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spk02: Good day and thank you for standing by. Welcome to the Rivian fourth quarter and full year 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tim Bay, Vice President of Investor Relations.
spk00: Good afternoon, and thank you for joining us for Rivian's fourth quarter and full year 2023 earnings call. Before we begin, matters discussed on this call, including comments and responses to questions, reflect management's views as of today. We will also be making statements related to our business, operations, and financial performance that may be considered forward-looking statements under federal securities laws. Such statements involve risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are described in our SEC filings and today's shareholder letter. During this call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in our shareholder letter. Just before the call, we published our shareholder letter, which includes an overview of our progress over the recent months. I encourage you to read it for additional details around some of the items we'll cover on today's call. With that, I'll turn the call over to RJ, who will begin with a few opening remarks.
spk01: Thanks, Tim. Hello, everyone, and thanks for joining us today. During our call, I'll highlight key developments during the fourth quarter, provide an update on the progress we're making against our value drivers, and discuss steps Rivian is taking to adapt to evolving market conditions in our industry. Before I dive in, as part of our ongoing focus on driving cost efficiency, we announced internally today the difficult decision to reduce the number of salary employees by approximately 10%. These difficult decisions, among other initiatives I plan to discuss, enable us to maximize the amount of impact we can have as a company. We hold the deep conviction that the entire automotive industry will electrify over the long term. This means, as an industry, replacing roughly 1.5 billion internal combustion passenger cars across the planet over the next couple of decades. Rivian's mission is to accelerate this transition. Major goal with the launch of R1 was to build a brand that deeply resonates with customers. Beyond our active owner groups and the R1S being the top selling EV in the U.S. priced over $70,000, an owner satisfaction survey conducted by Consumer Reports showed Rivian as the number one automotive brand with the highest likelihood for customers to purchase again. We intend to harness this brand strength as we launch R2, which will be unveiling on March 7th. R2 represents the essence of our brand while targeting the significant mid-sized SUV segment, a massive market with limited compelling EV options beyond Tesla. R2 has been developed with vertically integrated propulsion platforms, electronics, and software to create an incredible user experience. Our team is laser focused on the factors within our control that will drive Rivian's long-term value. These include driving cost efficiency, optimizing our production and deliveries, investing in differentiating technologies, enhancing the Rivian customer experience, and maintaining a strong balance sheet. The progress we've made ramping production and driving greater cost efficiency was significant in 2023. During the full year, we more than doubled production and deliveries and exceeded our initial production guidance by more than 7,000 vehicles. The team achieved this while also successfully managing complex integration of new engineering design changes, including our in-house drive units for both the EDV and R1 platforms, LFP battery packs for EDV, and new vehicle variants such as our MAX pack. Ramping production and introducing new technologies across multiple vehicle platforms has presented challenges, but importantly, our team has gained significant learnings in a compressed timeframe. This experience will be foundational as we execute against our 2024 plan. We took significant steps towards driving greater efficiency in 2023. Gross profit per vehicle improved by approximately $81,000 when comparing the fourth quarter of 2023 to the fourth quarter of 2022. As we start 2024, I want to emphasize our team's continued sense of urgency and ownership mindset in driving further efficiency throughout the organization. During our second quarter shutdown, we plan to incorporate additional material cost downs with the integration of new design engineering changes in the R1 platform, deliver further supplier cost reductions, capture the flow through of commodity price improvements, and further optimize our manufacturing expenses. We believe these steps position us to achieve modest gross profit in the fourth quarter of 2024. As we start 2024, I want to address the broader industry context, which I referred to during our third quarter call. Our business is not immune to existing economic and geopolitical uncertainties, most notably the impact of historically high interest rates, which has negatively impacted demand. In this fluid environment, we appreciate the expressed interest in demand visibility from the investment community. The conversion of orders to sales can be impacted by several factors, including delivery timing, location of order, monthly payments, and customer readiness. Our order bank has notably reduced over time as deliveries have more than doubled in 2023 versus 2022, along with the impact of cancellations due to both the macro environment and the customer factors I just referenced. For 2024, we expect our total deliveries to be derived from our existing backlog as well as new orders generated during the year. Our key focus is on increasing demand to achieve our 2024 delivery targets. Our go-to-market strategy is built on growing brand awareness enabling our direct-to-consumer experience, and importantly, providing more opportunities for consumers to experience our award-winning R1T and R1S vehicles firsthand. We are scaling our Rivian Spaces program, which is our equivalent of retail locations, and today we have 11 sites open across North America, most of which have opened in the last six months. These sites have garnered over 130,000 visitors so far in 2024. Complementing our Spaces footprint, our more than 50 service centers serve as another location for current and potential customers to experience our vehicles. We've provided over 13,000 demo drives already in the first quarter and consider this to be one of our key demand building strategies. We've also expanded the lineup of our vehicles and recently introduced our standard range variant, which provides an accessible price point for more potential Rivian customers. We're encouraged by the early results. The steps we're taking in 2024 will be foundational in positioning Rivian as a leader in the transition to electrification. The opportunity ahead is significant. We're taking deliberate action to drive additional cost efficiency as we continue building our go-to-market capabilities and develop our R2 platform. I would like to thank all those who continue to support our vision, including employees, customers, partners, suppliers, communities, and shareholders. With that, I'll pass the call to Claire.
spk03: Thanks, RJ. I'd like to reiterate our excitement for the long-term success of Rivian. Over the course of 2023, we made significant progress in all four key value drivers, driving greater cost efficiency, continuing to optimize production and deliveries, investing in differentiated technologies, and continuing to enhance the Rivian customer experience. During the fourth quarter, we produced 17,541 vehicles and delivered 13,972 vehicles which was the primary driver of the $1.3 billion of revenue we generated. Total revenue for the quarter included $39 million of proceeds from the sale of regulatory credits. We expect the sale of regulatory credits to increase over time, but to vary quarter to quarter. For the full year 2023, we produced 57,232 vehicles, which was significantly above our initial guidance of 50,000 vehicles and more than double 2022 production. Total gross profit for the quarter was negative $606 million. Gross profit per vehicle delivered was approximately negative $43,000. During the fourth quarter, costs of goods sold were negatively impacted by $70 million of costs primarily associated with our planned 2024 shutdown or approximately $5,000 per vehicle delivered. These costs include supplier-related expenses, accelerated depreciation, and other expenses related to the new technology and cost savings design changes going into the R1 platform. While we could incur additional costs associated with the planned shutdown and technology and design changes in the near term, we do not anticipate these costs to be part of our normal course of business in the longer term. During the fourth quarter, we also delivered a higher proportion of consumer vehicles due to Amazon's expected seasonality. For context, the proportion of our total revenue attributed to Amazon was 8% in the fourth quarter of 2023 versus 30% in the third quarter of 2023. Given our commercial vans have lower material costs due to the technology changes made in 2023, the lower deliveries during the quarter negatively impacted our gross margin. In addition, due to this dynamic, the vast majority of the increase in finished goods inventory in the fourth quarter of 2023 was related to commercial advance. Changes in LCNRV and losses on firm purchase commitments benefited our fourth quarter results by $7 million as compared to $106 million in the third quarter of 2023. a difference of approximately $6,300 per delivered unit on a quarter sequential basis. Next, I want to help provide more clarity on how we bridge from our fourth quarter 2023 results to where we expect to reach modest gross profit in the fourth quarter of 2024. The largest driver, which represents approximately 50% of the bridge, is our plan to reduce our variable cost per unit. The majority of this will be accomplished through material cost reductions planned as part of our Q2 2024 shutdown. As a reminder, this is through engineering cost reductions such as our ECU and wire harness simplification through our commercially negotiated cost downs and contribution from lower raw material costs. The second driver representing approximately 35% of the bridge is through our focus on driving greater efficiency through our production facility. As part of our planned shutdown, we are increasing the R1 line rate by approximately 30% to more efficiently produce vehicles. We also expect to see a benefit from declining LCNRV and firm purchase commitment balances in 2024. The final piece of the bridge, which represents a
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