Rivian Automotive, Inc. (RIVN) Earnings Call Transcript & Summary

Okay. Great. Thank you, everybody, for joining us. My name is Mark Delaney, and I have the pleasure of covering Rivian for Goldman Sachs. I'm very pleased to have with me today, RJ Scaringe, Rivian's Founder, and CEO. Thank you very much for joining.

It's great to be here.

RJ, I wanted to start off with the R2, really exciting future product. Tell us a little bit more about the R2 and why that's so important for the company. And on the topic of R2, the company had talked about having over 100,000 nonbinding preorders for the R2. And really, you're not disclosing preorders at this stage. But tell us a little bit more around how you think demand will be for that product and how you're assessing that?

Yes. I mean R2 for us is it's really the most important program we've had where it represents. We're going from our flagship product with R1, which has been wonderfully successful in terms of demonstrating the brand, connecting with customers as we often say, being our handshake with the world. But nonetheless, it's a high price point flagship product, ASP, average selling price around is $90,000. Whereas our R2 starts at 45, it massively broadens the aperture of demand for us. And so it really represents an inflection point or a step change for us to go to much higher volumes and with that, of course, cover our fixed costs and allow us to get to -- it's a big enabler for us to get into a positive free cash flow. In terms of demand, the reaction to the product has been outstanding. Really leverages and jumps off of the brand that we built with R1. And as you said, a lot of orders have come in. We haven't announced the numbers. We put a number out after the first 24 hours. So we launched it in the spring of 2024, we unveiled it. And within 24 hours, we've had around 70,000 orders. We just put that out there just to say, hey, people really love it, but then we didn't want to get into the practice of having to update the order number every month or something. So we haven't said anything since then. I think there's been some reports shortly thereafter that it eclipsed the 100. And I think there are some reports that eclipsed further numbers. But look, the excitement is really strong for it. And for us, we're taking that as a really key motivator for making sure we get the product right, have a smooth ramp, making sure the supply chain is healthy and ready to support our growth.

Well, you guys were kind enough to have me at the launch event. I can vouch for the fact that it's a really awesome looking vehicle. I'm not surprised to see you guys rack up so quickly for it. Of course, you have to manufacture it, right? And so maybe we can talk a little bit about that. You're supposed to begin shipping the R2 in the first half of '26. It's less than a year away now. So tell us more what's giving you confidence you can hit that target in the first half of this coming year..

Yes. I mean we're doing all the things you'd expect us to be doing. So we've got validation builds that are running today. The health of the program relative to everything that we've done before is really high. We're just such a mature organization relative to, let's say, when we launched our R1 product. And so that means our suppliers and the bring up of those suppliers and the inclusion of production content and prototypes gives us a lot more confidence in the ability of all those suppliers to ramp up. The contracted cost that we have to support the bill of materials in the vehicle and the associated cost of -- which is for the bill of materials, which is a big driver of the overall COGS has been really robust. And the plants that we're going to be building this in, we're building it at our campus in Normal which is where we build our R1 and our commercial vans. But we've built out a new general assembly area for R2 and a new body shop, and that's come together really nicely. And so today, we're like head down. The whole organization is focused on it. Everyone realizes the importance and getting the enthusiastic response from customers as I'm saying, has been great, great motivator. I've been driving an R2 for a little while now, including picking up my kids from school. Now it's a camouflaged vehicle, but it is so awesome. It's without question, I've never been this excited about a product for anything that we've ever developed. It's really cool.

I think the Normal facility has the potential at full capacity to make 150,000 R2s per year. This year, the company is planning to make about 40,000 to 46,000 vehicles and deliver that many across the R1 in the commercial van portfolio. How fast do you think you can ramp R2 to that kind of scale? And are there any key learnings you're incorporating from the R1 ramp?

One of the biggest challenges we've had with R1, we launched R1 at the very end of 2021, and that was -- of course, we built the plant, set up the plant and then launched the product in the middle of COVID. And subsequent to the initial launch, we then had a lot of the supply chain crisis, which seems like it was a long time ago, but in 2022 and extending into 2023. And as a new company with a new supply base, we had just a whole host of challenges with getting enough parts to build our vehicles. And with R2, we spent a lot of time making sure, as I described it before, not only is the part design and the system design robust, but are the suppliers capable of supporting a ramp-up. And that is ultimately the gating factor for how fast we can ramp production on this new line in our facility in Illinois. And the work we're doing now is to make sure that that's ready. So we're not waiting until the last minute. We're doing supplier validations. We've got lots of teams that are now built processes around being on site and working with those suppliers. And there's a whole host of proof points and gateways as we call them, that look at readiness of each supplier to support this pretty aggressive ramp that we have going into the end of 2026.

You said before, R2 is a vehicle that could make sense for the European market. Tell us a bit more on that? And what sort of timing might investors expect for when you could be shipping R2 to the European geography? .

Yes. I mean R2 and its sibling product, R3 were both designed from the get-go to support not only U.S. sales but also European sales. And we haven't announced the European timing, but amongst all the things that are changing in terms of our trade environment and trade policy. It looks like the likely outcome of 0% tariff to go from the United States to Europe is going to stick. In which case that makes Europe an even more attractive market for us to export R2s from the United States into Europe. So we're watching that really closely. And provided that sticks. I think it will be a really strong tailwind for us to be more aggressive in rolling out in Europe.

You said you could explore out of the Illinois plant to sort of that geography, but is there a lot of local infrastructure you would need, distribution, service, things like that? Maybe talk a bit more on some of those other aspects, if you do go into the European market?

Yes. I mean we're direct-to-consumer and so big area of investment for us as we've grown has been building out service infrastructure, distribution infrastructure, of course, sales infrastructure. As we go into Europe, we don't have a lot of that infrastructure. That has to be built. The environment there is quite a bit different than what we have in the United States where you can have more of an omnichannel based approach. Where in the U.S., you can either be entirely direct or you can leverage third parties to sell your product and pay them a pretty significant amount. And so in the U.S., we've been very specific on staying direct-to-consumer. That is still the plan for Europe, but it's just worth noting that the ease of accessing things like service infrastructure are a little bit easier. The other thing to note is we do have some footprint in Europe today. We have service to support the rollout of our commercial vans with Amazon. So we've got some experience in both setting up infrastructure and then operating that infrastructure. In Europe, we have our European entities to do that already, but those need to be skilled dramatically to support R2.

I want to talk a bit about manufacturing technology, not necessarily specific to the R2, but just as you think about Rivian and the industry, a couple of your competitors, including Tesla and Ford have talked about moving to a more parallel type of manufacturing. Tesla's called it unboxed and Ford called it an assembly tree. Is that kind of manufacturing technology and approach something that Rivian would consider in the future?

I mean our biggest focus when we think about vehicle program, as we look at it, we look at the cost structure in a really holistic way. And by far, the biggest cost driver for every manufacturer, ourselves included, Tesla included, Ford included, is the cost of the bill of materials. And so as much attention as the plant gets and as important as the plant is it represents on the order of 20% of your overall COGS. And so with that said, a lot of our focus around innovation on R2 has been in simplifying the product design through either part consolidation or part elimination. And in terms of like the exact sequence that then manifests in terms of how the car comes together, a lot of that ladders off of simplifying the part design or simplifying the product design. And sometimes you have competing objectives. So to make a plant flow easier, you may want to more modularize the vehicle, but then you have more joints or fastened assemblies versus to simplify the bill of materials, you want to have less parts and less joints. And so we've come up with on the launch of R2, something that still uses a linear line. So that's parts being fed to the line as the car gets built up, but has dramatically reduced the amount of cost in the vehicle through this part consolidation part elimination. As we look at Georgia, we're looking at what's our next phase of R2 production. We are looking at further ways to evolve our manufacturing model. But it'd be premature to say those -- what those look like today. Yes. And I think it'd also be premature to categorize them what is being, let's say highly similar to what Tesla is doing or to what Ford is doing?

Very interesting. Maybe you could talk a bit on some of the current products you're selling, starting with the R1. In your Illinois facility, you have the potential to make 80,000 R1s a year, this year, something sub 40. What would have to happen for R1 to get to those kinds of volumes where you'd use up that level of manufacturing space? And would it require a much lower-priced SKU of R1 in your opinion?

Yes. As I said, the R1 -- this is public, the R1 average selling price is around $90,000. It's -- in terms of market penetration, it's by far the best-selling premium electric SUV in the country. So if you look at it, the premium SUV market, let's say, in the state of California, we actually have the best-selling premium SUV electric or nonelectric in California. That's also true in the state of Washington. And then if you look at premium electric SUVs with the best-selling premium electric SUV in the U.S., so it outsells everything else, Model X, products from European brands, it does really well. And so of course, the boundary diagram matters when you're thinking about market share. But the way we've drawn the boundary diagram, we have, we believe, about 35% market share there. And if we can take that type of market share success that we had in a segment that has a relatively limited number of buyers because of the price point and apply that to where the R2 is, which is the biggest market. The average selling price of the car in the United States is around $49,000 and the most popular configuration is a 5-seat, 5-passenger crossover SUV. We only need a fraction of the market share success that we've had in R1. And so we're very, very bullish on the market for R2. I think the natural question then becomes, as you put it, how we divide our volume? And what we've done in our plant in Illinois is we have some fungibility between building R2s or R1s, and the constraint for us is our paint shop. And so we could either build, as you said, up to 80,000 R1s, but that would come at the cost of some of the R2 capacity or we could build more R2s. And so between R1, R2 and our commercial vans, we can build a total of 215,000 units. And what we're planning to do is to bias as many of those as possible towards R2, given it's really advantaged cost and, therefore, really strong unit economics.

Okay. No, that makes sense. Well, R1 is a premium product and you have some premium trims. You launched the quad motor variant in July. On your last earnings call, you talked about the tri-motor and you said demand there has been strong. Can you just talk a little bit more on what you're seeing for those products related to premium, but I mentioned it also has some good margin and obviously, really good performance.

Yes. We've seen the take rates for our premium variants in particular, this tri-motor that you just referred to, be much stronger than we had anticipated, which is a great outcome. That's what we hope for. So we're seeing our ASP trend upward as a result of that. I think with the launch of R2, we think that R1 will further -- move further upmarket because it will take some of the more price-sensitive customers, and they would be more naturally drawn into R2. And that gets back to this volume split as we have the opportunity to move R1 up market, let it to ASP grow a bit and then capture more volume-sensitive customers. And therefore, some of the larger -- some of the larger number of customers with the R2 vehicle.

Okay. Makes sense. I just wanted to speak a bit more on the commercial part of your business. Amazon initially ordered 100,000 commercial vehicles by 2030. The estimated deliveries to date would imply a step-up in EDV deliveries from here to reach that total, is that 100,000 total still on track?

Yes. Yes. This continues to go well. It's ramped slower than we had originally hoped for a lot of reasons. But it's -- year-over-year, we expect it to grow quite meaningfully as we look at going into '26 and '27. And then I'd say we're also thinking about what comes beyond that initial 100,000 unit contract. And as I think all of you know, Amazon's fleet is considerably larger than that. And so there's real opportunities for us to continue to penetrate across the fleet. We are a vehicle that the drivers very clearly prefer. This is pretty well documented. There's lots of videos about this out there on just the driver preference for our vehicle. And so one of the big cost drivers for Amazon is driver retention or driver turnover. So the fact that the turnover levels are much lower with our vans is just emblematic of how much the drivers enjoy being in the vehicle.

You talked about the potential to expand the commercial business to other fleets and businesses, what do you think it would take to see that kind of response and increase traction beyond Amazon in the commercial part of the business?

I think in the fullness of time, we're going to see the commercial space will electrify. I think for a lot of reasons, it's gone slower than we thought it would. And I think the natural big buyers of commercial vehicles have been slower to adopt. And there's lots of compounding factors for that, one of which is some of the businesses that would be buying these are capital constrained. In the moment, you also have a big shift that's happened geopolitically and a lot of these companies are sort of aligning to that and being careful to -- being careful on how quickly they electrify. But I think over the course of the next 5 years, we're going to start to see a number of folks jump in. And what's going to drive that is nothing other than the economics. The total cost of ownership and the total cost of, let's say, delivery is notably lower in electric vehicle, if you take a long enough time horizon. The operating costs are much lower, of course, but just have much lower service intervals. And then as I said, because of the way the vehicle has been designed, we have much higher levels of driver retention.

No, that makes a lot of sense. Well, let's talk about some technology topics I've really been looking forward to the opportunity to speak with you on some of the things Rivian has underway in that broader area. Maybe we could start with the electrical and electronic architecture. You have an agreement with VW in a joint venture to provide about $6 billion of capital in various forms to Rivian over time. Gives VW access to utilize your electrical and electronic architecture. I guess the question that comes to mind for me is why do you think VW chose Rivian as a partner? And why would they utilize a partner at all and why Rivian as opposed to doing this in-house or maybe even using a Tier 1?

Yes. I mean, it's worth taking a little bit of a step back and talking about how electronic architectures, as we know them today, got to where they are today. And so this is really important as we start to think about software-defined vehicles and vehicles that have regular updates and new rich features being added to the vehicle set. But the way that electronics first made their way into cars started actually in the 1960s and started ironically with fuel injection systems. So prior to the early 1960s, every car made was completely analog. Meaning there's no semiconductors in the car. There's no computers in the vehicle. And the first computer system that made its way into a car was a small little chip, that was part of an electronic fuel injection system. And for those car enthusiasts group, these are things like the Bosch K-Tronic platforms and some of the things that if you've restored old cars, you may know of. But that set off the very beginning of a highly organic and I would say, very unplanned proliferation of electronics into vehicles. And what subsequently happened over the last 60, 70 years has been a bunch of different functions went from being analog to being electrical and as those functions became electrically controlled, and they transition to that with a controller. So let's say your fuel injection system was the first, then you had electric seats that suddenly had a little microcontroller that came with them. You had an HVAC that had a little microcontroller that came with it. You had electric windows, a little electric microcontroller with it. And before you knew it, over the course of many decades, vehicle with a lot of content may have 100 of these little, what we now call ECUs, electronic control units. And each of those ECUs represented an island of hardware. So a little compute module and then importantly, an island of software. And that little island of software was provided by the supplier. And again, over the course of decades, many of the software started to outsource that as well. So the supplier that provided the ECU doesn't, in fact, even do the software themselves, but a third party does it. And so fast forward to today, and never designed as an architecture, but ultimately, the result of what we have as an industry with the exception of Rivian and Tesla is vehicles like you take a high content vehicle it may have 120 little computers, 120 islands of software. And it's not only not what you design, if you were to look at it from a clean sheet. It's almost precisely the opposite of what you would want to design if you took a clean sheet approach. And if you were to take a clean sheet approach using first principles, you'd say, I'm going to have the smallest number of computers in the car possible. Those computers are going to do many different functions. They're going to be doing functions that are geographically close to those computers. And depending on the size of the car, you might have 1 computer, you might have 2 computers, you might have 3 computers, but you're certainly not going to have 110 computers. And you're certainly not going to have 110 little islands of software by different teams, often by different teams distracted 2 layers away from the OEM. And the reason all this matters is when you have this highly abstracted system of many islands of software written by many different teams, it becomes very cumbersome to do an update to the vehicle. And so if you think of it in terms of like a customer-facing feature, making a change to, let's say, the sequence of events that occur to what happens when you walk up to the car. In a classic architecture like what you find in essentially every vehicle in Rivian or Tesla is you'll have to coordinate amongst maybe 15 different suppliers who ultimately may have multiples of that of suppliers that provide the software. So if you want to change the extra sound when you walk up, the lighting sequence, what happens to the HVAC, the seat setting, maybe the interior lighting, each of those is a different computer, each of those is a different stack of software. So it's very, very, very challenging to do meaningful over the year updates that add new features and new capabilities. I'm describing it as a reference example around the sequence of what happens when you walk up to the car. There's much more complex sequences that are being contemplated. And so that -- out of that has been born in this concept of a software-defined vehicle where the vehicle itself has much more sophisticated computers, much fewer of them. Like our R1 has 3 computers that run the whole car. And the ability -- because we control the entirety of the software stack from the base operating system all the way up to the middleware, all the way to the applications layer, we can do updates very easily and they can be very big. They can be robust. They can touch many parts of the car. And so I think every car company in the world needs to be thinking around how do they move away from this legacy-based system that was borne out of the 1960s with fuel injection systems and never designed to something that's highly architected and highly thoughtful around a much more software-heavy environment. And so you have a couple of choices as a manufacturer. You can build it yourself, but it takes skills that typically car manufacturers don't have. You could go to a Tier 1, but there's a very obvious conflict of interest here. The Tier 1s love selling lots of little computers and so like this architecture I've just described with the zones and much more capable computers doing many functions, you're removing many thousands of dollars of costs. You think go from 110 little computers to depending on the size of the vehicle, maybe 2 or 3 slightly larger computers. It's a much, much cheaper architecture. Or the third option is you go to someone who has it and license that technology. And in the case of companies outside of China. So companies operating in the Western world, there's 2 choices. That's it. It's very limited, it's us or Tesla. And so -- all that said, it led Volkswagen to doing this very large -- one of the largest software licensing deals in the auto industry, it is a $5.8 billion deal for us to provide them this technology stack that supports their whole portfolio of brands. So it's Porsche, Audi, VW is the brand, brands that exist in Europe and now the United States brands like Škoda, or Cupra. These are portfolio of different brands that are now going to be utilizing this platform. And so our view is every manufacturer is going to be faced with the need to do this. And 1 of those 3 choices will be a path they'll take. They'll try to build it themselves. It's very hard to do. They'll try to come in to the Tier 1 suppliers to do it. That's I would say, extremely hard to do or if they license it from us.

You talked about the potential over time to also license this potentially to other auto OEMs. If this architecture is software defined, why does Rivian need to hold off on bringing other OEMs into use this product?

Right now, so we built a platform. It's very scalable. And what we're doing with Volkswagen really represents the existence proof of its scalability. And one of the early programs that's going to be launched with Volkswagen, which is now publicly announced, and I was just in Munich yesterday and the vehicles on the floor there at the show is what they call the ID1, and it's a $22,000 EV that is achieving that price and cost level really heavily through the use of this advanced architecture. They dramatically reduced the amount of electronics in the car. Really simplified the network architecture. And that serves as, in many ways, like the ultimate billboard for why a software-defined vehicle is important. One, it creates a vehicle that's very compelling to consumers, but it does so at a much lower cost basis. And as all of you know, the nature of the auto industry as people look to the left and right and see who's doing things better. So when that car is available, you can imagine every car manufacturer in the world is going to buy it. They're going to take it apart. But first we'll use it to be like, oh, this is really impressive. How much I like this. But then they'll take it apart and they'll say, "Holy cow, how are there only -- is there so few controllers and how is this architecture so simple?" And I think will be a bit of a wake-up call to say, either we have to go figure out how to do this on our own, which is very hard, and they'll then be competing with someone like us that's got well in excess of a decade of working on this problem. "Or they'll come to us and say, "Can we also license it. And so we do see an enormous amount of opportunity for additional licensing of this technology. And we designed the joint venture to accomplish that.

That makes a lot of sense. One of the important applications, these architectures support is autonomy. Rivian plans to offer situational or L3 autonomy next year when drivers can at times take their eyes off the road. Talk a bit more about how that feature may look for Rivian in 2026. Is this an eyes off in a traffic jam kind of scenario at low speeds on very -- limited number of highways. Or are you thinking L3 in a wider way and maybe operating at full highway speeds?

At the start, it will be specific domains. And it's going to feel like when you're waiting for it, it will feel like it's taking a while, but before we know it in the fullness of time, I'd say in a couple of years, the expectation of a vehicle can drive itself with your hands off the wheel, of course, but also your eyes off the road and it performing it turn by turn. I think by the end of this decade, by 2030 is going to be a really clear expectation from consumers. And to do this well, it requires the entire vehicle to be architected to support this. And so at a foundational level, you need a vehicle that's software defined. You need a robust network architecture. Think about as like that's the groundwork, that's the site work to even enable some of these types of features. But then at the autonomy level, you need a platform that's been designed around a data flywheel, meaning the perception stack, whether that's cameras or cameras plus radar plus LiDAR, needs to have all those signals provided in raw form into an onboard inference platform, that's running a distilled version of a very large multibillion parameter of foundation model. Large neural net that's been created through a set of thoughtfully designed triggering events for the fleet that's deployed. The fleet that's deployed is the training platform. And so this -- we often know is called like an end-to-end approach where the vehicles are training this large model end to end. And this end-to-end trained foundation model approach is -- the amount of progress we're going to see on this in the next 5 years is markedly different than if you look at the amount of progress, it's happened in this space in the last 5 years. And we have to recognize it's because there's been massive technical breakthroughs that have completely changed how we develop self-driving relative to, let's say, pre-2021 or pre 2022, where we are operating in a much more rules-based environment where the cameras or the perception stack would identify and classify objects, assign vectors to those objects and hand that to a planner. And the plan would be based upon a set of rules written and code written by humans. We now have that perception stock feeds a model that's being trained with the benefit of the full fleet to build this large multibillion parameter model that represents how driving is executed. And the rate of progress on an AI-centric model versus a human built planner is -- I mean, it's just -- it sort of gloves off. It's going to be I'm very, very, very bullish on what we're building, and I'm very bullish just on this space in general that our expectations those consumers by the end of the decade are going to be that the vehicle can drive itself, give me my time back, do point-to-point directions. I get into my car to take me to work and it takes you to work. So we're -- this is our biggest investment category of business, much like what we've done on our rest of our software and technology platform. We're very strong in software and electronics. And so this is a huge initiative for us in the business.

There's been a lot of partnerships announced in this area of autonomous vehicles because there is so much potential as an industry here. We've seen a number of announcements already. I'm curious if Rivian would consider partnering in this space. We've seen a lot out of some of the rideshare companies like Uber and Lyft and that may even be a way you guys bring in capital. So talk a little bit more about how much you guys do yourself? And is there partnerships to be had and maybe even with some capital behind it.

I think in terms of like the go-to-market, so robotaxi versus personally owned, robotaxi gets a lot of attention. But the rideshare business is actually much smaller than the personally owned business. So if you look at it in terms of miles about 99.5% of the miles driven in the United States are in personally owned vehicles or household-owned vehicles. Only about 0.5% is in rideshare. And I don't say that to diminish the importance of rideshare, obviously, is important. But the application for self-driving capability that is able to go hands-off, eyes off and give you time back, extends from personally owned all the way into robotaxi. Our focus today is on the technology and then first applying the technology in our vehicles that are personally owned. But we're, of course, open to and thinking about the types of partnerships that would allow that to eventually be used to grow with taxi applications as well. It's likely the number of rideshare models is going to increase, as this capability grows. Does it increase by 10x, 20x? It's hard to say today. But I think the core is solving the technical problem. And once the technical problem is addressed or solved, then there's a plethora of different business models. There's ride share. There's charging for autonomy. There is charging for autonomy upfront. There's per mile. There's a lot of really interesting go-to-market debates that are going to happen, and we're going to see play out in front of us. But foundational to that is first solving the technical issue.

Maybe I'll do a plug. I know you've got an AI Day you're planning for December. We all look forward to learning more there. If I could just sneak 1 last question in, in the last less in a minute we have here. You've targeted to be adjusted EBITDA breakeven in 2027. The industry is facing tariffs, IRA purchase credits are going away starting next quarter. So I mean, as you think about some of these changes, in your opinion, is it possible to still hit that target? And if so, what would get you there?

Yes. It's -- not only do we believe it's possible, R2 program is designed with, as we talked about before, a much lower cost structure. And so that lower cost structure supports a healthy positive gross margin on the R2 program. We did that contemplating a world in which a lot of the incentives that had existed until -- that had existed previously. We did this contemplating a world in which they wouldn't exist. So certainly, some of those going away creates a short-term headwind. But in the long term, in the fullness of time, we think a highly compelling product at the right price with the right margin structure is really what's going to drive the business. And so we've made decisions around the vehicle, around the product specifically for that. So the ramp-up of R2 that occurs in 2026. What that then does to enable 2027, as you said, with positive EBITDA. That's -- we're working towards that. We still -- as you said, we've continued to guide with confidence towards that as well.

Great. Well, unfortunately, we are out of time. RJ, I really appreciate you joining us.

Yes. Thanks for having us.