Rivian Automotive, Inc.

Q3 2021 Earnings Conference Call

12/16/2021

spk13: Thank you for standing by and welcome to the Rivian Third Quarter Fiscal 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. As a reminder, today's program may be recorded. And now I'd like to introduce your host for today's program, Derek Mulvey, Senior Manager of Investor Relations. Please go ahead.
spk06: Good afternoon, and thank you for joining us for Ravine's third quarter 2021 earnings call. Joining us on today's call, we have RJ Scringe, our founder, chairman, and chief executive officer, Jiten Bell, our chief growth officer, and Claire McDonough, our chief financial officer. A copy of today's shareholder letter is available on our investor relations website. Before we begin, I would like to remind you, during the course of this conference call, our comments and responses to your questions reflect management views as of today only, and will include statements from related to our business that are forward-looking statements under federal securities law, including, without limitation, statements regarding our market opportunity, industry trends, business operations, strategy and goals, our second domestic manufacturing facility, and our expectations regarding vehicle deliveries. Actual results may differ materially from those contained in or implied by these forward-looking statements due to risk and uncertainties associated with our business. Except those may be required by law, Rivian does not have any obligation to update or revise such statements if circumstances change. For a discussion of the material risk and other important factors that could impact actual results, please refer to the cautionary statements and risk factors contained in our third quarter 10-Q filed with the SEC and today's shareholder letter, both of which can be found on our investor relations website at rivian.com slash investors. During this call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP and non-GAAP financial measures is provided in today's shareholder letter. With that, I'll turn the call over to RJ, who will begin with the opening remarks.
spk09: Hello, everyone, and thank you for joining us this afternoon for our first earnings call. As Derek mentioned, just before this call, we published our shareholder letter, which includes an overview of the progress we have made over the recent months. I'd encourage you all to read it for additional details around some of the items we will cover on today's call. Before I dive into some of our recent milestones, I wanted to provide a quick overview of our business and mission for those who are new to Rivian. Our generation will have a profound impact on the planet and the world our kids, kids, kids will inherit. We can spend a lot of time on the specifics of climate change, but the reality is we, as society, are rapidly changing the composition of our atmosphere. If we want life as we know it to thrive for many generations from now, we must change. This is what inspired me to start Rivian, and it's what drives the decisions we make as an organization, including the decision to become a public company. The challenge of shifting off fossil fuels is as big as it comes, and it's going to require people, companies, and entire industries to come together in ways we never have before. From day one, our focus has always been to maximize impact, to keep the world adventurous forever. The word forever is a humbling word. It's very easy for us to think about the world in the context of our lives, but when you think about the world in the context of the many generations to come, it requires we not simply inspire people to buy our vehicles, we must inspire shift in behavior and a new relationship with the world around us. The transportation industry is at the very start of a transformation, bigger in scale than the shift from the horse to the automobile. The business model, value chain, customer model, and technology will be completely remapped as we redefine how we move people and goods on our planet. Rivian exists to create products and services that help our planet transition to carbon-neutral energy and transportation. Our business encompasses both the consumer and commercial markets. In the consumer space, we launched our R1 platform with our first vehicles, the R1T and R1S, our handshake with the world, and our first step in building a relationship with our customers. Engineered for all of life's adventures, our vehicles uniquely combine performance, capability, utility, and efficiency. As of yesterday, we had 71,000 pre-orders for our R1 vehicles. In the commercial market, we are bringing to market the Rivian commercial van platform. Our first vehicle on this platform will be our 700 cubic foot electric delivery van, or EDV 700. We designed these vehicles working closely with Amazon, who has placed an initial order of 100,000 EDVs. Our commercial vehicles are designed with a focus on safety, comfort, and ease of operation. They offer a step change in driver experience while also delivering a lower total cost of ownership. Every commercial vehicle sold to Amazon is complemented by FleetOS, our proprietary end-to-end centralized fleet management platform with a recurring monthly subscription fee. The 700 cubic foot EDV has achieved a range of 201 miles based on internal testing using official EPA test procedures. We have successfully received our certifications to sell these vehicles, and we plan to deliver our first saleable vehicles to Amazon this month. Both our consumer and commercial products are supported by a full suite of value-added services that address the entire vehicle lifecycle and deepen our customer relationships. Starting with a clean sheet, we built a vertically integrated ecosystem comprised of our vehicle technology platform, cloud architecture, product development and operational capabilities, products and services. Our ecosystem is designed to deliver rapid development cycles, structural cost advantages, and exceptional customer experiences. After a 12-year journey of getting our strategy and offerings ready for customer deliveries, it has been incredibly rewarding to see the excitement and enthusiasm for what we're building. Over the past few weeks, We've received many recognitions and acknowledgments from editorial and news outlets, including Newsweek, Forbes, Electric, and Edmunds. To add to this list, earlier this week, the R1T was selected as Motor Trend's 2022 Truck of the Year after an exhaustive testing program. This award recognizes the truck that pushes boundaries across all aspects, including safety, efficiency, value, advancement in design, engineering excellence, and performance. We are honored by this recognition and the opportunity to illustrate how a clean sheet technology-focused vehicle could eliminate long-accepted compromise. After years of meticulous attention to detail, it was rewarding to hear Motor Trend state that this may have been the most significant recognition that they have given since the start of the award in 1949. Additionally, earlier this year, we completed a world first, a historic all-electric crossing of the US and R1T on the Transamerica Trail. From a production perspective, I wanted to highlight a significant milestone for our team, the production and delivery of our first vehicles. As the first saleable R1T drove off the production line in September, I was joined by my family and thousands of colleagues to celebrate this exciting and emotional moment for our organization. And earlier this week, Claire and I purchased the first two saleable R1S vehicles. We're at a steep part of our climb, but I couldn't be more grateful to be alongside such a dedicated and passionate team who have poured their energy and soul into bringing these vehicles to life. I'll stop on this point for a second and speak to our manufacturing progress. Launching and ramping production of three different vehicles within a few months is an incredibly tough challenge. This production ramp requires the simultaneous ramp of our supply chain, hiring and training of our production workforce, equipment bring-up, and rapid iteration through production quality loops. These challenges have been exacerbated given the state of our global supply chain, tight labor market, and of course the complications from COVID. As of yesterday, we have produced 652 R1 vehicles and delivered 386 of these, including the production sale of our first two recently certified R1S vehicles earlier this week. With 13 working days left at our normal facility, our dedicated teams are working as hard as possible to get as many customers or vehicles by year end. For 2021, we expect to produce a few hundred vehicles short of our initial 1,200 vehicle production target. Following the start of production for the R1T, we made the decision to begin introducing the R1S into the R1 production line, ultimately ramping up the R1S in November while also ramping production of the R1T was more challenging than expected. We produced enough R1Ss to support validation and certification, which are critical for our R1S production ramp in early 2022. Given the importance of R1S, this was a strategic approach that we felt optimized long-term value for the business. We are encouraged by the progress and learnings our team continues to incorporate into our operations, and we have achieved our primary objective of certifying the R1T, R1S, and EDB 700 for sale this year. In early 2022, we plan to complete certification of the EDV500, which is both narrower and shorter than the 700. Our production ramp of the R1T, R1S, EDV700, and EDV500 will continue into next year, and we remain confident in our long-term manufacturing trajectory. Just as we are scaling our manufacturing facility, hundreds of our suppliers are also scaling their production to match our vehicle ramp rate. Our procurement team has remained nimble and continues to work with our supplier partners across all tiers to mitigate issues stemming from our supply chain, the labor market, and the COVID pandemic. Given the uncertainty within the supply chain, we've decided to carry higher inventory levels than previously assumed to help ensure we consistently have parts to build. The good news is we do not believe any of our supply chain challenges represent long-term systemic issues. While our product development and manufacturing teams have been focused on ramping our normal production facility, our real estate and facilities team have been working diligently to ensure we remain well-positioned to capture and drive the accelerated large-scale adoption of sustainable transportation. We are excited to announce today our partnership with the state of Georgia, which will be the home of our second U.S. manufacturing facility. The site selection was the culmination of a comprehensive process in which the Rivian team evaluated a variety of sites across the country looking for the right combination of site location and logistics, access to talent, and proximity to suppliers. This project represents the largest economic development deal in Georgia's history. The facility will be east of Atlanta in Morgan and Walton counties and will employ more than 7,500 employees at peak production. From a construction perspective, we plan to break ground this coming summer with the intention of having the facility start producing saleable vehicles by 2024. The facility will produce our next generation of Rivian vehicles with an eventual target capacity of 400,000 annual units. I want to thank the entire state of Georgia. We're excited to make Georgia another home for us. The last major milestone I wanted to highlight was the completion of our initial public offering in November. in which we raised $13.7 billion of gross proceeds. We are extremely appreciative of the excitement and receptivity that our existing and new shareholders have shown. These funds enable us to execute on our near-term objectives, including the growth of our manufacturing capabilities, further investment into our vertically integrated technologies, and continued infrastructure and capabilities to support customer experience and engagement. As part of our IPO, we established Forever by Rivian, to extend our impact beyond the products we make and the associated competition they hopefully inspire. Forever's mission is dedicated to addressing our planet's climate crisis and preserving the critical biodiversity needed for our planet's long-term survival. With this, we donated 1% of Rivian's pre-IPO outstanding equity to Forever, making the natural world a stakeholder in our success. Forever will be focused on land conservation, sustainable consumption initiatives, preserving biodiversity, and research and educational stewardship. The value of Forever's equity is nearly $1 billion today, and I'm excited by the impact this donation can have in preserving the planet for future generations. Now I'll hand it over to Jitan who will touch on the customer engagement side of the business.
spk00: Thanks, Ajay. We continue to observe strong affinity for our brand as evidenced by the acceleration we have seen in our backlog of pre-orders. At Rivian, a preorder reflects a refundable $1,000 deposit and a configured vehicle including everything from paint and interior color to our accessories. As of end of our third quarter, we had approximately 48,000 R1 preorders from customers across the United States and Canada. Since then, we have added another 23,000 net preorders, taking our backlog as of yesterday to 71,000. Before I jump into a few additional customer experience milestones, I wanted to spend a few minutes walking through our go-to-market strategy. The Rivian go-to-market strategy is rooted in three foundational principles, all designed to efficiently solve existing customer pain points. First, we go direct to the customer. By doing that, we are able to ensure the quality of each interaction. Second, we are digital first, which means we have invested heavily in the robust cloud-based digital backbone that enables and enhances each interaction. We expect this will provide deep learnings, immersive experiences, and scalability as we grow. As an example, our intuitive digital purchase process replaces what otherwise requires several hours at a dealership with a self-paced, stress-free experience you can manage in minutes from your couch. And third, we maintain end-to-end control of the entire customer journey. This means every interaction is stitched together into one seamless experience through a set of vertically integrated digital and physical capabilities. These three foundational principles allow us to put the customer at the center of each touchpoint. Over the past few months, years of hard work, concepts, and design have been put into action. You will find further details in our shareholder letter, but I will touch on a few. In September, we kicked off our First Mile program. This program provides a variety of ways for consumers to experience the Rivian vehicle, including at-home demo drives and event-based experiences and drives. Since launch, we have hosted over 10,000 guests in our vehicles and have held drives in a handful of locations, including New York, Normal, Seattle, and California. Additionally, as we started to sell vehicles in September, our delivery team began to ramp up. As one of many interactions we have with our customers, we put a tremendous amount of thought into our delivery experience. Deliveries happen primarily at our customers' homes so that they can experience the moment comfortably with family, friends, and their whole community if they so choose. During these deliveries, a dedicated field specialist is there to walk the customer through everything they need to know about their vehicle and tailor the delivery experience to the consumer and the family. As we moved into October, we opened our first Rivian hub in Venice, California. If you're unfamiliar with our Rivian spaces, They are places for our customers, fans, and the local community to come together, connect, and share ideas. Our spaces portfolio will consist of hubs like a location in Venice, seasonal spaces which will be temporary in targeted locations, outposts in more adventurous locations, and lastly, large tracts of protected land that are accessible to customers. On the service side, we are prioritizing the rollout of our service centers targeting the highest concentrations of pre-order customers. The service centers are complemented by a fleet of mobile service vans, which will perform the vast majority of service tasks at our customers' homes while expanding the service coverage area. Our delivery cadence is synchronized with the service infrastructure to ensure a worry-free and highly responsive service support experience. Our 24-7 service support and predictive diagnostic capabilities will further enhance the service model. Next, let me pass the call along to Claire, who will provide an update on our financials.
spk01: Thanks, Jaten. I wanted to echo RJ and Jaten's excitement in talking to you all on our first earnings call as a public company. I'll start with a review of our third quarter results. In September, we delivered our first 11 R1Ts to customers, generating $1 million in revenue. As RJ mentioned, given that we just started production in September, the third quarter volumes on our manufacturing lines are a small fraction of our expected long-term production capacity. In the near term, we expect that this dynamic of high fixed costs associated with operating and running our large-scale, highly vertically integrated plant, amortized over a small but growing number of vehicles produced across the R1 and RCD platforms, will continue to have a negative drag on gross profit. As a result, in the third quarter, we generated a negative gross profit of $82 million. Additionally, we recorded a lower cost or net realizable value LCNRV adjustment to write down the value of certain inventory to the amount we anticipate receiving upon vehicle sale after considering future costs necessary to ready the vehicle for sale. This expense negatively impacts gross profit in the third quarter, and we expect it to also impact upcoming quarters in the near future. For example, in the fourth quarter, we have continued to build up our inventory balance to help mitigate the supply chain challenges we have experienced to date. We immediately record the LCNRV adjustment, which adds to the concentration of fixed costs we recognize as part of our cost of goods sold. As a result of these accounting dynamics, the marginal vehicle we produce in Q4 will have a limited impact on our cost of goods sold. And given the inflationary market backdrop, we also continue to evaluate the pricing for our vehicles. Turning to our operating expenses, research and development expense for the quarter was $441 million as compared to $220 million in the third quarter of 2020. The higher expense was due to increased efforts related to our R1 consumer vehicle program, as well as our EDV commercial van program. we also experienced increased expenses related to other advanced product development activities that are critical for our future products. SG&A expense for the third quarter of 2021 was $253 million, as compared to $68 million for the third quarter of 2020. The primary drivers of this increase are related to scaling our sales and service operations, commercial office locations, customer-facing facilities, and corporate functions to support future business growth. During the third quarter, we recognized a $458 million non-operating expense related to the loss in our convertible notes. This was the result of the issuance and subsequent mark-to-market valuation of our 2021 convertible notes. This was a non-cash expense. Our capital expenditures for the third quarter were $469 million, driven by our continued strategic investments in infrastructure. It was primarily due to the expansion of our normal factory, as well as investments in corporate facilities, service operations, and experience spaces. Now turning to our cash balance, we ended September with $5.2 billion of cash on our balance sheet. Since then, we've completed our IPO, raising $13.5 billion of net proceeds, and also raised $1.2 billion of net funds through senior secured notes. Adjusting our cash balance for these two fundraising events, we would have ended the third quarter with approximately $20 billion of cash on the balance sheet. As RJ highlighted, there's a tremendous opportunity in front of us to help drive the future of the $9 trillion transportation and services market. However, building out our organization and infrastructure to support our growth requires significant investment. The funds we have raised throughout 2021 offer us the opportunity to execute on our near-term objectives. However, we will continue to look for opportunities to pull forward investments to further accelerate our strategy. As we look a few weeks ahead, we remain focused on ramping our R1 production and deliveries. In addition, with the finalization of our EDV certification, we expect to start making deliveries of the EDV 700 to Amazon before the year end. We plan to provide full year 2022 guidance during our fourth quarter and fiscal year 2021 earnings call. With that, let me turn the call back to RJ before opening up the line for Q&A.
spk09: Thanks, Claire. As I mentioned, delivering our first R1T, R1S, and EDV vehicles is our primary goal for 2021. I appreciate our team for their focus and dedication to make this goal a reality. despite the unprecedented backdrop of COVID and a challenging supply chain environment. With the growing backlog of 71,000 pre-orders and our 100,000 unit order from Amazon, we are excited to begin to satisfy the tremendous demand for our products and services. Our team has rallied around our shared values and continue to demonstrate a tireless work ethic as we continue scaling our production volumes. Thanks again to everyone for being with us today. And with that, let me turn it over to the operator for questions.
spk13: Certainly. Ladies and gentlemen, if you have a question at this time, please press star then 1 on your touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue, please press the pound key. Our first question comes from the line of Adam Jonas from Morgan Stanley. Your question, please.
spk12: Thanks. Good afternoon, everybody. One question, one follow-up, please. On the capacity expansion, I thought the idea was to ramp up normal first see everything that works and what doesn't work, and then use those learnings to optimize the selection and the architecture of your second plant. So kind of why expand so soon, and how can you still get those learnings in?
spk09: Thanks, Adam. Yeah, this is a really key element of how we've thought about cascading the programs and how we've architected the product development organization to be capable of not only running more than one program and launching more than one program at once, but also to have those fast feedback loops between the different programs. So with that, the commercial van has actually learned a lot from the R1 platform and the R1 platform launch. And as we look at our next generation of vehicles, we'll certainly learn from what we're doing now on the R1 platform and what we're doing on the RCV platform. And recognizing that those programs will fully develop and then launch, what you see in terms of the second facility, the facility in Georgia, This is really key for us from an expansion point of view, and the timescales associated with bringing that plant online really require us to start that work, as you heard, early next year.
spk12: Thanks, RJ. And just as a follow-up, would love any feedback on the early builds that you've been delivering, what's going right, where there's issues, and how you're addressing them, and You know, in your last S-1, I think early in November, there was a comment that you expected the orders at the time, which were 55,400, to have them delivered to consumers, this is the R-1 I'm referring to, by the end of fiscal 23. I'm just curious if you can reiterate that today based on everything that you're seeing through your lens on the supply chain. Thanks, RJ.
spk09: Sure, Lee. I guess first, just to touch on how we're seeing the vehicles in terms of quality and what's being delivered. There's a tremendous amount of excitement. What we're finding is early customers are excited to invite friends and family to take rides, and we think that's part of what's driving the increased rate of pre-order accumulation. And from a quality point of view, this has been a really key element for us where we're focused on making sure what we're delivering maintains and really delivers on quality in terms of how the vehicles are built, how they're put together. And what's exciting is watching us add additional features. So through software over-the-air updates, we're able to not only enhance and improve the software capabilities in the vehicle, but to add features and to respond to some of the early feedback that we're getting. Oh, and with regards to... Go ahead. I'm sorry, Adam.
spk12: Yeah, the second part of the question on reiterating the delivery target by end of 2023.
spk09: Yeah, so we're working as hard as we can to ramp, recognizing the rate at which critters are coming in exceeds the current rate of production. We absolutely need to work to sort of have supply, so to speak, catch up with demand. So we do plan to have the existing perioders make those deliveries by 2023, but it will, if you place a perioder today and if you were delivered in that order, it wouldn't be until 2023 for that delivery.
spk05: Thanks, RJ.
spk13: Thank you. Our next question coming to the line of Rob Latch from Wolf Research. Your question, please.
spk07: Hi, everybody. Congrats on what you accomplished in the response to the first product. I wanted to ask you a little bit more about production, first of all. Obviously, a lot's coming together. Where are the biggest bottlenecks at this point in the ramp? Where are you focusing operationally? Can you give us some sense of where your daily production rate is now and what you expect to exit the year at?
spk09: Ramping something like this is really almost like an orchestra. We have We have to simultaneously be ramping the supply chain, simultaneously training the workforce, simultaneously working through any equipment issues and equipment bring-up, and then, of course, working through quality loops, as I said to Adam, just given the importance of making sure what we're delivering to customers is truly achieving the quality levels that we're committed to. So as we look at that, each of those represents its own set of challenges, and really what makes this situation and this timeframe is such a unique time to launch is just the supply chain constraints and supply chain challenges. What makes it challenging in the case of a vehicle is even if you have 99.9% of the components in the vehicle ramping, so the roughly 2,000 parts that come in and go into a vehicle, if 99.9% of those have ramped at the same rate of the rest of the production, the small number of suppliers or some small number of components that may be ramping a little slower can create constraints or bottlenecks. And so we've had to respond to that. We've been very focused on making sure we not only are effectively ramping what's in our plant, but also effectively ramping across all of our suppliers. And with that said, those challenges have been really a focal point for us over the last two and a half, three months. And as you heard, we don't see any long-term systemic challenges associated with ramping the supply chain. A number of these issues are short-term in nature and they're solvable problems. As we look inside our facility and the things that we directly control in terms of ramping our equipment and working through those quality loops, one of the areas that's been a constraint for us thus far has been building our battery modules. And in the case of the vehicles we're producing today, Each battery pack has nine battery modules in it. Each battery module has 864 2170 cylindrical cells. And the process of assembling the modules and those modules into packs, it takes quite a bit of assembly work, and it's a highly automated process. And what we've done to ensure this isn't a long-term risk is we actually have three separate lines that have been brought up. what we call essentially like a development line that's been running for a number of years now. We then have a larger scale line, a fully automated line, that's producing a vast majority of what will be put into the road thus far. And then we have what we call line two, line zero, line one, and line two, which is coming up as we speak. And this last line is significantly higher volume, and we fortunately took the decision early last year to commission this line, recognizing we didn't want to have battery modules as a long-term constraint. And we see this, while this has been a constraint to this point, we do not see this as a long-term constraint, given that we've added so much capacity over the last couple of months.
spk07: Thanks for that. And just also related to production, as your backlog grows, you're going to get to a point where people won't get delivery until 2024. It's a great problem to have. Claire mentioned that you're looking at opportunities to accelerate your strategy. Are there things that you can do to maybe accelerate the ramp that you'd originally envisioned for the R1 platform, just given the response to the product? Or are you, I think Claire alluded to inflation and looking at pricing. Are you looking at opportunities to adjust pricing just based on what the demand is for the product.
spk09: With regards to production, we're certainly looking at how we can accelerate the ramp given the really strong demand that we have for the products. One of the things that we built into the way we've designed not only the plant but also the organization is we've made sure that as we set things up, we are capable of exercising the discipline to ramp two lines in parallel. So we have our R1 line and we also have our commercial vehicle line. And not only those separate assembly lines, but those are also separate teams that are working on those activities. And what that allows us to do is to be really intentional around how we deploy resources. And that ability to be very intentional also allows us to look at increases in capacity. The plan has been for the plant here in Normal to grow capacity from 150,000 units between those two lines to 200,000 units. And it's part of the long-term plan for the plant. And we're looking at how we can accelerate that capacity increase, leveraging the disciplined teams that we've built. With regards to pricing, and certainly the backdrop of inflation that we're seeing and the very strong demand for products, not just within our product set, but I'd say broadly, within the electrified space has caused us to look at our pricing and really, I'd say, recognizing the set of product features that we've been able to put together into the vehicles. And the vehicles are incredibly, you've had a chance to drive them, they're incredibly fun to drive, very capable, over 800 horsepower, 0 to 60 in three seconds, great on-road, great off-road, but also a great everyday vehicle. So in terms of the competitive set, we recognize they're very aggressively priced. So that is something that we've certainly considered and talked about quite a bit as a management team.
spk13: Great. Thank you. Thank you. Our next question comes from the line of Ryan Brinkman from J.P. Morgan. Your question, please.
spk02: Hi. Thanks for taking my question. I wanted to ask about the pace of the orders you've been receiving. I think that they'd maybe increased in the lead-up to the IPO, given the increased attention the product was getting after the first media reviews with R1T, et cetera. Also, maybe just because of the increased attention the company was getting around the IPO. So it would be great to get an update what the pace of weekly orders has been looking like, if that took another big leg up after the IPO, with the company's name in the news, or maybe some of the marketing events you've done in California or elsewhere. Also, I'd be interested if there's been any maybe increased inbound interest in the RCV platform from potential non-Amazon fleet customers. Thank you.
spk00: You said it well. Over the last few weeks, we've definitely had an increased attention coming through all the coverage in the media. Equally importantly, with the launch of our First Mile program and getting the vehicles to the customers, having them experience those vehicles, our first deliveries to which started out predominantly to our employees, but then now are happening to non-employees and end customers. They've all resulted in definitely an increase in interest, demand, and what we're seeing in terms of the heat map of our demand is that it's getting more and more intense. You know, we're seeing demand grow in all the big markets that we were always present. The intensity of demand is growing both in the major markets and then also in the greater metropolitan areas around those major markets. So we are, I would say, more than anticipated, definitely, but the demand still needs to be robust. On the RCV platform, we have, as you know, we have an exclusivity arrangement with Amazon in the last mile space, and You know, Amazon being the biggest player in the last mile delivery space and having them as an anchor customer was a strategic decision that we made, allows us to learn fast, allows us to scale and how to deploy a large mega fleet. But outside the last mile delivery space, there is a huge market out there and we are seeing a lot of interest, inbound interest, We are actively engaged with players in this space, looking at different formats or configurations that could serve their specific use cases. So we are actually quite excited about the size of this opportunity outside the Last Mile delivery space. And what is even more interesting is the fleet OS. fleet management platform that we are launching with first vehicles that will be delivered with Amazon and it's going to be present with every vehicle that we sell as a monthly recurring fee. It also applies to other use cases and the scalability of this fleet management platform, the flexibility, the modularity of this provides us a lot of opportunities. to grow the services side of the business on the commercial side. So that's another unlock of value, long-term value that we've launched.
spk02: Okay, that's very encouraging. Thank you. And then just lastly, Omni, as a question on, I guess, battery sourcing strategy, how would you describe the relationship with Samsung? At what point does it make sense to have a maybe more custom-designed battery pack or maybe to insource or partner with a battery company to vertically integrate manufacturing of the pack? Is there a, I don't know, unit volume threshold or maybe a date in mind by which you would like to bring batteries in-house? How are you thinking about that?
spk09: Yeah, Ryan, this is a great question. In fact, I think it's probably one of the most important questions in the context of electrification. And really it stems from the sheer scale of increase that we're going to need to see as an industry in to produce all the batteries necessary to electrify, you know, 90 to 100 million vehicles a year, and eventually in the aggregate, you know, around one and a half billion cars on the planet. So as we've thought about this, we've developed a strategy that really has three, what I would call parallel approaches, and truly parallel, meaning these are not mutually exclusive. And in the first category or first element of that is sourcing an existing cell. And that's what we've done with Samsung SDI for our launch vehicles. And it's a cylindrical 2170 cell, high nickel content cell. And we've sourced that from existing capacity, capacity that already existed in the world. That type of deal we see as really being, we don't see a lot more deals like that happening across the industry. Essentially, as the demand for cells starts to climb, we need to be building new capacity. And what we see is the second category or second approach again, happening in parallel, is the need to create capacity or co-invest in capacity with cell suppliers. And we're certainly doing that. We haven't announced any of those relationships yet. But for us to continue scaling out 2023 and beyond, that co-investment in capacity is going to be critical for us. And then really the last parallel path, the last arm of the strategy for us, is taking an even more vertically integrated approach where we completely control the design of the cell and the sourcing of the raw materials that go into the cell. And that third approach is core to our strategy. We've been working on that for quite some time. And in fact, we'll be producing cells in pilot form starting late next year. And that vertical integration of the cell doesn't mean the first two categories don't remain super important. It just simply is in response to our intended growth. And when one looks at the amount of cells we'll need as a company, All three of those approaches, meaning sourced capacity that was already existing in the world, newly created capacity that we co-invest in with our supplier partners, and newly created capacity that we entirely invest in and control, all three of those pathways are going to be critical for us as we start to look out into the second half of the 2020s and scaling as a business.
spk13: Very helpful. Thank you. Thank you. Our next question comes from the line of John Murphy from Bank of America. Your question, please.
spk11: Hey, everybody. Just a first question on the ramp of the preorders, because they're certainly a bit faster than maybe we were expecting, and we thought you'd have to have more of these trucks out on the road to really build this momentum, but it's coming fast and furious here. So I'm just curious, relative to your expectations, how the preorders are rolling in, And if you have any early read sort of on the demographics and the vehicles that are, you know, certainly not being traded in directly here, but where these buyers are coming from, any sort of specifics around these folks? Because, you know, it's a lot and it's pretty quick.
spk09: Yes, it's certainly exciting. The response to the vehicle has been outstanding. And what we're seeing a lot of over the last year really over the last couple of months is heightened awareness of the company. Certainly the IPO contributed to that. But a lot of it's also been just the broad coverage that we've seen from a variety of different outlets and media sources. As I mentioned earlier, Motor Trend's selection of us as their 2022 Truck of the Year and their comments and sort of excitement around the vehicle is emblematic of what we've seen from a number of different publications. Coupling that with just more awareness of the vehicles, so some of our drive events that we've done, and then the early deliveries we're doing. We often joke every early customer turns into a sales representative for the company because there is just so much excitement for the vehicle and so much excitement for the product. With that said, we do expect that to continue. We expect as awareness continues to go up, that will lead to continued increase in pre-order demand. And to some of the earlier questions, it certainly has us focused on how do we make sure we continue to ramp production and, as we talked about, look for opportunities to pull ahead on our volume ramp.
spk11: And I'm sorry, RJ, any early read on who these folks are? Are they pre-priced buyers that are stepping up into trucks or are they truck buyers that are staying in trucks? I mean, what's the early read on sort of the folks that are placing these pre-orders?
spk00: Yeah, absolutely. I think this has been one of the, you know, it sort of has validated the strategy and the hypothesis that we had in terms of positioning of the R1. You know, we had always intended this vehicle to be in this white space and by definition, the white space should be attracting share from a lot of adjacent markets and segments. you're absolutely right uh this what we are finding is a true validation of that uh hypothesis where a vast majority of our customers are coming from one never having owned electric vehicle two for the r1d um we have close to 90 percent of customers that have never owned and owned a truck um And that has been one of the factors where this vehicle is attracting so many shoppers and so much of cross buying activity that is resulting in, you know, interest in the product, you know, with this and I will add, this is A lot due to the coverage and the experience that our customers are having with the R1P. We are expecting this to actually only get even bigger once the R1S hits the market. People are able to experience that up close and personal, are able to drive in it. So we are definitely, it is more than we anticipated, absolutely. Very encouraging and As RJ mentioned, it has also opened up opportunities on what we could do from the quality of earnings, from a pricing point of view. So we are looking at all these options right now.
spk11: It sounds like you have a real high-class problem on your hands. Just lastly, on the Georgia facility, you know, 7,500 jobs, you know, use a multiplier on that. You could certainly argue for Georgia this is going to be 50,000 to 100,000 net incremental jobs all in when you go through the – you know, the value chain. I'm just curious, as you worked out this deal with Georgia, you know, what the terms are. And, you know, Claire, I mean, if you were to think about this on gross CapEx versus net CapEx, I mean, you know, how big a benefit is it going to be to have worked with Georgia versus what you would have spent otherwise?
spk01: Sure. So, relative to our original plan record, as we thought about, you know, the overall cost for our second facility, I would say that this is certainly an advantage position to what we had originally anticipated in terms of a gross capex metric that we would put out there in the market. And so we've worked really closely with, you know, the state of Georgia across the incentive package here. It's a very attractive one for Rivian. And we're really excited about, you know, not just the incentive package, but as you mentioned, the true talent pool that exists within that market that we think will be really optimal as we want to, you know, scale production and build out a significant, you know, second facility in the U.S. market.
spk11: Could you quantify that at all? I mean, it's a really good thing for Georgia. So, I mean, they should be pitching in. I'm just curious what, you know, maybe relative to your base case expectations versus what you're able to work out here, if you can give us an idea of what you got on the capital side or NPV it.
spk01: I would say we'll have more to come on that in future announcements. But right now, I would just say that it's certainly a great deal for Rivian and a great deal for Georgia as well.
spk13: Okay, great. Thank you very much. Thank you. Our next question comes from the line of Brian Johnson from Barclays. Your question, please.
spk05: Yes, thank you. I just want to drill a little bit more down on the production ramp. You know, if you kind of think through it, you mentioned the word constraints, which, of course, brings to mind the classic theory of constraints. You know, could you maybe describe in a little bit more detail where you think the key constraint is now? You did mention perhaps the welding of the battery packs. And how do investors get confidence that that, you know, the constraints can be knocked off versus their worst case something fundamental about the design of the vehicle or the battery packs that would complicate any ramp?
spk09: In ramping up a production system like this, it is, as I said before, a really complex orchestra. So you have hundreds of suppliers providing thousands of parts, thousands of robots within the production facility operating to prescribed movements, and then thousands of team members assembling and working to put the vehicles together. So as we go through that process, we have multiple meetings throughout every day tracking how we're managing all those different constraints and as the lines, each aspect of the plant, whether it's stamping or body shop or paint shop or battery assembly or drive unit assembly or general assembly of the full vehicle, whether there's any constraints within those and how we continue to progress the hourly and daily output. And with that said, we're ramping largely as expected. The battery constraint is really an artifact of of just bringing up a highly automated line. And as I said, that doesn't represent any long-term challenges for us. We have a second line that's coming on that will put the battery module production way out in front in terms of capacity of the other areas of the plant. So as we work through these quality loops, as we work through training our workforce, this is part of the challenge. And I'd say We just need to recognize that the plant is designed to run at significantly higher output, and what we're seeing today in terms of output just represents the front end of an S-curve, which is typical for this type of a ramp-up.
spk05: And just to follow up, you know, anything in terms of having to go back to the drawing board and either the configuration of the pack, particular parts or things that would be longer cycle fixes as opposed to just ironing out the kinks and attacking bottlenecks on a daily basis that come up.
spk09: No, we don't see any long-term systemic challenges with either the supply chain or with the way that the vehicle's been designed or the manufacturing plant has been designed.
spk05: Okay, thanks.
spk13: Thank you. Our next question comes from the line of Mark Delaney from Goldman Sachs. Your question, please.
spk03: Yes, good afternoon, and thank you very much for taking the questions. I was hoping to start on the commercial side of the business. The 201 miles of estimated range that you're seeing, it's very attractive, I think, would cover a number of routes. And so I'm hoping to better understand what it may take to build upon that initial 100,000 order from Amazon. Is it executing on some of the technical milestones as you seem to be doing, or would it be more around having to hit a certain percentage of that order in terms of delivering vehicles before there may be upside to that initial 100,000?
spk09: Yeah, Mark, it's a good question. As we think about the commercial space, and Jutan spoke to this earlier, Amazon represents such a large pool of demand for us. And as a result, we're very focused on making sure that we deliver to their needs. And they're not only the largest player within the last mile space, but they're also the most rapidly electrifying. So it's really critical that we do not starve them of vehicles. Now, saying that, the vehicle platform, the RCV platform, was architected and designed fully contemplating vehicles beyond last mile. So that's in the cargo space. That's in the workspace. So there's a whole host of opportunities that exist both in large volumes but also across a very long spread-out tail of commercial applications. And so for us, bringing up those non-EDV versions of the vehicle – is something that we are focused on, and the design team and engineering teams are working towards that. But we're balancing that with just managing how much complexity we're introducing into the plant and wanting to do that at the right rate and at the right time. As you heard me talk about earlier, over the course of the next quarter, we'll be ramping up not just R1T, R1S, and the EDV700, but we're introducing the EDV500, which is a narrower and shorter variant of the EDVVAN. Adding additional variance on top of that will come, but we're balancing the desire to minimize complexity while we're ramping up production.
spk03: That's helpful. And for my second question, I was hoping you could comment on the supply environment in terms of semiconductors and other components. It's been tight for a long while now, and a few auto companies have started to see a little bit of easing as we move through the fourth quarter, reopening some previously closed factories. At the same time, you now unfortunately have the Omicron variant that could perhaps complicate things. So I was hoping to give you a bit more specific on any changes that the company may be seeing in its supply chain environment. Thank you.
spk09: Yeah, the supply chain environment has been incredibly challenging. It's unprecedented in the number of issues that we've seen as an industry across a variety of different commodities and components. Certainly, semiconductors is one of those, and we're very, very focused on that. It's A week doesn't go by where I'm not speaking to heads of some of our major semiconductor suppliers. With that said, I'd say the element of this has really worked in a positive way. We've taken a very transparent approach with our suppliers to both communicate to them our ramp and to be very clear on expectations. In return, we also have a clear picture of what their ability to supply is and how that translates to our ramp. and we're managing that very thoughtfully. Semiconductors certainly gets the most attention, but I'd say that's true across the rest of the supply chain. And in a lot of cases, the areas where the constraints have been challenging for us over the last three plus months have been in areas that might not be expected. These are smaller suppliers that have been unable to hire a second shift or smaller suppliers that are having issues with COVID. So we're seeing a lot of those types of challenges, and in bringing up our supply base of several hundred suppliers, we've got a team that's very hands-on with all these different suppliers, working with them closely, in many cases working with them in their production facilities. So we have both very good visibility, and we're also working very collaboratively to make sure that they achieve their aim.
spk13: Thank you. Our next question comes from the line of Emmanuel Rosner from Deutsche Bank. Your question, please.
spk08: Yeah, thank you very much. My first question is around software and subscription. On what timeline would you expect to start essentially seeing some of these revenues, both on the commercial side with Amazon? Is that going to be from day one? And then on the consumer side? And then any sort of like initial views on the consumer side in terms of take rates or sort of like average subscription revenue per vehicle?
spk00: Yeah. Hi, Emmanuel. So two parts to that. So on the commercial side, just to confirm, the Fleet OS sort of goes live at launch. In other words, as we start deliveries to Amazon this month, Each vehicle comes with a recurring monthly subscription of FleetOS. And the set of features that are included, we consider them as a V1 of a feature set. And as these vehicles are deployed and operational, we expect to grow this feature set by creating more value on the TCO level for Amazon. So that software subscription goes live basically now on commercial side. On the consumer side, the software side or the services side of our business has different flavors. The primary flavor is membership, which every vehicle owner today gets a complimentary membership for a year. And our goal is that At the end of that period, we would actually start charging our customers a monthly fee, and that would represent, again, a basket of features which will include but not be limited to charging, roadside, and connectivity. There will be other elements into that membership offering that we are working on. and curating and designing it diligently. And you will use this time, this time where the members get this free membership to build that basket. Apart from that, there are other flavors of software subscription which could be on an individual software basis. or other bundles that we would put together. We expect to work on those and announce those in the coming months, but yet it's early for us as we've just started doing deliveries, which comes with a pre-membership period.
spk01: The only other point that I would just add on that from a services perspective is we have seen strong uptake in regards to our insurance and financing as well for the vehicles. Given the really seamless experience, you can go through our transaction to delivery process in a matter of minutes. I've gone through it twice myself in literally less than 10 minutes. And so the ease of use and simplification of that process has really shown through from a take-rate perspective, especially on those two leading-edge features that are part of that initial transaction as well.
spk08: Okay, that's great, Caller. And then... My second question, coming back to the topic of ramping up production. So, RJ, I understand your point around it not being structural and obviously to be expected, I guess, with this kind of challenge and environment. But based on what you've seen so far and sort of going through these issues, are you generally confident that your ramp-up should be on target to be able to deliver some of the 2022 targets? There were obviously some you know, reports early a few weeks back around some of the SUV delivery timeline being sort of like pushed out. And so overall, are you confident that, you know, this is mostly the rearview mirror and going forward of your tracking in line with some of your delivery targets?
spk09: Yeah, we're quite confident in the path ahead. I guess it's worth just commenting a little bit on what the activities have been over the last three months. And, you know, I said it at the start of the call, but it's important to reiterate. We're launching three vehicles this year. So we had the first R1T drive off the line in September. We just sold the first two and delivered the first two R1Ss this week, actually to Claire and I as the first two customers. And we'll be making deliveries on the EDV 700 very soon here before the end of the year. And when you look at those three different launches, there's also, of course, three different certifications, so all three of those vehicles have been certified for sale, and they're being produced on two different production lines. So there's a line that's producing the R1 products, and there's a line that's producing the commercial vehicle products. And as we've discussed before, and this is such a critical element of what we're building, we wanted to make sure the company and the organization was architected to facilitate running and operating multiple programs at the same time. One of the challenges that we've seen over the last two months has been bringing up R1S on the R1T line and recognizing that because it's a shared line, we just started production of saleable units on R1T in September. And then within a few weeks, we were putting R1Ss into the line as well. And that proved to be more challenging than we had anticipated, but fortunately we managed through it, and we were able to produce enough vehicles to certify the R1S and put that through the validation process. And it was a decision we took, and we took the decision to rapidly integrate the R1S into the line while we were still ramping R1T, given really our long-term focus and what we see is being critical long-term for our brand and for our customers of having both those products in the market as quickly as possible. And so as we now look at what the ramp will look like for both R1T and R1S into next year, having done those activities this past fall and having certified both the R1T and the R1S, as well as the commercial van, the EDV, it really positions us to rapidly grow through the course of 2022.
spk13: Great. Thank you. Thank you. Our next question comes from the line of Alex Potter from Piper Sandler. Your question, please.
spk04: Perfect. Thanks, guys. First question is on in-house cell capacity in Georgia. You alluded in the investor letter that you'll have in-house cell capacity contemplated to be co-located with that facility in Georgia. I'm interested. Is that... going to be the case from day one in 2024, or is it something that you're working into the plan to eventually have in Georgia?
spk09: As we think about the Georgia site, and this is one of the key considerations for us as we looked at different sites around the country, this is a platform for us to grow from. So as we introduced the first products there, the plant would immediately start at 400,000 units of annualized capacity. We'll grow to that. And in much the same way, we've sized the site, and in the site selection process, we've made the selection contemplating a significant amount of battery cell production, but that will come in over phases. And so when we first launch the site, it will be just vehicles, and then shortly thereafter, we will add our in-house cell production. And then in-house cell production will grow quite dramatically over the course of the following years. And given the criticality of that from a cost structure and from a scaling point of view, it's something that we've placed a lot of emphasis on in selecting this site. Okay, great.
spk04: Then the second question, just on DC fast chargers. If I recall, you were working on a target of 600 or so DC fast chargers in the network. Just curious to hear if that still is the target, what the timeline is behind that. and any opportunities to accelerate maybe also regions of initial focus. Thanks.
spk00: Yeah, absolutely. We are on track for the long term, our 2023 target of having 600 sites. We are prioritizing sites and synchronizing it with locations where we are making deliveries, along with setting up our service and support infrastructure. So we're trying to create doing this in a planned fashion and in stages. There are multiple sites across the country that are in different stages of commissioning, both from procuring the sites, setting it up, and we believe having a robust charging infrastructure is going to be critical in the adoption and also from a customer experience point of view, and we are continuing to invest in that area of our business and progressing.
spk04: Great. Good to hear.
spk13: Thanks for taking the questions, guys. Thank you. Our next question comes to the line. George from Baird. Your question, please.
spk10: Hey, everyone. Thanks for taking my question. It's sort of tangential to a previous question asked, but some of your auto OEM colleagues have recently secured a critical material supply chain contracts, and I'm curious as to how you think about the EV material supply chain and how much of a priority you place on making sure you have materials for the next several years as you ran production. Thank you.
spk09: Very similar to the comments I made before with regards to overall battery cell production, we have incredibly strong conviction around the importance of playing an integral role in the far upstream supply of the battery raw materials. And we've built our team to really drive that. So that's understanding deeply the mining space, understanding deeply the processing space, and of course, understanding deeply in designing the in-house cells that then support that or leverage that, I should say. So with that said, we expect and we believe that a lot of the investments necessary to rapidly build up the upstream supply of raw material. And when I say rapidly build up, I mean increasing the capacity of the upstream supply chain by a factor of 20 to 30 X over the next 10 to 15 years. We believe that the end customers, in this case the OEMs, ourselves included, will need to take a very active role in that. And while we haven't made any announcements in this space, it's certainly something that we're very focused on.
spk13: Thanks. Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to RJ for any further remarks.
spk09: Well, thank you, everybody, for joining the call. It was great to spend time on some questions here and provide some updates on the business. We're really excited about the path ahead and really excited to have such strong support from our investors and partners, and we look forward to future discussions. Thank you.
spk13: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Disclaimer

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