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Rivian Accelerates Development of R2 Electric Vehicle with Enhanced Features and Costs

Key Achievements in R2 Development

The Rivian R2 project is gathering momentum as it builds upon the progress made with the R1 platform. With the rollout of Gen 2, Rivian has made substantial improvements that align with its core brand values. Notably, the R2 vehicle is on schedule for launch in the first half of 2026.

Expansion Plans Underway

Significant development activities for the R2 are already in motion, including a major expansion at the manufacturing facility in Normal, Illinois. This expansion will encompass over 1 million square feet and is progressing well, with construction of the building already underway.

By the end of the year, Rivian expects to initiate manufacturing validation builds in this newly expanded area. Additionally, they have secured 95% of the resources needed to complete the R2, with anticipated costs for materials estimated to be around half of those for the R1.

Cost Improvements and Customer Interest

The cost structure for R2 is significantly improved compared to the R1. Non-material costs are projected to be below half of what has been experienced with R1, reflecting Rivian’s emphasis on efficiency. The eagerness of potential customers is evident, with many requests for early delivery, showcasing solid demand for the upcoming vehicle.

Advancing Autonomous Technology

The company is also focused on advancing its Rivian autonomy platform with R2, incorporating innovations like a 55-megapixel camera system and enhanced radars designed to support AI functionalities. The new setup provides a tenfold increase in computing power, enhancing the overall safety and functionality of self-driving features.

Upcoming features include a hands-off highway operation, anticipated to roll out in several weeks, and an eyes-off highway function expected in 2026. These advancements highlight Rivian’s commitment to integrating cutting-edge technology into their vehicles.

Streamlined Manufacturing Through Design

In a bid to reduce complexity, Rivian is implementing large high-pressure die casting for R2, trimming the vehicle’s body structure by eliminating roughly 65 parts and over 1,500 joints. This focus on manufacturing efficiency translates to lower costs and improved assembly processes, reinforcing Rivian’s goal of delivering value to customers.

Alignment with National Goals

Rivian is also committed to creating U.S. jobs and fostering technology innovation at home. As the company aligns its goals with the broader objectives of the administration, they are actively promoting advancements in electrification and software. This includes the upcoming Georgia facility, which will support both R2 and R3 vehicle production.

Looking Ahead: Positive Financial Growth

Gui Gilbert, CEO, noted that Rivian aims to achieve positive gross profit by the fourth quarter of 2024, attributable to reductions in vehicle costs and increases in revenue from vehicle sales and regulatory credits. In the recent quarter, the company successfully cut automotive costs by $31,000 per delivered vehicle compared to the previous year, while raising average automotive revenue to $86,000.

In conclusion, Rivian is positioning itself for considerable success with the R2 vehicle, leveraging learnings from the R1 and demonstrating a forward-thinking approach to electric vehicle manufacturing and technology.

Claire McDonough — Chief Executive Officer

Thank you, RJ. I want to thank our team for a tremendous quarter…

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Rivian’s Financial Progress: A Closer Look at 2024 and the Road Ahead

Rivian is making strides with its new tri-motor vehicle offering, while also seeing an uptick in commercial van sales. In the fourth quarter, the company recorded nearly $300 million in revenue from regulatory credits. Engineering advancements helped drive design improvements in the second-generation R1, enhancing performance, reducing costs, and simplifying manufacturing and servicing.

Fourth Quarter Earnings Insights

During the fourth quarter of 2024, Rivian reported significant results following an enhanced focus on automotive sales. This quarter highlighted their production of 12,727 vehicles and deliveries of 14,183 vehicles, resulting in $1.5 billion in revenue from the automotive segment, which also included sales from regulatory credits. The automotive gross profit reached $110 million, with a gross margin of 7% for the quarter.

Joint Venture with Volkswagen Group

Rivian has integrated the financial results of its joint venture with Volkswagen Group into its own. This partnership allows Rivian to reflect vehicle electrical architecture and software development services as part of their revenue. Over the next four years, Rivian expects to recognize approximately $2 billion from this joint venture, which includes cash for licensing intellectual property, alongside equity premiums and noncash benefits.

Software and Services Revenue Growth

The software and services segment generated $214 million in revenue during the fourth quarter, primarily driven by sales from remarketing, along with vehicle repair and maintenance services. This segment achieved a gross profit of $60 million, representing a robust margin of 28%. Rivian remains dedicated to improving efficiency across its cost structure.

Cost Management and EBITDA Improvement

Thanks to ongoing efforts in cost management, Rivian reduced total operating expenses by 15% in Q4 2024 compared to the previous year. This focus contributed to a substantial improvement in adjusted EBITDA, which saw losses decrease to $277 million, marking the best performance since production began.

Cash Position and Inventory Strategies

Rivian’s cash reserves rose to $7.7 billion, an increase from $6.7 billion in the prior quarter. This amount includes $1.3 billion from the completion of the Volkswagen Group joint venture. Inventory levels also decreased by $372 million since the end of 2023, primarily due to a reduction in raw materials and finished goods. Looking ahead, Rivian expects to continue generating cash from working capital throughout 2025.

Outlook for 2025

Rivian anticipates delivering between 46,000 and 51,000 vehicles in 2025, despite potential disruptions caused by a one-month manufacturing shutdown to prepare for the R2 launch in early 2026. However, production may face challenges affecting delivery volumes, particularly in the first quarter due to seasonality and market conditions influenced by recent fires in Los Angeles.

For Q1, Rivian estimates deliveries around 8,000 vehicles, with production expected at approximately 14,000 units. Despite anticipated lower volumes, the company projects a modest gross profit for the entire year, largely backed by strong contributions from the software and services segment.

Future Developments and Capital Investments

Looking toward capital expenditures in 2025, Rivian expects to spend between $1.6 billion and $1.7 billion. This budget supports the expansion of their manufacturing facility and the development of infrastructure, including service centers and the Rivian Adventure Network. As construction begins on their Georgia manufacturing plant, the company foresees increased capital spending into 2026, ultimately leading to the much-anticipated launch of the R2 platform.

Throughout these developments, Rivian is positioned to adapt within a fluctuating market landscape, setting the foundation for future growth and resilience in its operations.

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Rivian Reports Strong Quarter Amid Infrastructure Overhaul

Our team delivered impressive results this quarter. We firmly believe that R2 will significantly enhance our growth and profitability. I’ll now hand the call back to the operator for the Q&A session.

Questions and Answers

Operator

[Operator instructions] Our first question comes from Dan Levy with Barclays. Your line is open. Please ask your question.

Dan Levy — Analyst

Good evening. Thank you for taking my questions. Firstly, could you clarify your assumptions regarding policy changes? Specifically, what are you expecting regarding tariffs, credits, and other factors?

Claire McDonough — Chief Executive Officer

Sure, Dan. Our outlook includes our current best estimates about future policy changes, such as incentives and regulations. While I won’t share specific details on each factor, I can say that our guidance anticipates a significant impact on Rivian’s EBITDA—potentially hundreds of millions—considering demand fluctuations as well.

This assessment reflects our management’s current perspective but we acknowledge that this landscape is constantly evolving. Thus, we felt it crucial to provide guidance based on our latest understanding of policy developments.

Dan Levy — Analyst

Thank you. For my second question, could you outline the expected trajectory of Cost of Goods Sold (COGS) for R1 throughout the year? Should we anticipate that by year-end COGS per unit will align more closely with the Average Selling Price (ASP) per unit? Additionally, how does this indicate your readiness to meet the Bill of Materials (BOM) requirements for R2?

RJ Scaringe — Chief Executive Officer

Thanks, Dan. We’ve discussed R1’s COGS extensively. As a first-time manufacturer, we faced many initial challenges, which affected costs. With our Gen 2 production, we’ve revitalized over half of the BOM. This has enabled us to significantly reduce costs. You’ll see the benefits of this reshaping as we progress.

We expect R2’s BOM to be approximately half of R1’s on a like-for-like basis, while we’re also looking at over a 50% reduction in non-BOM costs. This reflects our thorough efforts to improve engineering, design, and sourcing. We’re excited about R2 as it represents not only a more affordable product but also opens doors to a larger market.

Now, let me bring Javier into the discussion to elaborate on this.

Javier Varela — Chief Operating Officer

Indeed, with Generation 2 of R1, we’ve made significant strides in cost reduction. We continue to analyze costs with suppliers and streamline all elements in our plant. Our focus includes achieving greater efficiency across all operations, from line balancing to logistics optimization.

Importantly, we engage our workforce in this process, encouraging all team members to provide ideas for cost savings and operational improvements. This empowerment of the shop floor has produced innovative solutions that benefit both R1 and R2. R2 will greatly benefit from a simpler design and the lessons learned from our past production efforts.

Dan Levy — Analyst

Thank you for that informative response.

Operator

The next question comes from Adam Jonas with Morgan Stanley. Your line is open.

Adam Jonas — Analyst

Hello everyone. I’d like to ask about Rivian’s autonomy platform, as it appears you’re making substantial strategic shifts, including enhancing computational power and sensor capabilities. Can you share details regarding your expenditure on computing and training? What aspects are managed in-house versus through partnerships? Additionally, how much of your R&D budget is allocated to AI infrastructure?

RJ Scaringe — Chief Executive Officer

Thank you, Adam. This is indeed a vital focus for us moving forward. To give some context, we embarked on developing our Gen 2 platform around three years ago.

Our strategic pivot was motivated by the understanding that AI will play a crucial role in the advancement of self-driving systems. Through these initiatives, we are committed to ensuring that our technology remains competitive as the industry continues to evolve.

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Rivian Shares Insights on AI Training and Future Autonomy Features

Rivian emphasizes the necessity of advanced infrastructure for its autonomy-focused ambitions, laying out how large data platforms and raw signals will power its foundation models.

Building the Right Infrastructure

To effectively train its foundation model, Rivian requires unprocessed signals from various sources, specifically cameras and five additional radars in its perception stack. These raw data streams are essential for a powerful computing platform, which must provide significantly greater processing capacity—ten times that of its Gen 1 vehicles—for real-time decision-making in operation. This infrastructure feeds a data flywheel, allowing for continuous training of offline models through both real-time data and simulations that are generated from that data.

Investment and Cost Structures

The development of this robust framework comes with considerable costs. Rivian made a strategic decision to integrate its camera and computing platforms within the vehicle itself, supported by a dedicated hardware team responsible for its design and engineering. Alongside this hardware, a substantial amount of effort is required to create the software that will operate on that hardware.

However, an often-overlooked but crucial aspect is the platform’s growth potential. Rivian is optimistic about its ability to enhance this technology continuously. As the company moves towards an end-to-end approach utilizing large data pipelines, the possibilities for growth in both autonomy and features become more promising. Monitoring progress over time is key, as Rivian seeks to shift the landscape of vehicle autonomy.

Upcoming Hands-Free Features

A significant milestone in this evolution is the imminent launch of hands-free driving capabilities. A feature allowing for hands-free and eyes-off operation under specific circumstances is set to debut next year. Rivian plans to gradually increase the range of conditions in which this functionality will be available, with the ultimate goal of broadening it to nearly all driving scenarios.

Accessing GPU Resources Efficiently

Training these advanced models necessitates substantial computational power, procuring necessary GPUs is a critical element of this endeavor. Rivian acknowledges there can be confusion regarding GPU access: companies can choose to purchase GPUs to build their own AI training infrastructure or to opt for rental agreements. Alternatively, companies can explore innovative financing methods that categorize these expenses as R&D or operational expenditures. With the growing recognition of the demand for AI training capabilities, Rivian is actively pursuing creative strategies to access a significant number of GPUs without incurring high capital expenditure costs.

Financial Outlook and Revenue Growth

Moving to the financial performance, Claire McDonough, CEO, explained that they expect to maintain approximately $300 million in regulatory credits for 2025. This figure remains fairly stable compared to previous years, potentially adjusting based on policy changes affecting those credits.

In terms of joint venture (JV) revenues, Rivian reported $214 million in the software and services segment, up from about $100 million in the prior quarter. The growth primarily stemmed from the newly established joint venture. As the JV continues to ramp up, Rivian anticipates significant contributions to overall revenue, projecting software and service revenues will exceed $1 billion by 2025.

Analysts Weigh In

During the call, analysts, including Mark Delaney from Goldman Sachs, and Adam Jonas expressed interest in Rivian’s autonomous platform and its implications for profitability and growth. Rivian’s strong focus on its software and services segment reflects an ongoing commitment to leverage technology for enhanced operational efficiency.

Moving forward, Rivian looks poised to continue this trajectory, balancing investment in infrastructure with strategic financial planning to meet its ambitious goals in the automotive landscape.

Rivian Eyes Expansion and Profitability Amid Competitive Landscape

Level 3 Features: Potential and Pricing Strategy

During a recent analyst call, Rivian’s CEO, RJ Scaringe, discussed the company’s strategies regarding Level 3 autonomous driving features. He noted a significant focus on pricing, especially as Rivian considers how to monetize these products in the evolving automotive market.

Scaringe highlighted that while Rivian plans to capitalize on its competitive advantages in the short term, the long-term pricing will depend heavily on market competition. The distinction between Level 2 and Level 3 features is often unclear, but Rivian sees an opportunity to offer hands-free, eyes-off driving as a paid option. This could potentially serve as a significant revenue stream for the company moving forward, as they continue to develop a vertically integrated technology stack.

Joint Venture Developments: Revenue Insights

Mark Delaney, an analyst, inquired about the gross profit implications related to the $1.96 billion in proceeds from Rivian’s joint venture, which will be recognized over four years. Claire McDonough, CFO, clarified that while this revenue won’t be evenly distributed over that period, it will reflect the ongoing development phases of the joint venture. This distribution means that most recognition is expected towards the later years.

Production Plans: Anticipation for 2025

Analyst George Gianarikas sought clarification on Rivian’s production expectations for 2025, specifically deliveries anticipated in the first quarter. RJ Scaringe shared that Rivian is expanding its plant, which will include a new assembly line for the R2 vehicle. This development is vital for integrating production without disrupting existing models. However, Rivian plans to have a brief shutdown to incorporate the R2 line into the paint shop, impacting production volumes strategically to ensure adequate inventory to meet demand over the year.

Government Loans: Commitment to Job Creation

In response to questions about a Department of Energy loan and potential delays in funding, Claire McDonough expressed optimism about working with the new administration. The loan is positioned to foster the creation of 7,500 new jobs, adding to the over 10,000 positions Rivian has already established in the past three years. RJ Scaringe reinforced the importance of U.S. leadership in transportation innovation and emphasized Rivian’s ongoing investment in electric vehicle technology, autonomy, and artificial intelligence.

Through these measures, Rivian aims to scale production significantly, increasing its capacity from 215,000 units in Normal to 400,000 over time. The company believes that a diverse landscape of companies is essential for advancing electrification, ensuring the U.S. maintains its leadership role in this vital industry.

Further Analysis Needed

As the dialogue around supply chains and production efficiency continues, Rivian’s strategic moves illustrate its intent to navigate an increasingly competitive automotive sector effectively. Investors and analysts alike await more insights into how these plans will unfold in the coming years.

Rivian Faces Challenges and Opportunities as 2024 Approaches

Software and Services Set to Boost Revenue in 2024

Rivian’s financial outlook for 2024 begins with a projected decline of approximately $1.2 billion. Volume trends suggest a year-over-year stagnation. However, the company anticipates an increase in software and services revenue, projecting a rise of around $800 million compared to the prior year. Gross margins are expected to reach 28%, slightly improving the overall financial picture.

Cost Savings Driving Gross Profit Outlook

CEO Claire McDonough outlined the expected gross profit improvement, attributing a significant portion—approximately $1 billion—to reduced bill of materials (BOM) and ongoing cost savings. Rivian’s software and services segment, which generated about $484 million in revenue previously, is set to enhance overall profitability in future quarters. With regards to gross margins in this sector, the company aims for an increase to around 30% in the coming fiscal year.

Market Impacts and Future Considerations

McDonough further acknowledged potential risks to projected growth, including policy shifts and market demand fluctuations. The company expects to observe diminishing benefits related to Last-in, First-out (LIFO) cost reductions by 2025. Despite anticipating negative automotive gross profit on a Generally Accepted Accounting Principles (GAAP) basis, Rivian expects adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) to show significant improvement between $800 million and $1 billion.

Exploring Future Volume Growth: The Road Ahead

In response to analyst John Murphy’s inquiry about future volumes, CEO RJ Scaringe elaborated on Rivian’s approach to capacity and efficiency. The company’s production strategy, which includes R1, R2, and a commercial van, aims to enhance operational flexibility and cost-effectiveness. While there are concerns regarding volume constraints in 2025, the launch of R2, priced at $45,000, is expected to capture a broader customer base and potentially bolster sales. The design of Rivian’s facilities accommodates this transition effectively, reducing the risk of cannibalization between models.

Software and Services Market Potential Revealed

Following up on Rivian’s software ventures, analyst Shreyas Patil sought clarification on revenue potentials outside the BW agreement. Scaringe noted a shift to a more integrated electronic stack within vehicles, which would pave the way for improved functionality and customer adoption of Rivian’s services over time. Such developments position the company favorably for growth in the software and services marketplace.

Engaging with Analysts for a Clearer Insight

As Rivian continues to navigate the complexities of the electric vehicle landscape, discussions with analysts reveal both the challenges of flat sales volumes and the promising avenues of software and service innovations. Maintaining a strategic focus will be crucial as the company adapts to market demands while striving for profitability.

Rivian’s Ambitious Road Ahead: Software Integration and Future Financial Targets

Strong Software Development Enhances Vehicle Value

Rivian has made significant advancements by integrating its software systems into fewer computing platforms within its vehicles. This strategic decision has helped build a brand that resonates with customers, who appreciate ongoing improvements delivered through monthly over-the-air updates. Each update not only adds new features but also reacts to user feedback and evolving technology such as generative AI. This agility has not only elevated user experience but has also spurred the launch of a profitable joint venture.

Valuable Joint Venture and Licensing Agreements

The company announced a $5.8 billion joint venture that underscores the strength of its platform. Much like the rigorous process of developing self-driving technology, building a robust hardware and software infrastructure is crucial for gaining competitive advantages. The continuous enhancement of features, such as connectivity through the vehicle’s software, sets Rivian apart.

Long-term Financial Outlook Amid Challenges

Looking to future margins, CEO Claire McDonough noted the complexity of assessing various revenue streams within the software and services sector. While the company anticipates margins around 30% in the near term, Rivian sees a substantial opportunity for growth as it separates its software services for clearer visibility on financial performance. Analysts also discussed the potential impact of the Volkswagen deal on Rivian’s 2027 financial targets.

Flexibility in Pricing Amid Policy Changes

In a discussion on the implications of the Inflation Reduction Act (IRA), CEO RJ Scaringe clarified that Rivian’s business model for its product lines is not solely dependent on the $7,500 tax credit. Although valuable, the company has designed its structure to remain flexible, acknowledging potential scenarios with or without the credit affecting different vehicle configurations.

Commitment to Efficient Operations and Product Launches

McDonough emphasized the importance of both the joint venture and software improvements for achieving EBITDA positivity by 2027. The company is focused on launching its R2 model, which aims to provide an affordable and appealing choice in the market while maintaining a low cost structure. As operations expand, Rivian is committed to increasing efficiency and decreasing operational costs, which will support the anticipated demand for the R2.

Closing Remarks Highlight Ongoing Promise

Scaringe expressed pride in the team’s strong fourth-quarter performance and reflected on the $31,000 cost reduction per vehicle, attributing this to unified efforts across multiple departments. He reiterated the excitement surrounding the R2 and its impending market introduction. With a keen eye on efficiency and growth, Rivian aims to ensure a seamless launch of this new model.

Duration: 0 minutes

Call Participants:

Tim Bei — Vice President, Investor Relations

RJ Scaringe — Chief Executive Officer

Claire McDonough — Chief Executive Officer

Dan Levy — Analyst

Javier Varela — Chief Operating Officer

Adam Jonas — Analyst

Mark Delaney — Analyst

George Gianarikas — Analyst

John Murphy — Analyst

Shreyas Patil — Wolfe Research — Analyst

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