All right. Welcome, everyone. We're about to kick off the second annual UBS Auto and Auto Tech Conference. Really pleased all of you can join us here today, in person and online. To kick the conference on, super excited to have with us Rivian. We have Founder and CEO RJ Scaringe with us, up on stage. Got a couple of their beautiful vehicles outside, so please take a look at those as well. RJ, thanks for joining us this morning.
Happy to be here.
Yeah. I guess just to, to kick things off, you know, the world seems as dynamic as ever. Whether it's, you know, policy or macro, and those two are obviously interrelated. Can you give us a sense for, you know, how you manage that volatility and uncertainty inside the company? And sort of really, what have you learned over the past year, and what has sort of changed to sort of help better prepare you for the future in this ever-changing world?
Yeah. I mean, we've, it's funny you ask this. We, we're joking internally. When we launched R1 in 2021, end of 2021, it was surrounded by, you know, of course, the pandemic. In the lead-up to that, we were trying to build a plant. It was our first time launching a product of this scale. The process of bringing up a supply chain, launching a manufacturing plant, and doing that in the context of COVID was just, you know, it was entirely unexpected and very difficult. We then launched an update to the R1 product, which we called Gen 2. As we were getting ready to do that, we had this massive supply chain crisis. Now we're getting ready to launch R2, our next product. We have a major trade challenge.
We were joking and saying every time we launch a product, it, it's sort of a precursor to some sort of big global disruption.
Quite a leading indicator. Yeah.
Yeah. I mean, I say that, but, you know, jokes aside, we've actually learned a lot as a company, having grown and scaled through some of these really big, challenging times. You know, learning to run a manufacturing facility where we couldn't have people working on-site, then trying to scale production with the supply chain crisis and semiconductor crisis that we experienced in 2022 and 2023. We've actually had a lot of robustness in our supply chain processes and our experience in running SWAT team-style daily stand-ups. What we've been doing now for the last many months, I guess I should say, is we have a daily meeting of senior leaders where we talk about what's changed in the last 24 hours and what that tactically means for us.
You know, never did I ever think that we'd be on a daily basis talking about supplier health, supplier situations in trade. It is extremely dynamic. The challenges we're making as a company, decisions, we typically make these decisions with time scales measured in 5-10 years. These big CapEx decisions or production location decisions, the frequency for which the environment changes and therefore the calculus changes on how you might make a decision is just, you know, it's new territory. One of our advantages, we are a really agile company, and we've built a lot of muscle around doing that. It's a very unique way of operating.
I guess just, you know, on that sort of, you know, day-to-day noise, obviously there's a couple of, you know, policy elements that I think the administration's looking at that can squarely impact your business, whether that's, you know, EV and emissions-related stuff here, obviously sort of trade. I guess just like bigger picture before we dive into some of those topics, like what is your view on the goals of the administration and how do you think sort of that can impact Rivian? And secondarily, like, what efforts are you or the company doing in D.C. or, you know, through other areas to sort of help, educate the administration about maybe some of these challenges or the negative repercussions of some of them?
Yeah. I mean, it's a great question. I think it is, we have to be responsive to what's happening real-time and be thoughtful around that. The important question and something we spend a lot of time thinking about, what are the things we can plan around? If we try to take the, you know, take all the signals up, down, left, right, and interpret that noise into a more steady-state signal, what are the things we can, you know, we can pull out of it? The first is, and this I'd say is true whether we're in a Republican-led environment or a Democratic-led environment, which is there's a focus on technology being in the U.S. and manufacturing being in the U.S. . That's clearly a shift.
It is a shift in the U.S. , but I'd say it's also just a global change. We see a lot of large economies shifting to want to create more jobs, create more technology, or create more manufacturing in their home environment. That, fortunately, actually aligns really well with our overall strategy. We're a U.S. Company. We have, you know, well in excess of 15,000 employees here in the U.S. produce our vehicles in the U.S . We're incredibly vertically integrated on our technology and on what we build here. We're actually very aligned with the administration in terms of the administration's objectives. Our next plant beyond what we have in our initial facility in Illinois is in Georgia. It's helpful that that's an important swing state.
We're politically in perhaps one of the best states one could hope for. It's a great state for doing business. I have a great relationship with the governor, you know, and it's a great place to be scaling the next level of volume for us as a business. I think above and beyond all that is looking at what's happening from a customer point of view. Customers want products that are really exciting. They're gonna want products that hit a value proposition that's unique and compelling. Our job is to work through all the noise, all the complexities to deliver on that. I couldn't be more excited about what's coming with our next generation of products with this R2.
We have a follow-on product that we call R3, both a small SUV and then a small crossover. They are exceptional. I think the opportunity they have in terms of expanding volume for us as a business is really exciting.
We were talking a little bit earlier about, you know, some of the, maybe near-term challenges that have come up, whether it's, you know, rare earths or additional, you know, steel tariffs. Like, you know, I think you were mentioning earlier, like some of this stuff is just difficult to sort of get around in the near term. I guess what kind of role are you trying to sort of play in educating, you know, policy here?
Yeah. Yeah. I mean, we, along with a number of other car companies and folks we have great relationships with, we have a huge partnership with Volkswagen Group. They're an investor. And we have a large, we have a $5.8 billion software licensing deal that we did as part of a joint venture with them. It's been helpful to have them as a thought partner here. The time we're spending in D.C. is really focusing on helping the administration understand the nature of more, like, very complex supply chains.
I think often, you know, when we think about these things and they get written up in media and their headlines, it's as if we're talking about an economy that is buying, selling or trading coffee cups and T-shirts, like these really simple products and simple supply chains where it's, you know, low CapEx and relatively straightforward to move production around. On something like a car, we have hundreds of suppliers who in turn have thousands of suppliers who in turn have tens of thousands of suppliers who in turn have hundreds of thousands of suppliers. The ripple of these changes in policies is very, very hard for these systems to adapt to immediately. You know, what a good way to think about this is, just practically go through that change. Imagine how we react when tariffs increase.
Of course, my job and the job of our procurement team is to go to all of our suppliers and fight like hell to say, "Well, yes, we understand tariffs have gone up, but we negotiated a price that protected us against those tariffs." To hold to that, to say, "Look, yes, your costs have gone up, but we have a fixed price that regardless of what happens with trade, it was, that's how we negotiated it." Maybe in a few cases we will bend on it, but generally we push really hard to maintain the pricing that we negotiate with suppliers. Of course, they do not like it, but they then turn around and do the exact same thing to their Tier 2s.
They go to their Tier 2s and say, "Look, we were sourcing this for you. This is what we're gonna do. We can make a 5% adjustment, but you're gonna have to eat a lot of this. You're gonna have to find ways to drive efficiency in your business." They push it to their Tier 2s. Tier 2s do not like it, but they say, "Okay. Fine. We're gonna have to deal with this." Tier 2s turn around, they go to their Tier 3s and they do the exact same thing. In the end, it gets to a very large number of very small companies, like companies that, you know, these are, often, you know, sub $50 million a year companies. They're the Tier 3, Tier 4 suppliers to the end of the supply chain.
They do not have the financial capacity to absorb it, but they are the last in the line. I think this is not appreciated, of how the dynamics of these changes get rolled out and what they do to a very large number of businesses across the U.S . I think the messaging we are providing, along with a lot of other manufacturers, along with a lot of manufacturing associations that represent these small businesses across the U.S., are starting to recognize that this is a dynamic that is going to hurt. If we have these rapid changes and do not have ways to ramp into them, it is going to hurt them. It can be little things like, I talk about, like we buy a taillight from a taillight supplier. It is a U.S.-sourced part. It is 100% U.S.-sourced.
That taillight has components they buy from Tier 2s. Those Tier 2s buy from Tier 3s. Like you move down to a Tier 5, they're providing plastic pellets that go into making a, you know, a plastic part that goes inside a plastic assembly. That pellet supplier buys an additive that gets processed in China, and that represents 20% of their cost. That company can't exist if their cost structure goes up by 150%. That's just, again, it's my point of like the economy's not running on, you know, it's not, we're not dealing with making T-shirts and coffee cups. It's much more complex, much more nuanced, and much more layered.
Recognizing that there is a desire to shift a lot of things to the U.S. , there are certain things that we do not have as a country, either the capability or the desire to house. A good one here to think about, which is maybe the most complex because it is not even cost, is rare earth metals. When I say it is not even cost, it is a question of can we get those because China is taking a, as the relationships have become increasingly antagonistic, it got to a point where China put in place export controls around ultra, or heavier earth metals. You know, like a quick Google search would tell you, heavier earths are not that rare, and you can find them in lots of places.
The follow-up Google search should be, well, where do they get processed? Almost all of the processing of these rare earth metals is in China. You know, take like dysprosium, which is used in a lot of, you know, power dense applications like motors. We're not gonna build a dysprosium processing infrastructure in the U.S. , and if we do, it will take a lot of time, and it would take significant changes to our regulatory environment in terms of allowing those types of facilities to exist here. These are like these big ripples that we need to contemplate. We've spent a lot of time on these topics, and I'd say the administration's been really receptive. You've seen how they've responded and moved, you know, changed tone on certain topics.
It is a, you know, 24-hour-a-day full-court press. We have a giant team on this. This is, this is.
Probably bigger than you thought a couple of years ago.
Yeah. This is in the category of hard work.
Let's move on a little bit to, I do wanna get to the R2 and some of the exciting stuff you're working on in the future. But just in the very, you know, near term, you know, one of the things you talked about on one of the past earnings calls is, you know, maybe a little bit more hesitance, on the consumer's front to sort of buy bigger ticket items. You do have the overhang here of potentially sort of a consumer EV credit going away or at least from a, at least in perspective.
You know, I just wanna, I wanna understand how you're sort of thinking about or what you're seeing right now on demand in, in real time, and then what you think that could mean, you know, for demand over the balance of the year.
Yeah.
Is there even a potential, maybe you get some pull forward, people taking advantage of a credit that might expire?
Yeah.
What does that mean for, for 2026?
I mean, it's been, as chaotic as it seemed in the macro, we see it show up also on the demand side. We'll have a lot of volatility around how consumers are behaving based upon, you said it, but what's gonna happen with consumer-facing credits, perspective on what's gonna happen with interest rate, perspective of what's gonna happen with overall health of the economy. You know, and today we have our flagship products, so it's our R1, which is the R1S and the R1T. It's a sibling set of products, an SUV and a truck. They're high priced. So it's a ASP. You can see in our financials, it's about $90,000 ASP, but it's very popular. The R1S is the best-selling electric SUV over $70,000 by a pretty significant degree.
Of course, it depends on when you're looking and which month, but call it 35% market share, which is remarkable. The 35% market share is of a relatively narrow TAM because of the price point. Our hope is that we can continue to maintain that market leadership in R1, but importantly, translate the leadership that we have on R1, even a fraction of that, I should say, into the R2 products. The R2 price point starts at $45,000. You know, the average price of a new car in the U.S. is around $49,000. R2 is like right bullseye in the, you know, meat of the market. You know, for us, that represents the really significant scaling potential for the company.
The guidance we've had on R1 is really just trying to reflect what's happening to the size of this premium market. You know, is it gonna be a little bit more compressed as folks, instead of buying a $90,000 car, might buy a $50,000 or $60,000 car, or hold off on a purchase entirely until there's a little bit more stability in the system. Importantly, and I, you know, I'm sure this has been talked about in the conference today, overall volume has not dropped. The auto industry in terms of volume is doing well. It's just the mix shift has moved into less of these premium vehicles and more into the, call it $45,000-$55,000 vehicles.
I do wanna touch on the R2, but I guess just maybe one more point on the guidance that you've given for this year and as it relates to some of the, you know, potential policy. You did guide to about $300 million in the regulatory credits this year. Can you just sort of talk about what are some of the assumptions that were baked into that? Because, you know, you saw the,
Yeah. We have.
Senate passed the Congressional Review Act. You know, there's at least the, seems like, high potential that, you know, car loses their ability to regulate. Now maybe they challenge that. Who knows? I just wanna.
We'll definitely challenge it, but I, yeah, I look, we guided on that, as you said, we talked about $300 million. In that guidance, we contemplate a lot of what's happening. A lot of this has been, there's not a lot of surprises happening. The CA waiver getting pulled was expected. It's been talked about for a while. That was embedded in our guidance. These are things we expected. We, of course, would like it to not go away. It's, but we are where we are.
The credits that were sold in the first quarter and over the balance of the year are more on the federal.
Federal level.
Yeah.
California. I think it's important to note this is, so while the CARB credits are gonna go away and California's ability to require 100% electrification by 2035 is gonna go away, the federal credits, even if they're softened, have become on a per credit basis more valuable because the very rapid retraction from the incumbent OEMs away from electrification. What we're seeing is the OEMs are much more aggressively pursuing our credits. It's really interesting selling credits to other OEMs because you get a really clear picture as to how the other OEMs view electrification. Like at a working level, the teams are all talking.
You know, we, I would just say broadly, the significant pullback from OEMs and the refocus on their ICE business has made the credits environment more attractive for us, even despite the fact that you have some credit categories disappearing like EV ZEB credits for California.
That's a great segue into the R2 and the topic we were talking about earlier because, you know, at least from my perspective, it seems like one thing that has slightly changed, and I'm curious how you view this as a go-to-market strategy is, right, with the R2 coming in, you mentioned earlier, sort of hitting that sweet spot of the market and the price point. I think you could also have taken the view that it was launching into a U.S. market where everyone was going to have to try to sell more EVs and you had a more compelling EV offering.
If you do not have California, if EPA emissions are sort of, you know, not, not rolled back, but sort of maybe pushed out and there is not sort of as much of a need to sort of for some of the legacy automakers to, to move to EV, it seems to me like the R2 may actually be competing more against ICE vehicles than maybe we thought about, you know, when, when the, when the product was initially owned. I do not know if that is your view or not, but, but, I am, I am curious on your view. I guess if that is the case, then it seems like the, the additional challenge here is really to get, to convince someone to go electric.
Yeah. Right.
How do you think about that? How do you think about the go-to-market for R2 in that world?
Yeah. It's a great question and it's important to just recognize where we are in the state of electrification in the U.S . We're, relative to the other large economies, by far the slowest to electrify. If you look at us relative to China, we're a half of our magnitude behind them. Just in terms of numbers, about 8% of new cars sold in the U.S. today are electric. Roughly half of those are Tesla. The fact that that is the case, the fact that there's this extreme market share concentration with a single company on two products, the Model 3 and the Model Y, is reflective of an unhealthy lack of consumer choice, which is going to create, I think, this artificial ceiling on how much we can electrify.
Meaning there's only so many, the Model Y and Model 3, I'd say, are great products. They're very compelling, but there's only so many customers that want that form factor, that look, that design, that positioning. As you start to think about how do you get the other 92% of customers who aren't buying an EV into an EV, we need more choice. In the ICE world, at comparable price points, you have 300 different choices. I think it's like 310 right now. In the EV world, you have two good ones from one company. Otherwise, it's a really thin field. You know, by the way, that's a sharp contrast to what's happened in China where there's a lot more competition. In the U.S. , there's just a lack of competition.
I think first and foremost, we need to have choice. R2's, I think, obviously I'm biased, a highly compelling choice at a very similar price point to Model Y, but importantly, very different. If you think of like R1S relative to Model X, they're both seven-passenger SUVs, but they couldn't be more different in almost every way that they think about the decisioning across attributes and product features, application, tonality. Model X is a great car. It's just very, very different than an R1S. We have the same dynamic between a Model Y and an R2. We really believe, yes, sure, there's gonna be some cross-shop with Model Y, but more importantly, our hope is that we pull a lot of people out of ICE vehicles that haven't yet had a product that spoke to them.
Maybe they're buying a Toyota RAV4. Maybe they're buying a, you know, a Jeep Grand Cherokee, but they're in something that's, you know, a more functional SUV in terms of form factor, shape, loading configuration, what have you. We're seeing that. We see it manifest in just the excitement for the product. We have an R2 in our, in our meat space in Meatpacking. I was over there yesterday at a, like an invite customer event, and it was like the walls were bursting with people. There was so much excitement for the product. We see it translate to orders. We see it translate to a lot of emails that come in every day. I say all that, and I would have said the same thing a year ago.
What's changed between a year ago and today, though, is two things, which you called out. One is, the other vehicles that we as a company expected to see come have taken sort of a back burner in a lot of companies. The execution of a lot of those products has been not as strong as what I thought it would be. The tailwinds that were going to exist in terms of policy driving the continued investment in those products has disappeared. I think in some ways, it's a good thing for Rivian, but I think it's a bad thing for the country and it's a bad thing for the world. I think of the tailwinds like my kids and wanting a better world for them.
I think it's unfortunate that there's going to be less competition, and therefore a slower rate of adoption of EVs in the U.S . I think for Rivian, if you're a shareholder of Rivian, there's no denying it. It's a good thing. I think it's also probably a good thing for Tesla. I wish we had more competition. I wish it was a more healthy ecosystem driving us from 8% to 50% over the next 5 to 10 years. I do think we're gonna have a slower rate of adoption because of an underinvestment that's gonna happen in the space.
You mentioned R2 orders. I know you gave an update right after the initial R2 launch. Is there any update on traction there as that sort of continued to progress upwards?
It's been, there's been a lot of excitement, I think. The brand has just translated so well. We, you know, we thought a lot about like the position of the company, the brand, and what we'd hope to achieve. I remember, it feels like it was yesterday, in like 2017, we would have these brand discussions and product positioning discussions. A lot of them would end with some version of, if we do things really well, imagine if there's these groups of Rivian customers that get together, and self-formulate and talk about the product and they're online in chat groups talking about it. Fast forward to today, for the last two years in a row, brand's been by far the number one rated brand in terms of brand satisfaction on consumer reports. We have one of the most active user bases.
You see it, you know, on the Reddit, you know, forum, you see it. We have Rivian, Rivian owner groups, which are just incredible, and so the level of anticipation around the brand to now have something that's much more accessible and therefore much broader aperture has been awesome for us as we think about the launch.
Yeah. Just two more big, there's a lot more to talk about. There's two more, two more main things I wanna make sure we touch on. The first is cost. So, you know, you've highlighted some of the costs out as you move from R1 Gen 1 to R1 Gen 2. I think about 20% or so, or order of magnitude is sort of what you've indicated. Curious, like if you think there's even more that can be done there or,
On R1?
On R1, does it get harder from here to sort of take that cost out or what are really the levers on R1? And then, you know, moving from R1, let's say Gen 2 down to R2, obviously different vehicle, you know, maybe not as premium or, as you mentioned, sort of flagship. But, you know, I think there's some investor concern or doubt, or skepticism, I should say, out there about the ability to sort of take cost down with a lower price vehicle and still make it profitable. So just maybe if you could talk a little bit about the path on both those.
Yes. You said it's a, the Gen 1 vehicle with R1, which we launched in 2021. That vehicle was, you know, when you think about it, that was sourced in 2018 and 2019. We went out and built all the supplier relationships, signed the supplier contracts for the content that ultimately went to the vehicle at a time when the auto industry was near peak and at a time where Rivian as a company was very unknown and very unproven in terms of our ability to, you know, fully execute the products and launch the product and then have demand for the product. When we did that, we had to pay a premium on every part and we had to swallow it. We didn't know, you know, sort of how to, how to, we had no other way to do it.
We had, we needed tires, we needed windshields, we needed headlights, we needed all the parts. We took this premium price on all of our content with the expectation that we'd be able to lower that with launch and with demonstrated success. Fast forward to launch, of course, that was now in the middle of COVID. As we started to round the corner in COVID, we had this major supply chain interruption. Rather than being able to negotiate price out as we expected, we were met with suppliers that wanted us to pay a further premium on top of that just to get components. Our lack of scale across a portfolio meant that we were, in some ways, like last to get volume allocation.
For those that have been following the company for a while, you all saw this, we were like scrapping for every vehicle we could build with, you know, lots of missing parts. It was a very, like, I could not imagine a more painful ramp process than what we went through in 2020, 2022 and 2023. Anyways, that led us to deciding to resource a lot of the vehicle. We resourced about, you know, well in excess of 50% of the bill of materials. As you said, that took around 20% out of our material cost, out of our BOM cost. We did that resourcing activity, you know, what we launched last year. Of course, the sourcing did not happen last year. The sourcing decisions and negotiations happened in 2022 and 2023. We were doing that in the middle of the supply chain crisis.
While our leverage was demonstrably higher than what it was in what we did in 2018, 2019, it was still not at the level that would allow us to get truly what I would say like world-class pricing. Fast forward to R2. R2 was mostly sourced in 2024. You know, the vast majority was completed then, and our leverage then was much, much higher. We had a product that was the market share leader in its category. The brand had resonated extremely well. It's really helpful that a lot of the CEOs, a lot of the suppliers drive Rivian's. So there's just an overall excitement around the brand, the product.
We signed a very large joint venture with Volkswagen, which put us from a technical point of view in the decision seat on making a lot of the core decisions around electrical architecture, not just for our products, but across the whole Volkswagen portfolio. Suddenly, you know, negotiating on, let's say, electronic components, we not only became an important customer because of the Rivian portfolio, we became an extremely important customer because we represented a broader set of volume across this Volkswagen family of products. The supplier leverage that we have now is like night and day. I'll give an anecdotal ex sort of way to think about this.
Sourcing R1 initially in 2018, 2019, like the way that worked is like I would have to go to Detroit for the suppliers that are based in Detroit, go to a, you know, go to the supplier, sit in the lobby, have the meeting start 10 minutes late, go meet with the director at most of, of whatever that function was, you know, following the director likely telling us some version of this probably won't work, but, you know, we're gonna help you out here. That kind of a meeting to then when we resourced, meeting with VPs, often the VPs coming to meet with us, to now as we sourced R2, the CEOs of the companies, those same exact companies are flying to meet me wherever we are. It is just a completely different environment.
A big part of the cost save is through these supplier negotiations and leverage. That is not insignificant. I mean, we're talking, you know, significant double-digit percentage reduction in cost structure. In parallel to that, we've just optimized the design in ways that our engineering organization has matured and grown a lot relative to what we did in R1. It's every area of the vehicle, it's the big things and the small things, you know, less fasteners, more part consolidation, lots of part elimination. If you want to see a good example of it, of the little hidden details that you do not even notice, you can Google this. Just look at the rear door on an R1S versus the rear door on an R2.
On an R1S, there's a div bar, there's a fixed piece of glass, there's a belt molding, and trim molding. On an R2, it's a single piece of glass. We package it all. It does a full drop with a single piece of glass. There's no belt molding, there's no div bar, there's no fixed glass. You know, as a customer, you look at, you don't even notice this. Maybe it looks a little sleeker 'cause there's less parts on the R2. We took like half the content out of just the door. That mindset has flowed through every single part of the whole vehicle. What we've said is the R2 material cost is about half the material cost of the Gen 2 R1, which is the improved R1.
The non-bill of material cost, so that's all of the assembly costs or plant logistics, you know, it's well under half of what it is in R1.
Okay. I wanna, you know, for the last topic, close with, you know, ADAS, autonomy, and AI. And I, I guess maybe those all sort of build on. So, you know, you have sort of the level two, level two plus features on, on the vehicles now. I mean, I'm wondering if there's any, any data or insights you could share from your fleet today, sort of how that's being used, you know, what, what the, what the reception to it is. You're talking about, you know, more like level three type features, you know, hands off, eyes on, I believe next year, sort of what that entails. And then, you know,
Hands off, eyes off.
I'm sorry.
Hands off, eyes off.
I misspoke there. And then, you know, I just, I guess broadly how you see that technology progressing for Rivian vehicles and whether you think this can be a differentiating feature or what else can, or what else can come of the data being used and collected from that. And then maybe just, you know, I know you have the, you said, you mentioned there'll be an AI day later this fall. I'm assuming some of this will be spoken about, but sort of maybe a little bit of a sneak peek as to sort of what you, what investors can come to expect, as sort of topics for you to address there.
Yeah. I mean, the first thing just to recognize is we've had, in the world of autonomy, a mega shift in how we approach these systems, as an industry. This is not unique to Rivian, but the way that autonomy was developed prior to 2021, maybe early 2022, was these were very rules-based systems. You'd have a perception stack that would identify objects, classify those objects, and associate vectors with those objects. All those object identifications plus vectors would be then handed into a planner. This planner would be something that would be a rules-based environment that would be written by software developers to say, "These are the rules of the road.
This is how the world works." That planner would then make a whole series of decisions and projections around the trajectories of those different things in the environment. Then, of course, have corresponding, intended reactions for the vehicle relative to all those objects in the system. A lot of work went into building these planning platforms. You know, what you often maybe hear this called is this was a late fusion process. You'd be taking all this information and then you'd be fusing it late in the planner. None of that carries over into what I would, what you may hear called, what we would call AV 2.0, which is where, different than having the information taken from cameras moved linearly into these planners.
We now have all the information is taken in very early on, is fused into a global view of the world and fed into the buildout of a large perimeter foundation model. That large perimeter model is trained, you know, the catchy way that this has been called is end to end. You train it by looking at vehicle drivers, how they behave in these environments across all these different things, and you're building this neural net understanding of the world. All the image processing, the image encoding is done with transformers. Obviously, the transformer allows it to be ingested into the foundation model or into the neural net. You have a completely different way of building the system. You no longer have programmers that are building rules-based environments.
The reason it's important to recognize it's an entirely different topology, it's a complete, you know, melt and repour in terms of what you would have in terms of technology stack, is that in order to be successful in the long term, our view, there's no possible way, and this is true in autonomy, this is also true for language, this is true for, I think, almost anything. There's no way for a rules-based programmed environment to beat a neural net if the neural net has a robust and well-defined data flywheel. Really, when you think about autonomy, the question is, what is the data architecture? What's the data flywheel? What's the training mechanism? For us, we redesigned our Gen 2 vehicle contemplating this.
In order to do a robust AI-centric end to end approach on training an AI, an autonomy platform, first and foremost, you need to have complete control of your perception stack, meaning, you cannot train an AI model with a perception stack that has a bunch of abstraction layers of third parties. You cannot have cameras that modify information or in any way interpret information or process it and feed it into the system because it completely corrupts the ability to do this, where you would be building a model. First and foremost, owned perception stack. Second, you would have a really capable compute platform, inference platform in vehicle that is capable of in real time running a distilled version of your large model to make decisions around how the vehicle should behave in this environment.
Number three is the vehicle architecture needs to have a really robust way to collect, segment, sequence, and choose which data gets saved, and then a way to move that data off the vehicle and to do it at scale. In order to do it at scale, what I mean is do it in a cost-effective way. The vehicle architecture should have, of course, a Wi-Fi platform, and then the Wi-Fi platform should have a high level of engagement. You need a way to encourage all customers to be on Wi-Fi. When they come home or park their car in the garage, for close to free, you are moving a lot of information off the vehicle into the cloud. Once the information is off the vehicle, you need a way to train a model.
Of course, the foundation has you need a lot of GPUs, but those GPUs need to be designed. You need to have a team that's capable of running all the experiments. You need the right team, you know, you need the right science team, the right research team. We have been building this for the last couple of years. Core to this type of an architecture is you need data. You need the car park to be big enough. When we launched our Gen 2 vehicle, the features that were in it were built on a really small fleet that was our own fleet. What you are now about to see is, as the fleet's grown, a lot more rapid progression of feature set. Of course, that leads into R2.
What we're planning to go through in our AI day is to just pull the curtain back. You know, this is one of our largest spend categories as a business. It's something that we, you know, it's the classic if you're building a big project, it's like it's a housing project. You have to do all the plumbing, all the foundation work, all these things you don't really see. Then suddenly, it seems like overnight the house is built. We've got a large team on this. It's one of our biggest teams in the company. Huge investment category for us is, from a percentage of our R&D. AI day sort of coincides with when these features will start to manifest from customer-facing features.
You'll start to see the vehicle get better and better on our Gen 2 fleet. It'll make another step forward with our R2 platform. We wanna show how we're gonna, like, show how this is happening. Everything from reviewing our hardware stack, what we've vertically integrated, how our data flywheel has been architected, what our foundation model architecture looks like, what our approach to GPU, GPUs has been, how we're building a large enough cluster to do all this training. That will be, of course, included with a demo, which would have to be part of the process. You actually get to see this manifest into a feature.
Great. We'll look forward to that. We are out of time, RJ. Thanks for joining us this morning. Really appreciate your time.
Yeah. Thanks so much.