Good afternoon, everybody. Thank you so much for joining us for this session with Rivian as part of Deutsche Bank's Global Automotive Conference. My name is Emmanuel Rosner, I'm the Lead U.S. Autos and Auto Tech analyst here at Deutsche Bank. Extremely pleased to be joined by Claire McDonough, who is the CFO of Rivian today, for a fireside chat discussion on some of my prepared questions, also we'll leave some room for questions from all of you in the room. As you probably all know, Rivian is an electric vehicle manufacturer. It specializes in light truck and commercial vehicle production, software, and service solutions for retail, as well as fleet customers.
The company is aiming to produce about 50,000 units this year, targets positive gross margin for 2024, and we're certainly, you know, looking to chat through all this. Welcome again, and thanks for being here.
Well, thanks for having us.
One more thing. If you haven't driven it yet, we have a couple of very sharp-looking Rivian SUVs in front of the lobby on the street there. Just sign up, you can add it to your meeting list. I know we have a few reservation holders not sitting right in front of us who would love to actually drive it all the way home. Let's start maybe as an update to current condition and how things are going, you know, I guess for Rivian. Can you provide an update on the supply chain conditions you're navigating? Are you still seeing bottlenecks? Is this improving sequentially? At this point, I guess what would be the main impediment to full rate, you know, production?
As we sit here today, we've seen a material improvement in the broader supply base and supply chain and as we look at the broader backdrop. For us, as we've talked about as part of our Q1 earnings call, the key impediment has been access to power semiconductors. The introduction and ramp of our in-house Enduro drive unit is a key enabler for us to really mitigate some of those supply constraints that we've seen. The Enduro ramp continues to be, you know, slightly ahead of plan for us, which is great to see. We announced as part of our Q1 earnings call, the successful introduction of the Enduro drive unit and LFP battery pack into our EDV or our commercial van.
A couple of weeks ago, we built our very first saleable R1 that were configured with that Enduro drive unit. I've been driving an R1S with an Enduro the last handful of weeks and can say, you know, firsthand experience, that it's a phenomenal product. Expanded range. We now have, you know, 352 miles of range with our large pack and Enduro drive unit. We're really excited now to have the opportunity to have some of that Enduro production volume not just filling, you know, the EDV demand and volume as we ramp up production of EDVs, but also now alleviating many of the R1 roadblocks that we've experienced in the past from a supply base.
That's good to hear. I guess when you first guided to this, 50,000 unit production target for this year, were you already contemplating some, benefits in the production ramp from insourcing Enduro? You know, which is, you know, clearly alleviating some of, the issue with the supply base.
That was always contemplated in our overall guidance, so we knew that we were gonna take some downtime in Q1 with the EDV to introduce new technologies, and then we'd be ramping that up over the course of the year. As we talked about in the past, right, we see more of a material acceleration in R1 production in the back half of the year, as now we're allowing, you know, the introduction and production of Enduros into R1. We've seen just a handful or a sliver of that production in the Q2 timeframe, but that will be a key catalyst as we work into Q3 and Q4.
Okay. What are you seeing in terms of consumer demand and receptiveness to your current pricing? You're not disclosing backlog anymore. Can we get some sense of demand trends you're seeing recently? Any signs of consumer slowdown?
Overall, we continue to have a really robust backlog of preorders that extends into 2024. We certainly have seen, you know, some impacts of the broader macroeconomic environment in 2023 as we compare, you know, current daily order rates relative to what we saw maybe a year ago. We've seen really, you know, a stable environment throughout the course of this year from a demand vantage point.
That's encouraging. I guess in terms of the few things we get to monitor from the outside, it seems like the R1T pickup is now available for delivery in, like, 14 days or less. I think that's actually a selling point on, you know, on the website. While the R1S SUV new orders would be delivered in 2024. Do you have the flexibility to shift your production mix for one to the other to adjust for different demand patterns?
We have flexibility to shift the overall production mix between R1T and R1S. As you think about what we built, you know, to date as of Q1, from an R1 production vantage point, we built about 75% of our volume in R1T. That was the first vehicle that we brought to market, that was really, you know, the more efficient, you know, vehicle as we had had greater time to ramp and progress that variant. Now we're in a position whereby in Q2, it will be the Q1 in which R1S will be the majority of our production volume. We've seen, you know, significant progress in our ramp of R1S. As you look at the broader, you know, backdrop, about 70% of our pre-orders have been for R1S.
We want to make sure that we're in a position to really start to work through more of that R1S backlog and have our production replicate the demand that we've seen.
I guess it's in process, but is there any specific reason where, or any specific bottlenecks?
No specific bottlenecks. We've, you know, we've made continued progress to increase the penetration of our R1S mix, and today it's, you know, majority S that we're building overall.
Okay. Are you still working through the pre-March order vehicles? When should we expect these to be fully worked through?
We're still in the process of working through the backlog of pre-March 1st, 2022 pre-orders. What you'll continue to see over the course of this year and into next year is the feathering in of some, you know, new post-March 1st orders. Some of that's driven by the introduction of new technologies. For example, we didn't have the Enduro or dual motor available to consumers who were putting in reservations or putting in pre-orders in that pre-March 1st capacity. Today we have the opportunity to, you know, shape some of that demand, offer some of those, you know, variants to some of that pre-March 1st backlog.
We'll have some of those, you know, Enduros going to new customers, hopefully get, you know, get through some more of that backlog, faster by, you know, shifting some of that demand, into an Enduro or into some of the Max Packs that we'll also start to build.
Can you remind us the expected mix of EDV versus R1 this year? I believe into next year, you will shift more of your production mix to R1. Well, I guess let's just start with, yeah, the expected mix, and then I'll follow up.
Sure. In 2022, about 20% of our revenue was related to sales of the, you know, EDV and related software and services that we provide for Amazon. We expect that to generally be true as we think about the overall contribution mix for 2023 as a whole. Next year, we'll be taking a couple of weeks of downtime within our plant to introduce a number of key next-generation technologies into the R1 platform.
That includes the introduction of our next-generation network architecture that changes from really a domain-based set of control to a zonal control architecture, simplifies our wire harness, reduces complexity of manufacturing, and is a key enabler for really what's coming next as we think about the advancement of our new technologies. We'll also be introducing our, you know, LFP battery pack, which is our standard pack, into the, you know, R1 vehicles. That provides a really nice, you know, $73,000 entry point for R1T customers into the R1 platform as a whole. And then we have some additional changes to our, you know, battery pack that will be coming for high-nickel batteries as well.
We're really excited about a lot of these key technologies that will drive material cost savings within the business, and so we're taking some downtime to introduce those technologies. While we're taking that downtime, we'll also expand the installed capacity of that R1 line from 65,000 units to 85,000 units overall. So we'll serve sort of dual purposes in that 2024 timeframe.
The capacity for EDV stays the same, and then the R1 grows in 2024?
We're still keeping the Normal Plant at the 150,000 units of installed capacity. EDV will go from, you know, 85 to 65.
Okay. I guess my question is, you know, how are your deliveries to Amazon going? To the extent you have these very large, multiyear contracts with them for a lot of vehicles, why not produce more sooner?
We're really excited about the continued deployment of the fleet of EDVs. I saw some of my first out in the wild in my own neighborhood, so all my kids came out, and we swarmed the Amazon delivery driver last Saturday, who was delivering packages, to interview her, get her feedback on her own experience of driving the EDV. You know, I would say the universal feedback that we get from Amazon drivers has been fantastic, right? They love the fact that we've really brought to market a purpose-built vehicle that thinks about and contemplates, you know, their work patterns, the way that they ingress and egress in and out of the vehicle.
How the software, between, you know, Amazon's back-end software systems and Rivian's are so interconnected that it makes, you know, their life, you know, better, easier as they think about the efficiency of their own operations. In this sort of couple of minutes with the Amazon driver, she was raving about, we have cooled seats in the vehicles as well. It was a, you know, hot Saturday, she was really excited about having, you know, that sort of deluxe, you know, feature set that was making her life and her experience as an Amazon driver, you know, that much better as well. As we think about the overall deployment, this year, we took the call of introducing key technologies that materially reduce our bill of materials and the vehicle.
Through the introduction of our LFP pack and Enduro drive unit in Q1, we were able to reduce our material costs by 25% in that time frame. Now we're in the, you know, process of ramping back up that production overall, and have been working with Amazon on the deployment of, you know, thousands of vehicles across 500 different sites in the US. The installation of these vehicles is not just the delivery of the vehicles, but Amazon is also working on building out a charging infrastructure to support the utilization of that EDV fleet as well. It does take some time as they, you know, build out the infrastructure to ingest more and more vans within the fleet.
I guess, conceptually, my question around, you have a very large order from Amazon, it seems like going into next year, you're essentially allocating less of your capacity, you know, towards it. Is it because of differences in profitability profile?
I would say that the installed capacity that we'd always contemplated for the vans, contemplated more customers than Amazon. As you think about, right, what would it take to fill that 65,000 units of commercial van capacity, it's continuing to build out, right, a broader, you know, commercial pipeline of customers. It's clearly, you know, Amazon with that as that flagship customer for us, but building out sort of more of a long tail of potential commercial customers, to fill the capacity.
Understood. As we look to 2024, you spoke about some planned, you know, rerate of, you know, the plants, you know, happening for R1 in the first half of the year. When will the plant be ready to produce at the full 150,000 run rate?
The way I would characterize it is as we look out to the back end of 2024, We'll talk about it sort of first on R1 volumes, and then we'll spend a little bit of time on the commercial van side. On R1s, we'll have the opportunity to have taken some of that downtime, ramped back up, and be able to produce at the 85,000 units of installed capacity that we'll have. Then, as I mentioned, all of the historical, you know, guidance or comments that we provided around, you know, Rivian's financials through 2025 have historically just contemplated, you know, Amazon as that sole commercial customer.
From a production and operational efficiency perspective, we only plan to run, right, that EDV on a single shift operation. Think of that as, you know, really half of that 65,000 units of installed capacity, that we'll be driving towards as we think about continued ramp-up of the broader EDV portfolio for Amazon.
Okay. Half to start with until you sign new customers that would justify it. Okay. Are you actively working on these extra customers, or at this point, you're focused on the existing ones?
We're focused on Amazon right now, but certainly see a lot of interest and demand as we think about the long tail of commercial customers.
Understood. Let's talk about your margins a little bit. In Q1, you made substantial changes to EDV that seemed to have helped with your bill of materials, specifically with this in-house Enduro. Can you elaborate on the changes made and what we can expect in terms of cost savings and other benefits through the rest of the year?
Sure. In Q1, we saw about a 17% improvement relative to Q4, in terms of gross profit per delivered vehicle, excluding the impacts of our LCNRV or lower cost or net realizable value. We were able to deliver that 17% improvement despite the fact that we produced and delivered, you know, fewer vehicles in that time frame as a whole. We were able to do it because of the benefits that we saw in, you know, reductions in material costs from the introduction of LFP and Enduro. As we thought about some of the freight benefits that we received in that Q1 time frame relative to Q4 as well, we've seen, you know, moderation in the broader freight backdrop.
As supply chains have gotten better, freight costs have also improved, and so we saw some of those benefits as well. Beyond that, we saw increases in our average selling prices. A lot of that was driven by more significant mix shift to R1S in Q1. As I mentioned, we're sort of not quite at majority R1S, but starting to get there within the business. That was another catalyst and driver for us. As we look to Q2 and beyond, the benefit of Q2 is now you're ramping up that EDV volume. As you think about the contribution of a, you know, higher-margin vehicle for us with all of the new technologies in EDV, that will create added benefit in Q2.
We'll also, you know, be in a position to start to realize more and more of some of the commercial cost negotiations that we've been going through with the supply base as well, that will continue to improve throughout the course of the year. Then as we look more towards the back end of the year, we start to get some of the benefits of Enduro introduction into the R1 vehicles. We'll also start to see some ASP increases as we introduce, you know, Max Pack towards the end of the year as well, and as we ramp up production now that Enduro is sort of, you know, unlocking our ability to really lean into the installed capacity that we have today for the R1 vehicles.
Can you update us on the input cost inflation and or deflation that you're observing and impact on your bill of materials? With lithium pricing coming down, are you typically on long-term supply contracts, or should we think about the impact on margin positively in the near term?
We'll start to see improvements in our overall sale prices towards the end of this year. There is a bit of a lag effect related to how quickly we'll realize some of those cost benefits or savings. Those will be, you know, significant savings for us as we've gone through this period of significant steel price inflation, and now we're seeing moderation in the backdrop.
It starts at the back end of this year and then gets significant as you move to next year?
Introduction of LFP batteries into the mix, Can you give us a sense on how and when this would be impacting profitability?
For us, the introduction of LFP will be commensurate with the shutdown that we'll have in the middle of next year.
Okay. What's your expected margin trajectory this year and heading into next year? What are the key pieces of the bridge to get you to positive territory, I guess, at some point next year?
There's three key levers for us. The first is volume, as we, you know, are able to have fixed cost absorption within our production facility and plant in Normal. The second is really related to the reductions in material costs, and that reduction in material cost is roughly evenly split between the opportunity for us to introduce new technologies in the vehicle, like our Enduro drive unit, our LFP battery pack, our next generation network architecture, as well as some of the supplier negotiations that we're undergoing, that drive the remaining, you know, 50% of those material cost reductions. The last remaining piece for us is really average selling price.
As we continue to progress through the course of this year and into next year, we'll continue to see increases in average selling price as we're selling through, you know, more of the post-March 1st preorders or selling into that backlog of customers. Also equally, adding in some higher ASP drivers, like our 400-mile range Max Pack variant as well.
In terms of the relative size of these buckets, are they relatively comparable?
Their relative size, bridging from Q1 of 2023 to Q4 of 2024, is about half is related to, you know, volume. Of the remaining half, they're roughly evenly split between material cost reduction and increases in average selling prices.
You were speaking about some cost efficiency opportunities and then some negotiations with suppliers. Can you discuss some of these opportunities, whether from the supplier base or internally?
If you take a step back and look at when Rivian set all of its, you know, material contracts, they were established, created back in 2018, 2019, when Rivian was a pre-production business. There was an embedded level of risk that that supply base took in engaging in, you know, the investments on their side to service, you know, Rivian and launch with us as a whole.
One of the keys is, as we've been in a position over the course of 2022 to ramp and demonstrate Rivian's ability to ramp, we've now turned the corner in our ability to showcase, right, the technology roadmap of what's coming, the carrot of, right, the R2 program that will be launched in 2026, in an effort to drive strategic alignment with the business so that these suppliers are now, right, reducing that sort of risk cost that was initially embedded within those contracts, to drive towards a more normalized pricing level for a player like Rivian.
Does this happen just mid-year or mid-contract, or is it sort of, you know, are there, like, specific, like, how do you go about changing the pricing or conditions in the middle of a production run?
There's lots of different strategies being deployed. In some cases, it's a true just commercial cost reduction on exactly what we're purchasing today. In other cases, we, you know, have explored, utilizing different parts to drive towards material cost reductions within the vehicles that we're building. In some cases, we've resourced to different suppliers as well. For us, it's an ongoing process, so the cost savings will be gradual over the course of 2023 and 2024, given the fact that in some cases, there are parts changes that are driving some of the lower pricing.
Let's focus on R2 now, since it's the exciting next vehicle. When are you planning on unveiling R2?
R2 will show to the world early 2024. I was down at our design studio last Friday, spending time with the team and the clays, and we're incredibly excited about the differentiation of the product. We get to see it and get excited about it every single day, but we're really excited to show it to, you know, the broader public as well.
What's your latest thinking in terms of pricing and market positioning?
From an overall, you know, price vantage point, we see this really targeting the meat of the broader, you know, mid-size SUV crossover market. Straddling sort of the broader ranges of, you know, $40,000-$60,000 dollar area in aggregate. That also creates a nice stretch for the brand as you see R1 with an average start, you know, selling price starting at $73,000. This lives right, you know, below that, as we think about the opportunity set available to Rivian. As we think about R2, right, R2 really leans on the brand and ethos of, you know, what R1 has started. R1 created this, you know, flagship vehicle that's phenomenal on-road, off-road. I've, you know, I've climbed boulders in R1, having never driven off-road before.
It is a confidence-inspiring vehicle. As you think about what is the translation to R2, right, it still maintains some of that, you know, adventure aesthetic, but it's also contemplating and thinking about how can we really focus on where we're investing in capabilities that allow us to maintain that more affordable price point, and therefore, a larger addressable market for the vehicles themselves. We're spending a lot of time in the studio on some of those, you know, key trade-offs today, but wanting to make sure it truly has some of that, you know, Rivian brand essence embedded in it as well.
In what ways will it be different from the R1 in terms of content, but also manufacturing process? Like, what lessons have you learned from R1 in order to get confidence you can manufacture and sell R2 profitably?
Right. First, one of the key differences is starting place with suppliers. We talked a little bit about, right, where we were in 2018, 2019, relative to the work that we've been, you know, been conducting over the course of the last two years to get that, those material costs, you know, down. Here we're starting from a very different position of negotiations as it pertains to, you know, the R2 platform and the size and scale that that platform will, you know, become over time for Rivian, not just in North America, but globally as well. For us, right, starting and establishing with that, you know, lower material cost is critically important.
One of the key areas of focus for us is how do we leverage the continued progress that we've made in some of our key technologies? Whether it's the Enduro drive unit, that becomes more of sort of the sister, you know, platform for R2, whether it's the network architecture, that will be leveraged as we think about the transition to R2, we have good visibility into the roadmap, that's bridging us to that lower cost base today, as we think about what's, you know, currently established in our R1, pipeline and portfolio as a whole. The other key, for us is really the, I would say, the sort of good interplay between our manufacturing engineering teams, our operations teams, and our product development teams, right?
That creates that healthy tension of, right, the best part is no part. The best weld is no weld. How do we create an environment that's challenging and pushing from a true first principles approach at designed efficiency for where R2 can be?
As we think about the EV landscape in 2026 and beyond, which is around the time frame you're starting R2 production, how are you envisioning the competitiveness of R2 vehicles in pricing and cost of goods sold? Where do you see? Well, I guess I'll, yeah, leave it as is. It feels like this could already be a fairly crowded field by then.
We think that as you look at this, sort of meat of the market, one of the things that's incredibly important is technology, right? In the premium end of the space, you can utilize, right, premiums, premium interiors to create sort of an experience for a customer. When you get down to these lower, you know, price levels, it's really, right, how you think about the brand positioning, how you think about the UI, UX experience for the customer, and how you think about the leverage and opportunity set that we have with all of these, you know, cross-platform investments that are leveraged over this new platform for us. That's where I think we'll continue to shine. We also, as you look at R1, have built a really unique design aesthetic as well, right?
They're very noticeable when you're, you know, driving down the road. I think the opportunity set we have as well is to continue to allow R2 to stand out, and really sort of lean on some of that success, that we've, you know, brought to market with R1.
Let's talk about software and services. That's been a big part of the Rivian story pretty much since the beginning. As you delivered your vehicles, can you talk about how that's progressing with your early customers and with Amazon? Where will you differentiate yourself, in the future on software and on service?
We really want to own the full end-to-end ownership experience for, you know, commercial customers and for consumers as well. What we started with was: How do we create a, you know, seamless transaction experience? If you go in online and you buy a Rivian, you can purchase, right, insurance, financing, trade in your vehicle in about six minutes. It is that convenient and fast. Some of the early investments that we've made is really ensuring that we had this integrated experience for our customers with services like, you know, financing and insurance. Over time, as you've seen, we're constantly updating our vehicles with over-the-air updates, we've added, you know, incremental drive modes and feature sets to the vehicles.
Over time, we'll have the opportunity to create, you know, features that can be, you know, bundled or paid features for, you know, consumers. Right now we're really excited about offering, you know, continuous value accretion for our Rivian owners that have seen the range of their vehicles increase over the lifespan of their ownership, and true enhancements to some of the, you know, new drive modes that we've offered as well.
On the commercial side, you already have revenue from that fleet management?
On the commercial side of the business, every EDV that we sell to Amazon, is connected to a FleetOS subscription. We're also excited about the opportunity for us to continue to leverage some of the investments that we've made in the fleet management capabilities for Amazon, right? That through a digital experience can be utilized for, right, your fleet or my fleet of one or two vehicles as well. There's a lot of synergy in some of the investment that we've been able to derive as we think about serving, you know, both of those end customers.
Ford and GM recently announced they will lean into the Tesla Supercharger network. Do you think this is something Rivian would contemplate doing in addition to or instead of the Rivian Adventure Network?
We're excited about the opportunity for more consumers to have access to a reliable charging infrastructure. As we sit here today, we're dedicated to the continued build-out of our Rivian Adventure Network, that is enabling and allowing many of our consumers to have access to, you know, a high-quality charging experience. Certainly open over the future to partnerships or approaches to work with others as we all want to help enable the acceleration of EV adoption.
What are your latest thoughts on AI and self-driving development? Is this something you still need to do and develop internally, or can you rely on partners?
We think as we look at the broader ADAS roadmap, we do think it's important as we see autonomy as a key driver of innovation in the broader mobility space as a whole. There's really two ends of the spectrum as you think about approach or path to ADAS development. There's, you know, more of a hardware-unconstrained world, as you think about the, you know, Waymos of the world. Then there's more of a hardware, you know, constrained view or a more camera-centric, you know, view of the world. We're really focused on y ou know, today we're a Level 2 ADAS platform, and our objective is to scale that up to, you know, Level 3, and to continue to build, like, our fleet, our data set, to improve over time.
Hopefully it can, you know, converge up to some of those higher levels. Really, the near-term focus is on, you know, Level 2, Level 3, safety and, you know, self-driving features.
Two final questions around capital allocation. You've guided to low $2 billion in CapEx each year through 2025. What's included in this CapEx by 2025? Like, by the end of year 25, will you have the 150,000 unit capacity in normal and 200,000 units in Georgia built and ready to produce, or would you need additional CapEx to complete Georgia and start production in 2026?
As you think about the CapEx spend, we'll have largely built the structure of Georgia in that 2025. As you think about sort of payment terms for the facilities portion, that will largely be behind us. We do have contracts with many of our equipment suppliers, so we have payment terms post-startup production. In the case of some of the equipment, in the facility itself, they'll be still, you know, being paid for throughout 2026.
What's your expected path and timing to break even free cash flow? With $11 billion cash in the bank at the end of the Q1 , do you expect having to raise additional capital before R2 production? If so, does it make sense to do so in the near term?
For us, we'll continue to be opportunistic as it pertains to building out a diverse, you know, portfolio of options for us to continue to fund the business. Over the course of the first, you know, half of this year, we did a, you know, $1.5 billion convert. We also raised, and upsized our ABL facility, which collectively added, $2.4 billion of incremental liquidity into the business. I think these are just examples of, you know, the continued funding from multiple different, you know, end markets, that we'll continue to look at as we drive to ensure we have a really strong balance sheet position, going into the ramp and start of R 2.
Helpful. Let me open it up to the room if there are any questions. I think we have a couple more. Anyone in the room? Over there on the right.
I'll just hit on that last question. I mean, you know, it's sometimes better to take money when you can, not when you need it, and you're burning cash, and the product is great, but it kind of seems like to me, you should just bite the bullet and raise equity forward, and it just seems like you're kind of playing with fire with the economy and all that's going on. I guess the question is just at what point do you kind of make that decision where you have to? Or are there other strings you can pull, like a partnership or something like that, where you can conserve some capital and perhaps maybe need to raise as much as what the market thinks?
Honestly, the product is great, but truly, I'm just saying this, I have, like, neighbors that are saying to me, like, they're questioning whether they would buy an R1S because, like, is the company going to be around? It shocks me that some people that are not involved in financial markets are even asking me that, you know, that they're hearing that. You know, at some point, you probably do want to put a stake out there and say, you're, you have enough capital, so.
Maintaining a strong balance sheet position is, you know, a key priority for us. As you've seen us throughout the course of our life cycle as a business, we've always sort of taken that approach of ensuring that we're, you know, pre-funding the business for, you know, for future growth and well ahead of the needs of the business. Our priority right now is ramping production and driving down costs so that we're starting to really, you know, reduce the level of cash burn within the business, so that we're stretching and extending the runway for capital and growth across the board.
Thanks.
Any final one? I think the message was crystal clear. Claire, thank you so much for being here, and thanks, everyone, for joining.
Thank you.
Appreciate it. Thank you.
Thank you.