Rivian Automotive, Inc. ($RIVN)

Thanks, everyone, for joining us for the next session. Very pleased to have with us from Rivian, Claire McDonough, CFO.

So just to get started, Claire, I mean, a couple of things we want to sort of really touch on here. But I think first and foremost is the upcoming R2, right, which I think everyone is sort of pretty excited about. Maybe you can sort of just tell us about how the preparations for that vehicle are going. I think it start -- officially sort of maybe opening things up to configuration sort of in the coming weeks. So where we are in the process and sort of how investors should sort of think about the cadence of R2 over the balance of the year?

Sure. Well, first off, Joe, thanks so much for having us. For those of you in the audience that haven't seen it already, we do have an R2.

Sorry, I should have mentioned that. Yes.

So definitely the better than listening to me is to go and experience the vehicle directly yourself, and you'll understand what we're going to talk about a little bit more today in terms of the intentionality in the design, the technology and the utility and performance that gets unlocked with the smaller and more affordable package that we've brought to market with R2. So on June 9, we'll kick off the first deliveries externally. So we've been making deliveries to employees and spend a lot of time working through the overall validation process before we start external deliveries on June 9. And then also on that date, we'll also kick off having test drives across our 100 different service and sales locations across the country as well. So really excited to get more customers behind the wheel of the R2 and have them have the opportunity to experience it for themselves.

Okay. And I think in terms of sort of your guidance, right, you mentioned about 9,000 to 11,000 deliveries -- total Rivian, I guess, for the second quarter. But obviously, when you look at what you did in the first quarter, what you expect to do for the second quarter, there's a big ramp-up sort of here in the back of the year, which is to be expected, obviously, with R2. The sense I get is you feel pretty comfortable about demand, although any sort of commentary there would be appreciated. I guess what's sort of the gating factor for sort of where you sort of really think you can fit in? Is it just sort of like the pace of the ramp and sort of how the supply chain comes along? Or maybe just sort of help us understand the cadence of the year and what could go better or worse?

As you mentioned, our overall guidance, we delivered just over 10,000 units in the first quarter, 10,000 units is roughly the midpoint of our range for the second quarter. So that implies an average of about just over 22,000 units a quarter in Q3 and Q4. And with the cadence of the ramp, you'll certainly see more of those shifting towards the fourth quarter relative to the third quarter. As we think about the overall execution of the ramp, it's heavily going to be supply chain driven. Our teams have spent a lot of time with each and every one of our suppliers and while I wish there's more flexibility in the automotive industry, you can only ramp as quickly as your weakest supplier. And so our teams are on the ground to validate, assess the quality, the manufacturing environment that each of our supplier partners are executing against today to ensure all of them can work as part of a broader orchestra as we approach our overall ramp for the back half.

One of the things I noticed about sort of the -- what appears to be sort of the launch plans and maybe this is sort of the lesson learned from the R1 experience, right, is a little bit of simplification of an offering, I'd say, to start, right? But I think that also probably also helps with keeping future demand unlocks going forward as you sort of unveil new trims and variants and offerings. So maybe you could just sort of talk a little bit about some of the thinking there. Is it really just sort of a risk and execution mitigation strategy to sort of start very almost homogenous and then sort of offer more and more variants over time?

It's part of an overall strategy of how do you go slow to go fast. And in doing so, we've cultivated a smaller assortment of our launch variant product, which is our performance variant, which has a number of additional bundled features included as part of it that we'll launch with. And then over time, in the back half of this year, we'll introduce our premium variant. But as we think about the order backlog of R2s that we have, we're just inviting customers that are interested in configuring their launch edition version of the vehicle to configure that, order that. So we can also shrink down the time line between order and delivery and better manage expectations within the order bank of customers as well. So on the night, we'll unlock that for a select handful of customers, will be invited to configure their very first.

So you invite people who have orders to configure basically, not -- you won't -- someone from the general public won't be able to go on the site and sort of configure a vehicle.

Right. So we'll go wave by wave through the orders that we have on hand. And then the other element of it is we're going to have a data sample from customers that may have ordered more recently. It will help us assess the conversion rates across the overall cohort as we are doing our modeling and work associated with the ramp and deployment of the overall delivery execution as well.

What can you say about, I guess, the launch edition? Is that sort of -- is it sold out? And will it remain as sort of a certain variant -- high-performance variant over time, just called something different? Or how should we think about that?

So you can think about the Launch Edition as being our performance variant, but with -- it will have lifetime autonomy in it. It has a tow package included as part of it. So there are certainly different elements of what in the future will become added options that are included as part of that Launch Edition bundle.

Okay. On the R1, which I know the focus is on the R2. But I guess like the EV market, particularly in the U.S., which is most relevant for you guys, obviously, -- it's been through a lot of sort of the crossroads. I guess I'm curious if you could sort of reflect a little bit on how you think performance of that vehicle has held up in what's obviously been a sort of changing and dynamic backdrop for electric vehicles broadly. And maybe also a little bit of color on sort of how you're sort of seeing the demand and the order intake for that vehicle currently and what you sort of expect as R2 begins to ramp and also sort of obviously broaden out into additional trim levels?

For the R1, it still to the day is the best-selling premium electric SUV over $70,000. And in the state of California as well as the best-selling premium SUV over $70,000, ICE or EV included as part of the underlying denominator of vehicles. It's also a vehicle that established the Rivian brand to the market. It has a tremendous amount of fans, following, consumer reports as a study on intent to repurchase and the Rivian vehicles are 14 points above the next best player in market, really being a class-leading program for us. But it is a much smaller addressable market as we think about vehicles in the $70,000 to north of $100,000 arena. which is where the game changes as we look to R2 and the opportunity to unlock a much broader addressable market of customers that can afford a $45,000 to $57,000 vehicle, and we're really excited to tap into that demand and the interest that we've seen in market for R2.

I guess to round out the current -- the portfolio as well, let's talk about the van and the relationship with Amazon. I mean, you do disclose every quarter in the Q, the sales to Amazon, it looks like it's been pretty strong, implying pretty decent RCV deliveries. Maybe just like mark to market on sort of the status of that relationship and what Amazon is telling you in terms of how they continue to want to sort of try to electrify their fleet.

Amazon has a really strong relationship with Rivian. And part of the beauty of the overall offering of electric delivery vans for them is the total cost of ownership advantages that they provide. And Amazon has taken years to build out the charging infrastructure to support the electrification of their fleet. And so it's been really interesting to be sort of their partner on this journey as they've been able to work through adding power to some of their DSP sites to prepare for the electrification of their fleet over time. We're now in a position where we're seeing them increase their volumes on a year-over-year basis. And so we saw that certainly in the first quarter, and we anticipate there to be strong demand from Amazon throughout the course of this year.

And is that -- are there lessons learned there for sort of broader electric van opportunities? I know you sort of had some pilot programs with some other customers. But it seems like, again, maybe the pain point in why Amazon went a little bit slower earlier on was what you just mentioned to alluded to the infrastructure sort of build-out. So what are you seeing from other customers here as they -- in those pilot programs in terms of building out a support structure to support the vans?

I'd characterize there being interest and curiosity to understand what does it take to make the transition. And as you look at Amazon, which is the largest fleet operator, they see all of the benefits that the transition makes. But it certainly is challenging as you think about the investments in infrastructure, the lead times to prepare a fleet to electrify. And that's the piece that I think both Amazon and Rivian appreciate and understand and why we wanted to be balanced as we think about the size of external customers beyond Amazon in the near term.

So are you ready to take Amazon and lessons learned there and almost as a case study as you sort of go and talk to other customers about what it takes, what's needed? Has that helped with that process at all?

It definitely helps with the overall process. I think the other piece is it takes some time to educate on the total cost of ownership. It's not just the -- if I'm working in procurement and I look at the upfront cost or even as I look at the underlying cost of fuel or power cost or energy costs that are going into the product and the comparable set. The piece that is critical is the uptime that the vans are able to deploy, the fact that we're using mobile service, the vast majority of the time to help support them. So their vehicles never leave the DSP. We're going to the Amazon DSPs to fix the vehicles in real time that helps again really reinforce the total cost of ownership and operational advantages of what we're able to bring to market.

I guess moving down the income statement a little bit just on your outlook for the year. You did reiterate your EBITDA guidance for the year, I think, somewhat encouragingly, right, because there's definitely been some inflation on some of metals and other inputs. And so -- and plus, I think I know there's some R&D sort of accelerated, I think you sort of talked more about '27, but I imagine some of that probably creeps into this year as well. So maybe you could just sort of talk a little bit about some of the puts and takes and what gave you the comfort to -- I know there's a range, but like what gave you the comfort to sort of be able to reiterate that range?

The overall comfort and the reiteration of our EBITDA guidance is driven by both some of the net positives that we've seen, whether those be IEEPA, tariff refunds, whether it's increasing our sales of regulatory credits beyond what we had originally planned for or modeled, the continued visibility that we have into the R2 launch and execution as that stands today. while also ingesting some of the rising raw material costs that we're seeing across the industry.

I don't think you quantified potential IEEPA because I think you did say there was none in the first quarter, but there might be some in the balance of the year that is embedded in that number. Is that fair?

That's fair.

And credits, is there an update there? Because I think your guidance there was to basically assume nothing.

Right. It was more that we were able to execute more credit sales in the first quarter. Nothing. We're still in the -- don't plan for anything in the back half.

Okay. And order of magnitude on a potential IEEPA benefit recovery, any color there?

In the tens of millions of dollars generally how we size it.

Okay. Let's move on to Georgia and DOE. And I think what really sort of just love to revisit some of your thinking and calculus in terms of the renegotiations that took place. Obviously, like you upsized that initial sort of capacity, you get the money earlier. But the other -- I guess, if I were to sort of say somewhat balanced on that, right, like you are maybe giving up some -- a larger amount of money over a longer period of time to sort of help fund a larger build-out. Like not to say you can't expand beyond $300,000 there over time, but it seems like at least now, that's going to require you to fund that more or sort of other sources. So internally, how did you sort of think about that striking that balance between those 2 things?

As we thought about the impact to the increase in the Georgia site, we looked at it through the lens of the cost efficiency on a unit of capacity that we're building into the bounty, Georgia, where you see a lot of efficiency as you go from 200,000 units to the incremental 300,000 units. And so as we were dialing in our planning and preparation for it, that was a highly attractive investment in the future that we could make. And we were able to also get the Department of Energy to increase the initial phase of the loan as part of our renegotiation efforts with them. So we actually increased the principal proceeds by $600 million. And so it created this really hyper-efficient initial phase of Georgia that takes Rivian to meaningful scale with total capacity of 515,000 units, a path with that scale to free cash flow positive in the future. And so for us, that first phase is really critical as we think about rapidly accelerating our growth in capacity in the near term, which this work is pulling that forward for Rivian.

Yes. I'm glad you sort of tied those 2 concepts together because I mean, one of the other things you obviously mentioned that got some attention from the investment community is the free cash flow positive at sort of that, call it, plus or minus 500 million units. So in some respects, this is maybe that allows you to get there a little bit earlier, right, because you're putting more upfront. But I guess like just how would you, volume is obviously important to being able to generate cash. But what are some other factors or are there other things that Rivian can do in order to sort of try to get to cash flow positive, maybe even a little bit earlier or at a lower level than 500,000?

There are certainly levels, and I can't sit here today and predict the exact GPUs that we will need 3 years, 4 years down the line or the cost of that end market. But there are certainly areas of accelerated investment that we're making where there's opportunity for greater levels of efficiency that we see in sort of the current state of affairs within the business today that could help, I would say, flatten the curve or flatten the volumes required for Rivian to be free cash flow positive in the future. The other dynamic is that it's heavily dependent on how aggressive are we building the next phase of capacity expansion as well, which, again, is a key barometer. But ideally, we're in a position where there's a tremendous amount of demand available to Rivian, and we're accelerating towards capacity expansion to fulfill that demand overall.

Let's switch over to ADAS and autonomy, the other sort of exciting vector here for Rivian. And let's start with the universal hands-free product, which I know is evolving more to point-to-point, I think, still by later this year. So how can you -- what can you tell us about sort of that technology path and sort of the progress that the products make? I know we were in sort of some early versions earlier this year, but presumably, you've sort of seen some progress there as more data and better product out.

Right. Lots of progress being made behind the scenes, not yet released to customers. We have released our universal hands-free offering, which allows hands-free driving on 3.5 million miles of roadways across North America. But the key offering for consumers is truly adding in the overall point-to-point offering for them so that they can have peace in mind as they're navigating both in town, on highway for each and every one of their trips. Our teams have been making significant progress. I was in a development vehicle a couple of weeks back in San Francisco. In an environment like that, or I'm sure if you were to do the same here in New York City, you see just so many different edge cases that are happening left and right. And it was great to see how our large driving model was handling quite a dynamic set of circumstances and environment as well as we continue to progress our efforts there. The other piece that's critically important to our autonomous road map for the future is the ramp and scaling of R2. And the R2 fleet provides so many more edge cases of data that we can take back, feed into our large driving model, feed into the data flywheel that we have at Rivian to make our model is that much better and the quality of the experience and safety associated with it.

Yes. I want to put a pin on that because I think that's also where maybe some of the Uber relationship can sort of tie in, in terms of sort of getting scale and data. But just before we sort of go there, pricing for the product, like I think you're starting it at right now $50 a month, maybe $2,500 to buy it. I think you've indicated in the past that clearly, like as more functionality comes into the system, like you might have to reevaluate the pricing. I'm curious how you sort of -- like is that sort of a little bit of like experimentation, almost A/B test? Like how do you sort of think -- how do you figure out sort of what the right level is and what the customer ability to pay for that functionality is?

I would say autonomy pricing has been one of the most heavily debated topics within Rivian over the years. The philosophy and approach that we took is we want there to be widespread adoption of our capabilities. That also helps feed our flywheel, our models, more drivers utilizing these features is better and will continue to help us accelerate our progress as well. And so we wanted to start with a very approachable level that lots of consumers could say yes to. And so that was really the genesis and approach that we took as we thought about the pricing dynamics.

Yes. You mentioned some of the development vehicles upfront. Are those sort of the next-generation with the Gen 3? So -- and that's still sort of on track for later this year as well. And there were some reports that like you might look to sort of bring some of the LiDAR capabilities in-house. Is there anything you could comment on that?

So I think that was more of an erroneous headline. No plans today to bring it in-house.

I'm glad you could clear the air there. All right. So let's talk about Uber, which is obviously also interesting, and you definitely get your vehicles out there. And I think it also, again, as you mentioned earlier, get the data, get the flywheel. But I am a little bit curious how you sort of think about that, right? Because presumably, at least the earlier ones, and maybe I'm wrong, but like will they still have a like almost a safety attendant in there? And I know it might need to be dependent on sort of the geography you sort of going in. And if so, like is that on you? Is that on Uber? Like -- or you're not going to sort of really open it up to the public until you can actually sort of take the safety driver out or the safety monitor out?

We've already started data capture collection in the launch markets that we're working towards in 2028. As we're sitting here today, so what you'll see is just a continuation of the progression with safety drivers effectively executing point-to-point and ultimately bridging that to an L4 capability in the future overall. So we'll certainly go with our own progress, but always trying to create value-added solutions along the way.

Okay. So by the time you're sort of at that sort of scale number that you sort of have put out with Uber, it's sort of driver out type of operations.

Right. So the expectation is the 2028 milestone timing that we talked about being in Miami and San Francisco, those are driver out milestones that we're executing towards.

And how do you think about -- right, so there's obviously sort of benefits from using a network like Uber in terms of leveraging their network and you get the benefit of the miles. I mean I do think, though, one of the things you maybe lose out a little bit on is sort of some element of the customer experience. Obviously, not sort of being in the car, but Uber as is widely seen like they are -- they plan to have multiple sort of AVs on their network. So what were some of the like strategic considerations in sort of putting your vehicles on that network? Because it almost seems like by trying to fragment the market, they're sort of trying to get rid of sort of differentiation of product and transportation on that front.

For us, the core consideration in partnering with Uber was to focus our investments and team on what we see as the highest impact area of robotaxi, which is focusing on the development of the driver. And so instead of trying to do everything all at once, being able to focus on that, which we think is great for robotaxi applications will also unlock consumer L4 opportunities, which we think is an enormous market in the future as well. That was our priority and focus. The other dimension, which is helpful as we're continuing to ramp up our capabilities and performance is the opportunity within the Uber application to occupy and grow your ODDs over time as well. And so if you're starting up a service and you're just offering in-town rides in certain areas or locations to kick things off, that's a harder hurdle to get through versus within the Uber app, essentially Uber can direct rides that meet Rivian's ODD and then we can develop and grow as we continue to expand into all environments over time.

So -- but as the technology evolves and the -- let's say, like personally owned autonomy path and like the robotaxi autonomy path converge, and [indiscernible] sort of has always sort of talked about -- or he first started talking more about personally owned autonomy versus sort of like this robotaxi, right? So -- so how do you sort of think about, right, like as those converge down the road, someone owns an R2 and maybe they do want to be able to sort of monetize their vehicle while they're not using it and is the plan that they would also sort of be able to put it on an Uber or Uber-like network? Or down the road is -- are some elements of that transportation network company type infrastructure, something you would look to expand beyond Uber or even sort of handle internally?

The great element that Rivian has is because we're a direct-to-consumer business, we have a service network across the country. We have charging infrastructure across the country. And so we have a lot of the core tenants and attributes that could make Rivian successful in terms of the operation of large-scale deterministic fleets. And if you look back, RJ's original thesis in creating the partnership with Amazon was this very training and learning of how do you run and manage a very large fleet of vehicles for the evolution of a shared mobility type of future as well. So we're certainly today looking at lots of different options and see lots of potential given the assets that Rivian has and the capabilities that we have in-house.

Okay. One of the things I think that's become a lot more in focus is and that we've been focused on as well, and I think investors have also is looking at what the core competency of the business is and whether there are -- whether that provides sort of additional opportunities beyond that. Rivian, I think, has probably been sort of more on the, let's say, the leading edge of this, right, like you've designed your own chip, right? You obviously sort of designed your own electric architecture. I think you designed some of your own power electronics. You have also, which I mentioned to you earlier, I keep getting in my social media feed and I'm tempted to try to buy one of those electric bikes, they look pretty cool. And then obviously, robotics as well, where I think you own 38% of -- right Yes, 35% Okay. So look, I guess what I'm getting at is, I think -- one of the ways you could look at Rivian is that you have a very sort of specialized set of employees and know-how that know the convergence of software with hardware. And that you've got a big task in front of you, especially sort of R2, but there are also other potential applications of the resources and capabilities you have. So that's a big question, but how do you sort of think about that internally? How do you sort of go through the process of weighing whether this is something you should pursue? Because like even with bikes and robotics, like you did, at some point, make that decision to sort of commit some resources to that even if they sort of eventually have been and further capitalized by others.

I think to your point, Joe, at Rivian's core, we're a technology company. We're a technology company that's operating in the mobility space. but we are a technology company at our core. And one of our core advantages is our ability to attract and recruit top talent across electrical hardware, across the semiconductor space, across software development space that I think uniquely positions us within the broader automotive and mobility sector as a whole. These are becoming, I would say, more and more attractive resources to the industry as we think about the advent and introduction of more physical AI. The other core attribute that Rivian has is our data. And so whether that's the data in our manufacturing environment, which is rich for the likes of Mind Robotics to learn, develop and grow from, whether it's the data of our fleet of vehicles that is capturing and helping to inform our large driving model for autonomous driving. Those are really central to the evolution and acceleration that we're seeing in the broader universe of physical AI applications. And we're really excited about the rate and speed of growth and advancement that we're seeing in each and every one of those areas.

Maybe we could just sort of zeroing on the chip, for instance, right? Like I think like when you put that out, it showed some pretty impressive performance. Now I know that was sort of specifically built for your use case, which I would sort of say is visual large language, right? And -- but to your point on physical AI, that clearly has maybe other sort of applications. So is there an organic effort to sort of try to widen the aperture for what that chip could do or where it could be applicable or sort of more you got to sort of focus on your task at hand. If someone comes to you, you're willing to engage in a conversation if the economics and opportunity are right?

As we think about the chip capabilities, we see it not just in automotive types of applications, but we see it lending itself quite well also to the universe of robotics. And I'm really excited about the potential, not just for Rivian, but for technology licensing as a whole across many different dimensions of what we're building in-house as well.

Okay. Within automotive or outside of automotive or both? It can be both. Maybe just a -- let's sort of close here or approach a close on the Volkswagen joint venture. I know you have the winter testing done. It came with some -- meeting some thresholds that got you some capital in the door. Can you just remind us one, what's left to do in that venture? I think the ID1, which I believe is the first vehicle is sort of scheduled to launch at some point next year. And how does the sort of P&L sort of change once the output of that JV starts to sort of get into vehicles? Like will you start getting payments right away? Or is there some sort of like bank that was sort of built up from like prepayments, if you will, that you sort of got to be eaten through first?

As you think about the $5.8 billion joint venture, there's sort of still to come payment of just about $1.5 billion. A $1 billion of that is a nonrecourse loan that Rivian expects to receive in October that has no milestones associated with it. And then the final payment will be the earlier of the first vehicle, so the ID1 in this case, being commercialized or January 2028. So there are -- from a payment standpoint, actually no physical milestones left because of the time-related feature of that final payment for Rivian. But regardless, we're really excited about the evolution of our in-house electrical architecture software stack and the opportunity to scale that with multiple different Volkswagen Group programs. So we completed the winter testing for 3 different brands and 3 vehicle programs at Volkswagen Group this past winter and are excited to help them commercialize those vehicles over the course of the next year or 2.

Okay. And then again, as those vehicles get into production, how does that change your P&L?

And then as you think about the P&L change, the piece that's important to recognize is about $2 billion of the overall consideration is associated with consideration for background IP. So we've been recognizing that $2 billion from the close of the JV, and that will be recognized through the middle of 2028. And then beyond 2028, we'll flip to VW paying Rivian $100 million a year of just ongoing fees.

Okay. So it's not like a per -- license fee per...

It's not a per vehicle license fee because we're sharing in the joint -- the development costs jointly. So VW pays for 75% of all of the shared development work that occurs within the joint venture and then Rivian pays for 25% of it. But because of those splits and dynamics, there's not an ongoing per unit fee that occurs.

And just since we're somewhat on sort of the capital front also, just going back to the DOE loan, that's expected to start coming in next year as you start -- and is the way it just functionally works is you build out part of the facility and they almost pay -- they loan the money as you sort of go in terms of sort of what you spend? And is there any timing mismatch on that? Or how does that work?

Yes. So the -- you can think about the DOE loan is really almost like a project finance instrument. So Rivian will contribute the equity of the project into the new Horizon entity. And then as we continue to build out the site, there'll be draws from both the equity pool from Rivian and then we have an up to 80% loan-to-value from the DOE. So they'll be reimbursing us along the way for the CapEx that's deployed.

Okay. And so that -- and -- but that capital or that loan, I should say, that basically we should think about it from time from sort of when -- when it sort of starts in earnest, I guess, at some point next year until sort of SOP at Georgia?

Correct.

Okay. Perfect. Claire, thanks very much for joining us this year. Really appreciate it, and thanks for the great conversation.

Thank you. Appreciate it.