Rivian's Q2 2024 Earnings Call

[00:00:00] [SPEAKER_00]: Good afternoon and thank you for joining us for Rivian's second quarter 2024 earnings call.

[00:00:05] [SPEAKER_00]: Before we begin, matters discussed on this call, including comments and responses to questions,

[00:00:11] [SPEAKER_00]: reflect management's views as of today. We will also be making statements related to our business,

[00:00:16] [SPEAKER_00]: operations, and financial performance that may be considered forward-looking statements

[00:00:20] [SPEAKER_00]: under federal securities laws. Such statements involve risks and uncertainties that could cause

[00:00:26] [SPEAKER_00]: actual results to differ materially. These risks and uncertainties are described in our SEC filings

[00:00:33] [SPEAKER_00]: and today's shareholder letter. During this call, we will discuss both GAAP and non-GAAP financial

[00:00:38] [SPEAKER_04]: measures. Hello everyone and welcome to Kilowatt, a podcast about electric vehicles, renewable

[00:00:59] [SPEAKER_04]: energy, autonomous driving, and much, much more. My name is Bodhi and I am your host and on

[00:01:03] [SPEAKER_04]: this episode, we're going to talk about Rivian's Q2 2024 earnings call. Normally,

[00:01:09] [SPEAKER_04]: we would start off with RJ Scorringe, founder and CEO. We're going to start off with his opening

[00:01:15] [SPEAKER_04]: remarks but honestly, RJ said nothing of consequence in his opening remarks. So,

[00:01:21] [SPEAKER_04]: we're going to move on to CFO Claire McDonough because she actually said some things that I

[00:01:26] [SPEAKER_04]: thought were useful. So, let's go ahead and jump into Claire's opening remarks.

[00:01:31] [SPEAKER_01]: During the second quarter, we produced 9,612 vehicles and delivered 13,790 vehicles,

[00:01:40] [SPEAKER_01]: which represented the primary driver of the $1.2 billion of revenue we generated.

[00:01:46] [SPEAKER_01]: As expected, second quarter production was impacted by plant downtime associated with

[00:01:51] [SPEAKER_01]: the retooling upgrades. Our deliveries were strong as we sold through the majority of

[00:01:57] [SPEAKER_01]: our first generation R1. Due to strong Q2 performance, which led to our lower starting

[00:02:03] [SPEAKER_01]: finished goods inventory balance and the continued ramp of production throughout the

[00:02:08] [SPEAKER_01]: third quarter, we expect our third quarter deliveries to be below our second quarter

[00:02:12] [SPEAKER_01]: results and production volumes to be in line with our first quarter level.

[00:02:17] [SPEAKER_01]: Total gross profit was negative $451 million. Our gross profit loss per vehicle delivered

[00:02:24] [SPEAKER_01]: was approximately $33,000, which includes approximately $15,000 of depreciation and

[00:02:31] [SPEAKER_01]: amortization expense and $1,200 of stock-based compensation expense. In addition, we incurred

[00:02:38] [SPEAKER_01]: approximately $2,400 per vehicle delivered in the quarter related to our cost of revenue

[00:02:44] [SPEAKER_01]: efficiency initiative, which we do not anticipate being part of our long-term

[00:02:49] [SPEAKER_01]: normalized cost structure. We expect to see significant cost reductions in our R1 platform

[00:02:55] [SPEAKER_01]: during the second half of 2024 as we ramp the production and deliveries of our second

[00:03:00] [SPEAKER_01]: generation R1 vehicles. Additionally, the reduction in our LCNRV write down for the

[00:03:07] [SPEAKER_01]: quarter compared to Q1 2024 reflects the progress we're making in association with

[00:03:13] [SPEAKER_01]: material cost reduction and operational efficiencies associated with our second

[00:03:17] [SPEAKER_01]: generation R1 vehicles. We remain confident in our path to deliver modest positive gross profit

[00:03:23] [SPEAKER_01]: in the fourth quarter of 2024 and for the full year of 2025. Importantly, our team is

[00:03:30] [SPEAKER_01]: already focused on driving incremental costs out of our R1 platform to help achieve our long-term

[00:03:39] [SPEAKER_01]: R1 profitability. The key drivers of our long-term R1 profitability include reducing material costs,

[00:03:46] [SPEAKER_01]: leveraging our fixed costs and scaling our revenues per delivered unit through product

[00:03:50] [SPEAKER_01]: mix and pricing, software and services and other revenues. During the second quarter,

[00:03:57] [SPEAKER_01]: we also announced the intention to form an equally controlled and owned joint venture with

[00:04:02] [SPEAKER_01]: Volkswagen Group to create next generation electrical architecture and best-in-class

[00:04:08] [SPEAKER_01]: software technology. In association with this deal, Volkswagen Group have made an initial

[00:04:14] [SPEAKER_01]: investment of $1 billion in Torivians with up to $4 billion in planned additional investments

[00:04:19] [SPEAKER_01]: for a total deal size of $5 billion. The incremental investments are subject to the

[00:04:25] [SPEAKER_01]: completion of definitive agreements, the achievement of certain milestones and the

[00:04:32] [SPEAKER_01]: all criteria are met, we expect that the full $5 billion is intended to flow to the benefit of

[00:04:38] [SPEAKER_01]: Rivian. In addition to the $5 billion of capital to Rivian, we anticipate incremental benefits

[00:04:44] [SPEAKER_01]: through cost savings on materials, operating expense efficiencies and future revenue

[00:04:50] [SPEAKER_01]: opportunities associated with the joint venture. The initial and planned investments by Volkswagen

[00:04:55] [SPEAKER_01]: Group in addition to our cash equivalents and short-term investments are expected to

[00:05:01] [SPEAKER_01]: provide the capital to fund Rivian's operations through the ramp of R2 and normal as well as

[00:05:06] [SPEAKER_01]: the mid-size platform in Georgia, enabling a path to positive free cash flow and meaningful scale.

[00:05:13] [SPEAKER_01]: As RJ mentioned, we expect the deal to close in the fourth quarter of this year

[00:05:17] [SPEAKER_01]: and we will provide additional details at that time. During the second quarter,

[00:05:22] [SPEAKER_01]: we improved our cash flow from operations by 41% as compared to the first quarter of 2024.

[00:05:29] [SPEAKER_01]: This improvement is reflective of our continued focus on cost and greater working capital

[00:05:35] [SPEAKER_01]: efficiency across the business. As compared to the first quarter of 2024, we reduced our gross

[00:05:41] [SPEAKER_01]: profit loss per vehicle by approximately $6,000 and made progress on reducing our gross inventory

[00:05:47] [SPEAKER_01]: balance. We believe these trends will result in further improvements in our cash usage for the

[00:05:57] [SPEAKER_01]: We are reaffirming our 2024 production guidance of 57,000 units, delivery expectations of low

[00:06:04] [SPEAKER_01]: single-digit growth as compared to 2023, EBITDA guidance of negative $2.7 billion and capital

[00:06:12] [SPEAKER_01]: expenditures of $1.2 billion. As a reminder, coming out of the retooling upgrade,

[00:06:18] [SPEAKER_01]: we are currently operating the R1 line on a two shift operation which results in 56,000 units

[00:06:25] [SPEAKER_01]: of annual run rate output. Our commercial van line is currently running on a limited

[00:06:30] [SPEAKER_01]: one shift operation which has the potential to deliver a run rate annual output of 15,000 units.

[00:06:39] [SPEAKER_01]: As we look ahead for 2025, we expect that our normal facility will not be producing vehicles

[00:06:45] [SPEAKER_01]: for more than one month during the second half of the year as we upgrade and integrate

[00:06:49] [SPEAKER_01]: new equipment into the plant ahead of our first half of 2026 R2 launch. We continue to see a

[00:06:57] [SPEAKER_01]: clear path to a long-term approximately 25% gross margin target, high teams adjusted EBITDA

[00:07:04] [SPEAKER_01]: margin target and approximately 10% free cash flow margin target. I wanted to again thank

[00:07:10] [SPEAKER_01]: our team, partners, customers, suppliers and shareholders for the tremendous support. With that,

[00:07:17] [SPEAKER_04]: let me turn the call back over to the operator. Thanks Claire, I prefer to call myself a host.

[00:07:23] [SPEAKER_04]: However, I'm not going to get all upset about you calling me an operator. I'll be fine with it.

[00:07:30] [SPEAKER_04]: I don't have much to say on Claire's open remarks. I thought they were useful.

[00:07:36] [SPEAKER_04]: When we go into this earnings call, a lot of what was asked about was their

[00:07:43] [SPEAKER_04]: joint venture with Volkswagen. I put some clips that I thought were helpful in this episode,

[00:07:51] [SPEAKER_04]: but a lot of it was like, hey, we're not ready to talk about that. We'll talk about it at the

[00:07:55] [SPEAKER_04]: end of the year. Sounds like the joint venture will be finalized sometime in December of 2024

[00:08:01] [SPEAKER_04]: is the vibe that I got. Normally there's a theme to the earnings call and honestly,

[00:08:07] [SPEAKER_04]: I felt like the theme to this earnings call happened to be the Volkswagen Rivian joint venture.

[00:08:15] [SPEAKER_04]: Again, I think there's two clips that I left in there where I thought it was useful,

[00:08:21] [SPEAKER_04]: but beyond that they just didn't really want to talk about it, which I understand why.

[00:08:26] [SPEAKER_04]: Let's go ahead and jump into our first analyst question.

[00:08:32] [SPEAKER_09]: Our first question comes from George Gianarikis with Kenakor Januiti. You may proceed.

[00:08:37] [SPEAKER_11]: Hi, good afternoon and thank you for taking my questions.

[00:08:42] [SPEAKER_11]: Maybe just to start, can you just please talk about your geographic strategy,

[00:08:47] [SPEAKER_11]: particularly in Europe in light of the recent and leading relationship?

[00:08:54] [SPEAKER_03]: Thanks, George. As it stands today, the R1 products are being sold throughout the United

[00:09:00] [SPEAKER_03]: States and Canada. Our EDD products, our commercial van products are primarily focused

[00:09:08] [SPEAKER_03]: in the United States, but we have made some deliveries in Europe and specifically in Germany.

[00:09:15] [SPEAKER_03]: With regards to our future products with R2 and of course R3, those have been developed

[00:09:22] [SPEAKER_03]: really at their core to fit not only the US market but also fit the European market.

[00:09:28] [SPEAKER_03]: You can really see it as you look at the R2-R3 combination of what we believe capturing a

[00:09:34] [SPEAKER_03]: great spot in terms of both addressing demand for mid-size SUVs in both US and European markets,

[00:09:39] [SPEAKER_03]: but also with R3 capturing a smaller crossover market. As you've heard us talk about many

[00:09:46] [SPEAKER_03]: times, this is one of the things we're so excited about with the R2 platform

[00:09:52] [SPEAKER_03]: is just the growth in the addressable market for us as a business.

[00:09:55] [SPEAKER_04]: I don't think it's a big surprise that the R1 platform isn't destined for Europe.

[00:10:03] [SPEAKER_04]: The R1T is not the biggest truck that you can buy here in North America,

[00:10:08] [SPEAKER_04]: but it's still a pretty big truck by European standards. The R1S is a really big SUV. It's

[00:10:14] [SPEAKER_04]: not to say that you couldn't own one or drive one around in Europe. It's just to say that

[00:10:19] [SPEAKER_04]: it would be difficult in certain situations. I did find it interesting that the delivery van

[00:10:28] [SPEAKER_04]: was being tested in Germany. I didn't know that, so that's pretty cool.

[00:10:33] [SPEAKER_04]: That also leads us to our next question about the electric delivery van

[00:10:37] [SPEAKER_04]: and testing it with other companies outside of Amazon, or I should say other than Amazon.

[00:10:45] [SPEAKER_09]: Our next question comes from Philippe Houtroy with Jefferies, He May Pursue.

[00:10:50] [SPEAKER_09]: Yes, good afternoon. Thank you very much. A couple of questions to me. One is,

[00:10:54] [SPEAKER_10]: Vailo mentioned an EDV in the release. Could you give us an update on how your customer trials

[00:11:01] [SPEAKER_10]: are going on and might have an idea of when you might have first customers outside of the Amazon

[00:11:07] [SPEAKER_03]: deal? Thanks for the question, Philippe. The EDV program is something that for us is,

[00:11:18] [SPEAKER_03]: we're really excited about the impact of it in terms of reducing carbon emissions on a per

[00:11:23] [SPEAKER_03]: basis is outstanding over internal combustion vehicles. We've been able to really prove

[00:11:30] [SPEAKER_03]: the robustness of the platform and the strength of the offering through our relationship and

[00:11:35] [SPEAKER_03]: partnership with Amazon. Having a large deployed fleet of these before we started running the

[00:11:42] [SPEAKER_03]: pilot programs we've talked about in the past with non-Amazon customers was really helpful

[00:11:46] [SPEAKER_03]: as we refined not just the vehicle, but also the software surrounding the vehicle.

[00:11:52] [SPEAKER_03]: So, as we've talked about in the past, over the course of this year, we've been running

[00:11:57] [SPEAKER_03]: pilots in anticipation of more significant ramp up in 2025. This focus on pilots is really

[00:12:06] [SPEAKER_03]: reflective of the nature of this business where these are large decisions around large

[00:12:12] [SPEAKER_03]: numbers of vehicles for a lot of these bigger fleets and it's appropriate that we build

[00:12:17] [SPEAKER_03]: effective working models for how the vehicles are serviced, what digital support the vehicles have,

[00:12:23] [SPEAKER_03]: what infrastructure changes are necessary for each respective fleet. It's a lot different than

[00:12:30] [SPEAKER_03]: adding a single charger in your garage when you buy an R1 when you're thinking about adding

[00:12:35] [SPEAKER_03]: many chargers and a lot of new power into let's say a fulfillment center, distribution

[00:12:41] [SPEAKER_03]: center, or an operating center. If you're a business that's running 20, 30, 40, 50,

[00:12:46] [SPEAKER_03]: maybe 100 plus vans out of it. So these are great learnings that we've been driving

[00:12:50] [SPEAKER_03]: off the basis of what we put together with Amazon and we are looking forward to starting

[00:12:57] [SPEAKER_04]: to talk about other customers beyond Amazon. I would imagine that having an electric delivery

[00:13:04] [SPEAKER_04]: van or a fleet of them is kind of like a mindset shift. You have to shift your mindset

[00:13:12] [SPEAKER_04]: to do that as a fleet operator, right? If you have one or two that you're testing,

[00:13:18] [SPEAKER_04]: probably not a big deal. But if you have a whole fleet of them, you have to figure out

[00:13:22] [SPEAKER_04]: where you're going to charge them. You have to figure out how far they can go,

[00:13:28] [SPEAKER_04]: routes they can do reliably. You have to figure out how to track them. There's a whole bunch of

[00:13:35] [SPEAKER_04]: stuff that goes into that and every delivery van company or every fleet operator, I should say,

[00:13:43] [SPEAKER_04]: because this doesn't have to be a delivery van. It could be plumbing vans for that matter.

[00:13:47] [SPEAKER_04]: Every fleet operator has a different set of needs and for Rivian to

[00:13:51] [SPEAKER_04]: have a solution for each of those needs probably isn't easy. Like I said, that includes charging

[00:13:59] [SPEAKER_04]: and maintenance and repairs and the fleet software, the whole bit. I would imagine that

[00:14:06] [SPEAKER_04]: there's quite a bit more that goes into that than one would think.

[00:14:11] [SPEAKER_04]: Next up is one of those questions that I was talking about about the VW investment.

[00:14:15] [SPEAKER_02]: So let's go ahead and listen to that. I wanted to go to the VW investment

[00:14:22] [SPEAKER_02]: and wondering, from the fact that you got this money in what I think many of us consider to be a

[00:14:30] [SPEAKER_02]: more efficient manner than going through the capital markets, what does this allow you to do

[00:14:36] [SPEAKER_02]: from a product plan or capacity perspective that previously wasn't on the table if you were going

[00:14:44] [SPEAKER_03]: to be fully reliant on the capital market? It's a really important part of what this deal

[00:14:53] [SPEAKER_03]: represents for us is that it really eliminates a lot of the risk that was seen around our

[00:14:59] [SPEAKER_03]: balance sheet and allows us to focus the launch of R2 still in normal, still using our normal

[00:15:06] [SPEAKER_03]: facility. But as you've heard Claire and I both talk about as part of our investor day,

[00:15:14] [SPEAKER_03]: not only have the balance sheet to support launching R2 but also the balance sheet to

[00:15:19] [SPEAKER_03]: support taking us through positive cash flow. And we recognize the importance of that focus on

[00:15:26] [SPEAKER_03]: driving efficiency into the business, both in terms of how we operate the business but also

[00:15:30] [SPEAKER_03]: in terms of how we deploy capital from a capex point of view and an investment point of view.

[00:15:35] [SPEAKER_03]: And the organization is hyper focused on driving towards profitability and hyper focused on

[00:15:41] [SPEAKER_03]: the launch of R2 and what that represents for us in terms of the scaling that comes with it.

[00:15:47] [SPEAKER_04]: So it sounds like there's a few really positive things and I'm just going to oversimplify this.

[00:15:55] [SPEAKER_04]: Rivian and VW engineers are working together still while the joint venture information details are

[00:16:02] [SPEAKER_04]: being hammered out. So Rivian gets to talk to experienced VW engineers and VW engineers are

[00:16:08] [SPEAKER_04]: working with those Rivian engineers so they're solving a problem from different viewpoints.

[00:16:13] [SPEAKER_04]: Rivian is also able to see, let's say, motivated suppliers because if Rivian is developing this

[00:16:24] [SPEAKER_04]: technology for Rivian, they're only selling a few tens of thousands of vehicles a year right

[00:16:31] [SPEAKER_04]: now. But if they're able to do this with Volkswagen, Volkswagen sells a lot more vehicles

[00:16:36] [SPEAKER_04]: which means that Rivian's going to get a better price. Volkswagen's going to get a

[00:16:46] [SPEAKER_04]: better price. So Rivian is lower cost for Rivian. It gives them that lifeline,

[00:16:51] [SPEAKER_04]: that $5 billion that they'll have access to get the R2 up and running.

[00:16:57] [SPEAKER_04]: This is a good question, this is a good answer. Now I don't remember if everything that I just

[00:17:01] [SPEAKER_04]: talked about was in the clip because again, this question was asked several times. I might

[00:17:06] [SPEAKER_04]: have been piecing some things together. So if I said some things and you're like,

[00:17:10] [SPEAKER_04]: wasn't in the clip, the reason why is because that came, that's probably an amalgamation.

[00:17:16] [SPEAKER_04]: I made notes while I was listening to this. I didn't go back and listen to every clip

[00:17:20] [SPEAKER_04]: while I'm recording. So that's why. If you're like, that wasn't in there, that's why.

[00:17:27] [SPEAKER_04]: Let's see. The next question is what is affecting the R1 line currently at the plant?

[00:17:33] [SPEAKER_04]: And when I say the plant, I mean the normal Illinois plant.

[00:17:36] [SPEAKER_09]: Our next question comes from Joseph Speck with UBS. He may proceed.

[00:17:43] [SPEAKER_06]: Thanks, good afternoon. RJ, maybe you could just dive a little bit more into

[00:17:48] [SPEAKER_06]: what is exactly happening in the plant and what's impacting the R1 line, R2 work doing

[00:17:54] [SPEAKER_06]: next year? And then Claire, can we expect that the R1 given that most of the changes are

[00:18:01] [SPEAKER_06]: already done can ramp back up pretty quickly so we can understand the shape of burst

[00:18:06] [SPEAKER_06]: margins next year? Because it sounds like you guys are planning for maybe some sequential

[00:18:10] [SPEAKER_06]: improvement until that downtime, maybe a down taking the third quarter and then recovering

[00:18:14] [SPEAKER_06]: the fourth quarter. I just want to make sure that we're properly calibrated.

[00:18:20] [SPEAKER_03]: Sure, Joe. So as we think about the operations next year, this is looking at 2025,

[00:18:28] [SPEAKER_03]: we've said we're going to be taking the plant down for roughly a month while we make

[00:18:32] [SPEAKER_03]: some of the changes necessary to integrate the R2 production into the plant.

[00:18:36] [SPEAKER_03]: Some of that work has already happened. We did some of the preliminary work in the most recent

[00:18:43] [SPEAKER_03]: shutdown in conjunction with the move from Gen 1 to Gen 2 on our R1 platform. But the shutdown

[00:18:49] [SPEAKER_03]: that's going to happen in the second half of next year will make the splicing together of

[00:18:54] [SPEAKER_03]: certain parts of the plant possible. That's part of our plan. We'll be working around that,

[00:18:59] [SPEAKER_03]: but as we did with the Gen 1 to Gen 2, we wanted to provide very early guidance around

[00:19:05] [SPEAKER_03]: this and make sure expectations were appropriately set for what will have to happen in the plant

[00:19:11] [SPEAKER_01]: next year to integrate R2. And then based off of the second part of your question as well,

[00:19:18] [SPEAKER_01]: given the shutdown, there will be some, you know, choppiness in the financial

[00:19:22] [SPEAKER_01]: results as we look through not just a quarter sequential improvement in our results as we look

[00:19:28] [SPEAKER_01]: at the gross margin trajectory. As I mentioned in my prepared remarks, we still maintain that

[00:19:34] [SPEAKER_01]: have a modest positive gross profit for the entire new year of 2025 in particular, but certainly with

[00:19:41] [SPEAKER_01]: the shutdown itself in the second half, we'll feel that some of the impacts of lower absorption

[00:19:47] [SPEAKER_01]: of labor overhead and depreciation like we experienced in Q2 of this quarter, given the

[00:19:55] [SPEAKER_01]: lower production volumes that we had in the normal facility itself. But to RJ's point,

[00:20:01] [SPEAKER_01]: more akin to the November shutdown that we had to do some of the pre-work for our Q2 shutdown,

[00:20:08] [SPEAKER_01]: we were able to get right back up to line rate based off of the aftermath of that shutdown.

[00:20:14] [SPEAKER_01]: So we expect we won't see as sort of staged of a ramped back up from a production standpoint,

[00:20:20] [SPEAKER_01]: given the fact that we'll have already ramped up our supply chain, which is one of the

[00:20:24] [SPEAKER_01]: gating factors as we've gone through the course of ramping up new technologies in our

[00:20:30] [SPEAKER_04]: design gen 2 product. Yeah, that makes sense to me. Don't have a lot to add to that. So

[00:20:38] [SPEAKER_04]: let's go ahead and hit our next question, which has to do with demand trends since they

[00:20:44] [SPEAKER_04]: refresh the R1 platform. And then there's a brand question in there as well.

[00:20:50] [SPEAKER_09]: Our next question comes from Ben Callow with Baird. You may proceed.

[00:20:54] [SPEAKER_05]: Thank you. My first question is more near term, just RJ, if you could talk about demand trends

[00:21:00] [SPEAKER_05]: you've been seeing since the refresh. And then my second question is that brand is important

[00:21:08] [SPEAKER_05]: to everyone, but to you guys, you've done a good job of building a brand.

[00:21:12] [SPEAKER_05]: Can you talk to us about how you measure that internally or any way that you can

[00:21:20] [SPEAKER_05]: put context to how you built your brand now that extends to future models? Thank you.

[00:21:29] [SPEAKER_03]: Thanks, Ben. Ultimately, our first set of products, R1 was our handshake with the world.

[00:21:39] [SPEAKER_03]: And they were received really positively. This is two years ago and it was exciting as we

[00:21:44] [SPEAKER_03]: introduced the Gen 2 of our R1 products to see how strong the media action was to those products.

[00:21:51] [SPEAKER_03]: And you're recognizing we took a great vehicle and made it even better. And that is something

[00:21:57] [SPEAKER_03]: that we saw echoed across a variety of different media outlets from lifestyle to automotive

[00:22:05] [SPEAKER_03]: to more pure technology outlets, but recognizing the strength of what we built.

[00:22:12] [SPEAKER_03]: And that really serves as a wonderful foundation for the continued growth, as you put it,

[00:22:19] [SPEAKER_03]: of how we're building and developing our brand and how we're perceived.

[00:22:23] [SPEAKER_03]: And there's lots of ways for us to measure that. We certainly look at things internally.

[00:22:26] [SPEAKER_03]: We have a whole host of internal metrics that we track regularly. But I think important for

[00:22:32] [SPEAKER_03]: the analyst and investor community is to look at ways that third parties would look at our

[00:22:37] [SPEAKER_03]: brand. And most recently, actually, coincidentally, JD Power does a number of ways where they look at

[00:22:44] [SPEAKER_03]: the strength of a brand or the strength of a product offering in the market. And we've in

[00:22:49] [SPEAKER_03]: the past done extremely well in this and most recently in their annual appeal study

[00:22:56] [SPEAKER_03]: that looks at a combination of vehicle performance and its overall packaging.

[00:23:02] [SPEAKER_03]: We came out number one, and that's the number one rated brand in their study. And to do that

[00:23:10] [SPEAKER_03]: after having had previous number one performance in previous years is really exciting and it's

[00:23:17] [SPEAKER_03]: incredibly encouraging. And we think Bode's really well for what's to come with R2.

[00:23:22] [SPEAKER_03]: If we can carry the same brand strength and the same market share penetration that we have

[00:23:28] [SPEAKER_03]: at the premium segment where we're continually one of the best selling vehicles over $70,000

[00:23:35] [SPEAKER_03]: today in the US. If we can take that market share strength and brand strength and apply it

[00:23:40] [SPEAKER_03]: with our R2 product into the sub $50,000 price category with R2 starting at $45,000

[00:23:46] [SPEAKER_03]: and R3 pricing not yet announced but going to be lower than R2,

[00:23:50] [SPEAKER_03]: we're really bullish on what that represents in terms of volume.

[00:23:53] [SPEAKER_03]: But importantly, answers are real need in the market where there's a

[00:23:59] [SPEAKER_03]: characterized as a pretty severe gap in product choice for great highly compelling EVs under

[00:24:06] [SPEAKER_04]: $50,000. I don't know that if he answered the question about the demand after

[00:24:16] [SPEAKER_04]: can't remember exactly how it was demand trends after the refresh, but he really

[00:24:22] [SPEAKER_04]: talked a lot about the brand question and that's something that Lucid seems to be struggling with.

[00:24:28] [SPEAKER_04]: I don't think Rivian is struggling with this issue. Rivian is a company that a lot of my

[00:24:36] [SPEAKER_04]: friends who are not in the world of EVs, they know Rivian. They might know Lucid as well,

[00:24:44] [SPEAKER_04]: but I would be willing to bet that if I polled my friends, they would know that Rivian offers

[00:24:51] [SPEAKER_04]: a truck and they offer a big SUV. I don't think that they would know that Lucid offers a car

[00:24:57] [SPEAKER_04]: and is coming out with an SUV soon. To be fair, I don't think they would also know that Rivian

[00:25:03] [SPEAKER_04]: is coming out with a smaller more affordable vehicle, but amongst the people that I hang

[00:25:08] [SPEAKER_04]: out with who are just normal everyday folks that if they don't care about EVs, Rivian is

[00:25:17] [SPEAKER_04]: known brand whereas Lucid maybe not. If they do know Lucid, it's more known as that upper end

[00:25:24] [SPEAKER_04]: luxury $260,000 Sapphire Air brand. I still run into people when we're talking about Lucid who

[00:25:34] [SPEAKER_04]: think that that car costs $260,000 or even $160,000 which is a lot of money and even

[00:25:43] [SPEAKER_04]: base price is still a lot of money, but it's around $69,000 at its base. Not a lot of my

[00:25:50] [SPEAKER_04]: friends can afford that and not a lot of people can afford that $70,000 for vehicles,

[00:25:56] [SPEAKER_04]: a lot of money. I think Lucid's brand or their branding as an outdoorsy type company makes

[00:26:04] [SPEAKER_04]: them more approachable whereas, and I think I said Lucid, I mean I think Rivian's branding

[00:26:10] [SPEAKER_04]: as an outdoorsy company good for camping and going off road and that kind of thing. I think

[00:26:19] [SPEAKER_04]: that makes them seem more approachable even though their vehicles are still pretty spendy.

[00:26:25] [SPEAKER_04]: Whereas Lucid is considered a luxury brand and even Lucid said that they wanted or hinted at

[00:26:33] [SPEAKER_04]: wanting to have an off road type vehicle in one of their mid tier EVs that they're putting out.

[00:26:42] [SPEAKER_04]: If you missed it, they're releasing three EVs to compete with the Model Y and one of them could

[00:26:49] [SPEAKER_04]: be an off road vehicle with what the R2 is doing or Rivian's doing with the R2. I don't

[00:26:55] [SPEAKER_04]: think Lucid is going to find that to be a very, I think they're going to have a hard time

[00:27:03] [SPEAKER_04]: convincing people that the luxury brand can go off road. If you're looking at a Range Rover,

[00:27:13] [SPEAKER_04]: luxury brand can go off road. You're not looking at Maserati as a luxury brand but

[00:27:22] [SPEAKER_04]: also could go off road. I think that's going to be a harder hill for Lucid to climb and I think

[00:27:27] [SPEAKER_04]: Rivian comes across as more approachable even though it's still pretty expensive vehicles.

[00:27:35] [SPEAKER_04]: Next up we're going to hear about regulatory credit sales and actually I thought this was a

[00:27:40] [SPEAKER_04]: really good question and a good answer. It seems like on the surface it would be boring but

[00:27:45] [SPEAKER_09]: I thought it was really good. Our next question comes from Shreyas Patil with Wolf

[00:27:49] [SPEAKER_07]: Research. You may proceed. Hey, thanks a lot for taking my question. First of all,

[00:27:56] [SPEAKER_07]: curious what you're seeing in terms of opportunities in the sale of regulatory

[00:28:00] [SPEAKER_07]: credits. I appreciate it can be lumpy with 17 million in the quarter but are you seeing

[00:28:05] [SPEAKER_07]: growing opportunities to sell right credits at this point just given some of the struggles

[00:28:11] [SPEAKER_03]: that we're seeing with the legacy OEMs? You know, Claire referenced it just in regards to

[00:28:21] [SPEAKER_03]: top line in terms of revenue but the regulatory credit environment is certainly very strong right

[00:28:28] [SPEAKER_03]: now. Practically speaking that means we have the potential to generate more revenue

[00:28:36] [SPEAKER_03]: around our credits market than what we'd originally planned or anticipated

[00:28:40] [SPEAKER_03]: but I think more importantly is the fact that the credits market is so strong

[00:28:45] [SPEAKER_03]: is a reflection of the decision that we see a number of companies that are going to be

[00:28:56] [SPEAKER_03]: investing less into electrification or have less product and electrified product

[00:29:00] [SPEAKER_03]: across multiple segments and then across different price points. And so that void of

[00:29:09] [SPEAKER_03]: products actually creates this strong credit environment and for us I think the most

[00:29:16] [SPEAKER_03]: important read through is the demand environment we see coming into 2026-2027 is going to be very

[00:29:24] [SPEAKER_03]: very advantageous for us where there's a lot of latent demand. There's a lot of demand that's

[00:29:29] [SPEAKER_03]: sitting waiting for the right type of product, the product that has the right form factor,

[00:29:33] [SPEAKER_03]: product positioning, attributes and features but you know folks have been sitting waiting

[00:29:39] [SPEAKER_03]: for that product to show up but haven't seen it so they continue to buy an internal combustion

[00:29:43] [SPEAKER_03]: vehicle or continue to buy a hybrid vehicle. We see this really large pool of demand on the

[00:29:50] [SPEAKER_03]: surface that's just waiting and we believe waiting for something that's very much like what

[00:29:55] [SPEAKER_04]: R2 is. You know companies like Ford and GM who were gung-ho on EVs, we're gonna have this many

[00:30:03] [SPEAKER_04]: EVs by 2020, a lot of companies Stellantis said that, a bunch of companies were like we're gonna

[00:30:07] [SPEAKER_04]: have all these EVs by 2020 and they're all gonna be better than Tesla and then it turns

[00:30:12] [SPEAKER_04]: out it's really hard to build an EV and it's really hard to make them efficient and it's

[00:30:17] [SPEAKER_04]: really hard to sell an EV so Ford and GM have not gone away from EVs but have pulled

[00:30:24] [SPEAKER_04]: back a little bit and hedging their bets with hybrids and that kind of thing but what that

[00:30:28] [SPEAKER_04]: means is they are you know there's targets here in the United States that they have to reach.

[00:30:33] [SPEAKER_04]: I'm sure there's maybe targets in Europe in terms of environmental or air quality targets

[00:30:38] [SPEAKER_04]: that they have to hit and buying these regulatory credits allows them to sell their

[00:30:43] [SPEAKER_04]: polluting vehicles and still hit their goals or whatever targets have been set

[00:30:50] [SPEAKER_04]: for in the government world. So that leaves companies like Lucid, Tesla and Brevion,

[00:30:59] [SPEAKER_04]: all electric vehicle companies, in a pretty good position to sell regulatory credits.

[00:31:05] [SPEAKER_04]: So I would imagine that this is a pretty good business to be in right now. Will it be a good

[00:31:10] [SPEAKER_04]: business forever? I don't think so but right now it seems like a way to make a little

[00:31:14] [SPEAKER_04]: extra money especially when you consider they're already doing it so it's just an added

[00:31:19] [SPEAKER_04]: bonus on top of what they're already doing. All right next up we're going to hear about

[00:31:24] [SPEAKER_04]: integrated software and hardware. This question and answer has a little bit to do with the

[00:31:30] [SPEAKER_04]: Volkswagen Joint Venture so let's go ahead and listen to that. Okay great, my second

[00:31:39] [SPEAKER_07]: question is in thinking about your software architecture one of the defining elements is

[00:31:46] [SPEAKER_07]: is almost entirely built in-house from the baseline operating system to the middle layer,

[00:31:52] [SPEAKER_07]: hypervisor application layers. You've talked before about legacy automakers not really having

[00:31:58] [SPEAKER_07]: this level of vertical integration so clearly this is a big competitive advantage but with

[00:32:03] [SPEAKER_07]: the VW now able to access the software platform I'm curious how you think about

[00:32:08] [SPEAKER_07]: the long-term advantage in software. Do you still see potential to maintain an edge here

[00:32:16] [SPEAKER_07]: over most legacy OEMs even those that may want to replicate your approach or do you feel that

[00:32:23] [SPEAKER_07]: the industry will eventually catch up and essentially this is now an opportunity for

[00:32:29] [SPEAKER_07]: you to monetize this asset and help the industry make the transition to software defined

[00:32:35] [SPEAKER_03]: vehicles? There's a few ways to speak to this. I think first before we get to product

[00:32:45] [SPEAKER_03]: differentiation or customer facing advantages in building a network architecture and associate

[00:32:51] [SPEAKER_03]: electronic stack that allows for significant consolidation of ECUs and therefore simplification

[00:32:58] [SPEAKER_03]: not only of the number of ECUs but also the harness and associated wiring you know infrastructure

[00:33:05] [SPEAKER_03]: within the vehicle that creates meaningful cost advantages relative to a traditional platform

[00:33:11] [SPEAKER_03]: which will have call it 50 to 100 ECUs within the vehicle and so we've talked about this our

[00:33:17] [SPEAKER_03]: Gen 1 vehicle at 17 in-house ECUs we reduced that down to seven and so it is a significant

[00:33:26] [SPEAKER_03]: multi-thousand dollar structural cost advantage to have a network architecture and topology

[00:33:33] [SPEAKER_03]: of computers that's far simpler and far lower cost than traditional approach. So first and foremost

[00:33:40] [SPEAKER_03]: there's a real cost advantage now of course our partnership with Volkswagen will extend that cost

[00:33:45] [SPEAKER_03]: advantage into their respective products as well and bring with it you know scale environment which

[00:33:52] [SPEAKER_03]: will in turn allow us to source those components and systems at a lower cost but from a consumer

[00:33:58] [SPEAKER_03]: facing point of view what it represents owning not just the hardware but owning the software

[00:34:04] [SPEAKER_03]: and owning it around a really optimized architecture as I described is the ability

[00:34:09] [SPEAKER_03]: to continue to make the software a lot better so the features can not only become more rich and

[00:34:15] [SPEAKER_03]: more robust but they can truly improve more than just surface level skins on let's say your

[00:34:22] [SPEAKER_03]: cluster or your center information display but into like deeply into the vehicle in changing

[00:34:28] [SPEAKER_03]: the way the vehicle performs dynamically changing the way you know it's charging profile set up

[00:34:33] [SPEAKER_03]: changing battery management system characteristics so you can have the vehicle get better and

[00:34:38] [SPEAKER_03]: better over time in a way that's very difficult when you rely on third parties to produce this

[00:34:47] [SPEAKER_03]: complex labyrinth of ECUs and all the associated software where even small changes require

[00:34:53] [SPEAKER_03]: coordination amongst many different players and so things that can take us minutes can take

[00:34:59] [SPEAKER_03]: months for a traditional approach and so all that being said what the customer

[00:35:06] [SPEAKER_03]: experiences of course beyond the vehicle performance and the way it drives and behaves

[00:35:10] [SPEAKER_03]: is what they see that the digital environment it's also something that the UI framework

[00:35:15] [SPEAKER_03]: the approach to digital design the approach to user experience design is something that we've

[00:35:21] [SPEAKER_03]: spent an enormous amount of time on and we believe will continue to be differentiated

[00:35:26] [SPEAKER_03]: and is facilitated enabled by our platform but it requires both and we hope that by bringing

[00:35:33] [SPEAKER_03]: this strong platform to our joint venture with Volkswagen it allows them to have

[00:35:39] [SPEAKER_03]: to create products are also really compelling and answer some of the points I made before around

[00:35:43] [SPEAKER_03]: there is a real lack of choice there's a I would characterize as like a pretty extreme

[00:35:49] [SPEAKER_03]: lack of consumer choice around EVs and products in the space and in order for us to really

[00:35:57] [SPEAKER_03]: scale towards 100% electrification we need to have more than just a couple of highly

[00:36:01] [SPEAKER_03]: compelling vehicles there needs to be essentially nearer the amount of choice that we have in the

[00:36:07] [SPEAKER_03]: combustion world which we're not even remotely near in the EV space today.

[00:36:14] [SPEAKER_04]: Again I thought this was a great question great answer the thing with the legacy OEMs

[00:36:23] [SPEAKER_04]: I don't think it isn't that they don't know how to do this or that you know they don't

[00:36:29] [SPEAKER_04]: want to do this I think they just have a lot of legacy technical debt that is right now just too

[00:36:37] [SPEAKER_04]: expensive to buy themselves out of like they have to do a lot of redesigning from the ground

[00:36:44] [SPEAKER_04]: up to do this kind of thing and I think they'll get there I just right now you know with the

[00:36:51] [SPEAKER_04]: F-150 Lightning for instance the F-150 Lightning shares a lot of the same components as an F-150

[00:36:57] [SPEAKER_04]: ICE version I am sure that there's some technical debt in the F-150 Lightning that's left over from

[00:37:03] [SPEAKER_04]: the ICE version that does not make that software hardware integration as seamless as what Rivian

[00:37:11] [SPEAKER_04]: and Tesla and Lucid have. Like the advantage of sharing a lot of those same components was they

[00:37:17] [SPEAKER_04]: were able to build the Lightning or at least the initial versions of the F-150 Lightning

[00:37:22] [SPEAKER_04]: at a much more affordable price because they already had relationships with the suppliers and

[00:37:27] [SPEAKER_04]: they already had a really good price on those components unfortunately when it comes to those

[00:37:33] [SPEAKER_04]: that software hardware integration that you would really need for an EV it's just not always

[00:37:39] [SPEAKER_04]: there like and I'm talking like I know I don't I am guessing I'm giving you this example as a

[00:37:45] [SPEAKER_04]: guess and using the F-150 Lightning as an example but yeah initially it was probably great

[00:37:51] [SPEAKER_04]: because it was a cheaper vehicle to build in the beginning long term you have that technical debt

[00:37:57] [SPEAKER_04]: what are you going to do with it next up we're going to hear about Rivian Spaces which is where

[00:38:04] [SPEAKER_04]: people can go and you know find out more information it's a storefront for Rivians.

[00:38:10] [SPEAKER_09]: Our next question comes from Ron Jusicao with Guggenheim Security you may proceed.

[00:38:16] [SPEAKER_08]: Yeah good evening and thanks for taking my questions. RJ you've talked in the past about

[00:38:22] [SPEAKER_08]: as Rivian opens new spaces order intake in those geographies accelerates I know you've laid

[00:38:29] [SPEAKER_08]: out the plan to 2025 for spaces but is there any way to think about what is launching in the

[00:38:35] [SPEAKER_08]: coming quarter or the second half of this year just to think about demand being an important

[00:38:39] [SPEAKER_08]: part of your bridge to gross profit in the fourth quarter.

[00:38:46] [SPEAKER_03]: Yeah so we have as you called out we have a number of spaces that are going to be launching

[00:38:51] [SPEAKER_03]: over the next six to twelve months and those spaces are great ways for consumers to get a

[00:38:57] [SPEAKER_03]: chance to experience our vehicles firsthand to sit in them to touch them and play with all the

[00:39:03] [SPEAKER_03]: you know all the features but beyond just our spaces we've also really over the last

[00:39:10] [SPEAKER_03]: six months begun activating our service infrastructure to support expansion of our

[00:39:16] [SPEAKER_03]: demo drives program and so we have you know over 60 service locations that you know month

[00:39:25] [SPEAKER_03]: over month quarter over quarter we're growing the number of those locations that do more than

[00:39:29] [SPEAKER_03]: just service and they not only provide service but they support test drive and demo drives

[00:39:35] [SPEAKER_03]: as well as of course delivery and other sales related activities.

[00:39:41] [SPEAKER_03]: And then beyond our spaces our service infrastructure we're also continuing to

[00:39:46] [SPEAKER_03]: build out our Rivian adventure network that's our DC fast charge network

[00:39:49] [SPEAKER_03]: and that's another touch point for customers to experience the brand today that network is

[00:39:56] [SPEAKER_03]: close to being for Rivian only but later this summer we'll be opening our network up so it

[00:40:02] [SPEAKER_03]: non-Rivian customers to use the network as well which is a great way for folks to experience

[00:40:08] [SPEAKER_03]: Rivian as a brand and get exposure to the products and exposure to us as a company.

[00:40:16] [SPEAKER_04]: Okay so we're running long on time and I don't have anything to add that RJ didn't already

[00:40:20] [SPEAKER_04]: say so I'm going to go ahead and end it here. I want to thank everybody for listening to

[00:40:27] [SPEAKER_04]: the show. If you went and checked out the Beyond the Post episode that we did on Daily Tech News

[00:40:33] [SPEAKER_04]: Show thank you very much for doing that I really appreciate it. If you left feedback for them

[00:40:37] [SPEAKER_04]: thank you very much for doing that I really appreciate it. If you want to support this

[00:40:41] [SPEAKER_04]: show you can go to patreon.com forward slash kilowatt or support kilowatt.com

[00:40:46] [SPEAKER_04]: and you can become a patron or you can go to Acast Plus and be and support the show that

[00:40:52] [SPEAKER_04]: financially. All of the money goes back into the show none of the money goes into my own pocket

[00:40:58] [SPEAKER_04]: so the goal of the patreon is for it to pay for the day-to-day operation of this show

[00:41:06] [SPEAKER_04]: and we're getting close we're not quite there in terms of the show making money

[00:41:12] [SPEAKER_04]: but we're getting close. The show if it makes money this year it's going to be very very

[00:41:18] [SPEAKER_04]: little. The advertising money and the patreon money all together don't amount to a whole lot

[00:41:24] [SPEAKER_04]: but everything put together you know it helps whereas before I was paying for this all on my

[00:41:30] [SPEAKER_04]: own I don't have to do that anymore so thank you very much to the patrons for supporting the

[00:41:34] [SPEAKER_04]: show and if you want to do that for as little as a dollar the benefit is you get all of the

[00:41:39] [SPEAKER_04]: ads taken away for all the episodes so one dollar you get an ad free experience.

[00:41:45] [SPEAKER_04]: All right everybody that is it for me because my voice is going. In the last four days I think

[00:41:51] [SPEAKER_04]: I've recorded four podcasts I might have recorded five I might have missed one but

[00:41:57] [SPEAKER_04]: yeah my voice is toast so I'm going to take a couple of days I'm going to rest

[00:42:01] [SPEAKER_04]: you will hear from me on Friday thank you so much for listening and take care.

[00:42:09] [SPEAKER_04]: Oh and I'm going to end the show with RJ's closing remarks.

[00:42:12] [SPEAKER_03]: Thank you everyone for joining us today we were really excited with the progress we're making

[00:42:18] [SPEAKER_03]: the transition to our second generation r1 vehicles and the associated cost structure that

[00:42:23] [SPEAKER_03]: drives both at the building materials level but also within our operations within our plant

[00:42:29] [SPEAKER_03]: is a really important stepping stone for us as a business and the efficacy through

[00:42:35] [SPEAKER_03]: which that launch occurred really reflects the growing capability for us as a business.

[00:42:42] [SPEAKER_03]: I'm also really excited to see what we're what how customers have continued to react to the

[00:42:49] [SPEAKER_03]: product and you know seeing seeing how favorably this second generation r1 was was was seen and

[00:42:58] [SPEAKER_03]: continues to be seen really sets up well for us with what's to come with r2 where r2 leverages

[00:43:03] [SPEAKER_03]: a lot of the content particularly around the network architecture of issue topology the software

[00:43:08] [SPEAKER_03]: stack and even beyond that into some of the componentry architecture that we've laid out

[00:43:14] [SPEAKER_03]: with the updates to the r1 platform. So again thanks everyone for joining we're looking

[00:43:20] [SPEAKER_03]: forward to continued progress and continued efforts on our drive to profit building

[00:43:26] [SPEAKER_03]: and look forward to speaking to everybody soon. Thank you this concludes the conference

[00:43:47] [SPEAKER_09]: thank you for your participation you may now disconnect.