perspective today. And so strong tariffs being in place to protect non-Chinese manufacturers in the United States is likely to continue both at the vehicle level and at the battery level, stronger at the vehicle level.
And so that, that's something we have to consider. But the other is just the tailwinds, call it the carrots and the sticks around electrification. So the carrots, of course, being consumer-facing tax credits or manufacturer-facing credits, and the sticks being fines. And so we see this through all lenses. We see this, the effect that has on consumers, we also see the environment for buying credits, greenhouse gas emission credits, zero-emission vehicle credits, become incredibly robust, in the last maybe six to nine months.
Which is reflective of a few things. It's reflective of some of the pullback we've seen from incumbent manufacturers on investing in EVs, or a pullback in their confidence in their EV programs. But it also is reflective of a view that some of these credits are gonna remain.
And regardless of who wins the White House, the bureaucracy and inefficiencies of our political system are gonna preserve a lot of the policies that are in place, whether we like it or not, which is sort of a wild thing when you think for once, our inefficient government's gonna be helpful to at least create some stability. But our view is that all... What happens over the next few years is secondary to the fact that it's the end state is crystal clear. The end state is 100% of vehicles will be electric, the entire automotive industry will be electric, and policy is gonna be driving that more aggressively and more deterministically in a number of places. So throughout Europe, most countries...
I shouldn't say most countries, all of Europe is committed to all new vehicle sales being electric, 100% electric by 2035.
In the United States, a number of states have followed the California Air Resources Board requirement that is the same, which is all new vehicles sold will need to be electric by 2035. And just to restate, like, how remarkable that is. In 2035, in California and 14 other states that have followed that standard, you will not be able to buy a hybrid or non-EV vehicle, which is... Like, that's not- 2035 isn't decades away. That's, that's a decade away. That's maybe one and a half product development cycles away, in the context of an incumbent OEM. And so will CARB, will California change its policy? Will Europe change their policy? Will India change its policy? I think you may, on the margin, you may see a few adjustments to this, but it's pretty clear that the policy requirements to fully electrify are absolutely going to be there.
And, you know, we could debate around an election, whether that moves by a few years or not, but that's the end state. And so when that happens, we have to mirror that, match that with product variety and product choice that allows this to be a transition that's exciting and possible for customers. If that were to be in place today... It would be really hard, as there are so few choices in the EV space. If you want a minivan, you can't get an electric minivan. It doesn't exist, and you want a midsize SUV, like a proper SUV, it doesn't. There's crossovers, but there's no real SUV. There's no, like, SUV-like SUV, if you will, in the $45,000 price point. If you want a hatchback, there's no hatchback.
So there's just, like, a very limited set of EVs compared to the ICE world. So we have a decade as an industry to create a really compelling, super exciting set of products that will match the policy requirements to electrify.
You just talked a little about international trade. Maybe let's look at the kind of import and export side of that for a moment. Would you rather prefer kind of having more access to low-cost parts from China or other parts of the world? Or would you rather have the U.S. kind of build up trade barriers and force a domestic agenda on that?
I think if we take the perspective of the last question. Actually, let me say this. I think the most important thing, what would be most valuable for the industry, not just Rivian, is stability around some of these things, and because the lead times are very long. And the instability of policy means that all of us, Rivian, and I'm sure other manufacturers, you know, like, build really complex strategies that have a bunch of if/then statements. If this happens, what do we do? And our supply chain strategies are highly conditioned around a variety of potential outcomes. That being said, a pure free trade environment would certainly allow us to offer lower priced vehicles because we'd be able to access certain components and certain raw materials at a lower price, specifically batteries.
The cost of a Chinese battery is, today, not slightly lower; it's massively lower than a non-Chinese battery. And by and large, today, that's not—we haven't really seen those in the U.S. because of tariffs. So at the battery level, there's a 25% tariff that exists, which, in addition to logistics costs, makes it very difficult to rationally build a strategy around that. Now, for Europe and for the rest of the world, certainly, but for the U.S., it's more difficult. I think the big question that's out there is, at the vehicle level, having vehicles come in, and now there's... For those that aren't following this super closely, there's a 100% tariff that's just been put in place on vehicles from China to the United States.
It makes it extremely unlikely that we're gonna see any significant penetration of Chinese vehicles into the U.S. Batteries, we'll see some, but with the tariffs as they are, it does make the Chinese batteries more difficult to make their way in.
And maybe thinking a little about the domestic supply chain, you just made the decision to concentrate kind of the next couple of steps for Rivian in Normal, at your existing facility, and kind of push Georgia-
- probably a little bit out.
What's your timeline on the expansion plant in Georgia? Is that still in your strategy going forward?
Just for the benefits of clarity, so we have our production facility in—when we say Normal, that's the name of the city that our plant is in, so we have a plant in Illinois, in a city called Normal. And so that facility will have a capacity of 215,000 units between our R1 products. We also make commercial vans, with the largest customer being Amazon, and now our R2, R3 product line. We have a second large greenfield facility that we've been developing in Georgia, and that would be the next phase of growth for R2.
The decision we took recently was to launch our R2 product out of our Normal facility, both to minimize the amount of capital spend through the launch of R2, but second, to also make sure we have a fully, you know, 100%+ utilized facility in Normal, where we have fungibility between R1, R2, and our, what we call RCV, our Rivian Commercial Van platform. That decision was really around ensuring the business's path to profitability is as quick as possible, but also ensuring the path to launch R2 is as quick as possible. We want to get that product in market. Like, I wish we could be selling it today because there's so much excitement for it and so much interest in that vehicle.
Maybe then turning to the export side, you're in a fairly small EV market in terms of numbers here in the US. China's probably off limits with the 100% EV tax.
That leaves Europe.
Yep.
How are you thinking about that market?
So R2 and R3 have been architected from, you know, starting years ago, from the very basic level, to fit the European market really well. In terms of trade, scale in Europe ultimately requires production in Europe. There's a 10% export tariff from the U.S. to Europe. There's a smaller tariff from Europe into the U.S., but it makes exporting vehicles something that you certainly can do, and it's great to start the market, but to really scale those markets, we'll ultimately need to be producing them locally. And so that's not something that we've talked about or even made any commitments to in terms of production in Europe, but long term, the R2 platform and the production infrastructure being designed to support that platform is contemplated to have multiple plants.
So we envision that platform being produced in not just our Normal, Illinois plant or our plant in Georgia, but ultimately in plants in Europe as well.
You've seen a couple of manufacturers, I'm gonna say, loan out their EV platforms. You've seen the MEB platform from Volkswagen getting around quite a bit. Is that something that's possible with the platform that's underlying R2 and R3?
Yeah, it absolutely is. I think one of the things we're seeing as well, is the opportunities that it—Well, one of the things we took an approach that's different than existing incumbent OEMs, is we've really emphasized vertical integration of electronics and software. So, typically, the way the electronics architecture is set up in a vehicle is you have a collection of small computers, what you'll hear referred to as ECUs, that are running domains. So they'll run body control, they'll run powertrain, they'll run chassis, and they're sourced from Tier 1 suppliers. And as a result, you purchase essentially a function. You purchase body control, you purchase seat control, you purchase powertrain control, chassis control, and you end up with this assemblage of 30, 40 ECUs across the vehicle. Really complex.
And so with the launch of R1 years ago, and leading into that, so, like, in the, I don't know, 2015 onwards, we were developing our own ECU topology. So we have a computer design team, we have a base software team, and so it's become a really... It's our largest technical team by far within the company, is electronics and software, and so it's a real core strength. And what that does in the short term is it means there's a lot of R&D spend to build up all these things that Tier 1s do. What it means in the long term is the ability to consolidate very easily, where we don't have to go negotiate between suppliers to get functions consolidated to a single controller that operates in a zone of the vehicle.
But rather, we can decide and be the sole arbiter of what software goes on what computer. And the many thousands of dollars of savings that are possible with that is really significant. But it's also a platform that we see as highly valuable for applications outside of our own use case, because we've solved something that's very hard to solve through the Tier 1 supply base. So I think there's a long way of me saying, I think there's platform opportunities where you think about the easy to visualize stuff, battery, drive units, but there's even more compelling and differentiated opportunities for our network architecture and our software stack, which to date, you know, outside of China, there's only one other company that has a zonal, completely vertically integrated architecture, of course, that being Tesla.
So there's two companies that have done it, us being one of them, and we think that's really valuable.
Great. I'll just remind everybody, if you want to ask a question, there is a QR code somewhere on your agenda where you can find kind of the link to put in questions to the, to the tool, and they'll pop up here. But I'd like to talk about one large topic maybe, towards the end. You just mentioned the speed, you'd wish R2, R3 were coming sooner. What have you learned about the pace of innovation?
in this sector, in the automotive sector, kind of, since you started Rivian?
Yeah, I mean, the thing that makes you, you know, vehicles so unique is the lead times on everything is really long. So, I mean, like a headlight lead time to develop and tool a headlight is 24 months. And so what it means is products have a multi-year production lifetime. So you launch something and it stays in production for a few years, and then you make adjustments to it over time. But customers want to see the product get better and better at a much higher pace. And so this is the value of, come back to a previous point I made, of just owning the electronics and software stack, because it allows you to do more thorough and robust over-the-air updates, where the product and the feature set get better over time.
Embedded or implicit in that belief is the necessity of building some headroom into the electronics in the vehicle. So that means your perception stack needs to be strong enough, your compute stack needs to be strong enough, such that the vehicle gets better, you know, month-over-month. So since we've launched, we've had 30 over-the-air updates. These—some of them are, you know, they're not—there's not big headlines around new features. There's always some new features, but we have launched in a number of these big new feature sets.
And so what we think of in terms of innovation here, especially with the updates that are just going in on the hardware side with the vehicle that we're launching here very shortly, is the headroom provided at the platform level allows for autonomous and self-driving capabilities to continually grow. You buy a vehicle, it gets... You know, that same vehicle, one year after purchase, is a lot better than the thing you bought. The features and capabilities of it from a digital point of view continue to get better over time, and it starts to map more closely to what we've become familiarized with through, you know, the technology we hold in our hands, the, you know, the things in our pocket or in our backpack, from a consumer electronics point of view.
That, we think, starts to become a very, it's a dominant product feature that customers will start to look at, which is: How much better does my car get over time? And that starts to link to the brand and how customers view the brand. And so the days of you buy a vehicle, and five years later, it's the same vehicle, we think those days are just starting to fade into the distant background. But you have to architect the vehicle to really accomplish that in a meaningful way.
Why have Chinese OEMs been so much faster in rolling out new products?
... Well, I think there's the Chinese OEMs, much like, much like us, the, the benefits of starting with a clean sheet. So if you're building a new company or building a new architecture, you, you wouldn't design it with the same topology of dependencies. If you look at the way our tier, our tiered supply base is developed, it's, it's one, it's highly tiered because of the amount of components in a vehicle. So in a—like in an R1T, there's you know, there's a, a few thousand sourced items that we buy from suppliers, but there's tens of thousands of individual discrete components. So take a headlight. We buy a headlight as, as a part, but there's 91 components in one of those headlights. And in those components, there's even subcomponents. You have, like, tier one, tier two, tier three.
But the role that Tier 1s play in the supply chain around electronics is somewhat surprising, and it actually, ironically, goes back to fuel injection. It goes back to the move from carbureted engines to fuel-injected engines, and at the time, the belief was that the value proposition and the thing that the OEMs really owned was the engine and the body. And they said, "All this electronic stuff, we'll just push to these suppliers." And what wasn't realized fifty years ago was that began this process whereby electronics and software were pushed to suppliers, and the manufacturers were assemblers of the body and builders of the engine. And fast-forward to today, it's really a broken topology.
It's if you were to design this and say the most important thing from a customer is software, and to do great software, you need to do great electronics and design computers yourself, you would never push those things to supply base, but that's how the supply base is built. So I think in contrast, China has grown up in a time when the idea of the vehicle being a connected device was absolutely front of mind, and they've built capabilities, you know, embedded within their organizations that are a lot more like how we've architected Rivian or, let's say, how Tesla's architected themselves to be vertically integrated around software and electronics.
Maybe before we, before you head off, could you talk a little bit about the commercial vehicle business? You just mentioned your customer, Amazon, but how do you view that space in Rivian's future in more general terms? Or what's the opportunity here, and how focused are you on that right now?
Yeah, so just to give full context here, we have, in addition to our consumer products, we have a commercial van business, and we launched that business through a deep partnership with our larger shareholder, Amazon, where they committed to electrify a significant portion of their fleet with a 100,000 vehicle order of our vans. To date, we've delivered about 20% of that and of that initial order, and we continue to be building towards that, and we've witnessed, and I think the world is now starting to see this on the road, so hopefully, we've had some packages delivered with one of those vans. But, you know, the process of electrifying a fleet at that scale is not simple. There's things like all we've talked about already.
Charging infrastructure requires real thought at this scale and across fulfillment centers or distribution centers that weren't contemplated to have 10 MW of charging capability. So there's real work that has to go into that. But what we initiated about a year ago is looking at customers outside of Amazon. And so the nature of a commercial customer versus a consumer customers are not emotional. So you're not buying an electric van because you think it accelerates differently or because it's more fun. The buyers and the users of the vehicles are not the same people. So there's a buyer of the vehicles making a highly strategic, TCO-driven decision, and then there's the users which are employees.
And so what we found is the need to run pilots to demonstrate, in real-world terms, what are the cost advantages to running an electric fleet? What are the operational steps necessary to, at scale, convert your fleet? And so we're now running a number of those pilots, and we, this year, we won't see a lot of significant volume associated with those pilots, but it's really the next year, 2025, that we'll start to see more volume. And here, again, policy does make a difference. So, you know, in Europe, I think the first space to electrify will be commercial because of congestion, taxes, and emission limitations for operating commercial vehicles within the confines of a city.
We're gonna see pieces of that as well in the United States, and I think the space that we'll see the highest penetration in terms of market share of EVs will actually be the commercial van space, particularly for last-mile delivery, where it's from a technical point of view, the like, a very easy problem to solve. The vehicle starts and ends its day at the same place. It drives well under 100 miles in a day. It's a perfect application for EVs. But as I noted before, a lot of the companies that run these fleets are not always at the leading edge of progressive thinking when it comes to sustainability or electrification, so there's a journey that they're going through as well.
So we've had the benefit of working with the largest fleet operator in the world, with Amazon, and learning with them through that process what it's like to electrify a large-scale fleet. Now we're taking those learnings and applying it with other partners.
Before we close out, I'd be remiss if I didn't ask you about the full year and kind of guidance, where you think you're gonna end up. I think was -2.7 on EBITDA. What are the building blocks you're building into that guidance till the end of the year?
Yeah. So this is a, this is a critical year for us because we've gone from our gen one product to these big updates, without a big inflection around our cost structure. We've seen. It's not to say we haven't made progress quarter over quarter with taking our gross margin, improving our gross margin, where today it has been, we've had a negative gross margin to date. But flipping that to not only a positive gross margin, but demonstrating very clearly the trajectory towards healthy, positive gross margins as we look into 2025, is really important. So Q3, Q4 represent pivotal quarters for us. We have, as is always the case, I think, there's a lot of asymmetry, where we have really clear line of sight to what's happening. We have a lot of confidence.
We try to project around and demonstrate around our path to profitability. And as investors, you guys have to work off of the things you've seen in the past and what we've done. And, you know, going through this inflection around our cost structure and the way we've architected our vehicles and our supply chain, you know, we look forward, and we see things with a lot of optimism around our cost structure and around our overall profitability, and that sets us up really well for 2025. And then, of course, the introduction of R2, which learning from everything that we did in R1, will have a much faster path to profitability.
Yeah. If we do meet again next year, I hope we'll welcome you back to SDC, but if we welcome you back next year, next to kind of the inflection in the second half-
Yeah.
What do you think will be the biggest challenge you would want investors to measure you by in the next 12 months?
Well, effectively, everything I just said, we would go on and look at the progress we make between on cost structure and positive gross margin. I think at that point, a lot of the discussion should be shifting to R2 and looking at, you know, at that point, we'll be a little more than half a year away from R2 making its way into customers' hands. And so that represents, whereas R1 represents a demonstration of the brand and a handshake with the world for that, and we need to show the path to profitability with R1 and the fact that that supports a baseline element of the business. R2 is really what drives scale.
It goes from an addressable market that's relatively limited when you're selling $90,000 vehicles to a much, much, much bigger market when we're selling $45,000 vehicles. That's, for us, the major inflection for the business and the relevance of Rivian as a brand to consumers and relevance of Rivian in terms of driving well above, you know, say, we're a 5% market share. We'd like to be many times that. That is enabled by R2, of course.
Excellent. RJ, thanks very much for coming.
Yeah, thank you.
Thanks for being here.