Rivian Automotive (RIVN) This fall 2024 Earnings Name Transcript

Picture supply: The Motley Idiot.

Rivian Automotive (RIVN -2.30%)
This fall 2024 Earnings Name
Feb 20, 2025, 5:00 p.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Individuals

Ready Remarks:

Operator

Good day. Thanks for standing by. Welcome to Rivian’s fourth quarter and full yr 2024 earnings convention name. Please observe that at the moment’s convention is being recorded.

I’ll now hand the convention over to your speaker host, Tim Bei, vp of investor relations. Please go forward.

Tim Bei — Vice President, Investor Relations

Good afternoon, and thanks for becoming a member of us for Rivian’s fourth quarter and full yr 2024 earnings name. Right this moment, I am joined by RJ Scaringe, our CEO and founder; Claire McDonough, our chief monetary officer; and Javier Varela, our chief operations officer. Earlier than we start, issues mentioned on this name, together with feedback and responses to questions, replicate administration’s views as of at the moment. We may also be making statements associated to our enterprise operations and monetary efficiency which may be thought-about forward-looking statements beneath federal securities legal guidelines.

Such statements contain dangers and uncertainties that would trigger precise outcomes to vary materially. These dangers and uncertainties are described in our SEC filings in at the moment’s shareholder letter. Throughout this name, we are going to talk about each GAAP and non-GAAP monetary measures. A reconciliation of GAAP to non-GAAP monetary measures is offered in our shareholder letter.

Simply earlier than the decision, we printed our shareholder letter, which incorporates an outline of our progress over the current months. I encourage you to learn it for extra particulars on a number of the gadgets we’ll cowl on at the moment’s name. Starting with the fourth quarter of 2024, there was a change within the composition of our reportable segments, and we now analyze the outcomes of the enterprise by the automotive phase and the software program and providers phase. Our This fall 2024 outcomes are offered on this foundation.

With that, I will flip the decision over to RJ, who will start with just a few opening remarks.

RJ Scaringe — Chief Govt Officer

Thanks for becoming a member of us, and due to the group for the large effort in 2024. I am happy to have the ability to communicate to our optimistic gross margin in This fall. It is a results of excellent effort from the group, driving a give attention to value, driving a give attention to persevering with to construct our demand era capabilities, and, after all, taking a look at alternatives to enhance effectivity throughout the enterprise. With that, we eliminated $31,000 in COGS per automobile in This fall of ’24 relative to This fall of 2023.

It is a actually essential milestone for us as an organization and one thing, you understand, Claire and myself have spoken to so much over the course of the final yr. And there is a variety of drivers of this. After all, the associated fee discount I simply spoke to is a serious driver, however we additionally had a rise in income. And the rise in income on a per-unit foundation is the combo that we’re producing.

So, we see translate to larger common promoting costs. We have additionally seen improve in regulatory credit score income, which Claire will communicate to in a second. After which, after all, the income related to our three way partnership with Volkswagen Group. Now, on the combo aspect, together with the Gen 2 launch, we launched the tri-motor.

And internally, we regularly say that is the Goldilocks of powertrain configurations. It is one motor within the entrance, two within the again. And it represents a extremely distinctive product market match the place it delivers excellent efficiency, zero to 60 in 2.9 seconds. It is dynamically unbelievable.

It isn’t fairly as excessive as our quad-motor, nevertheless it does characterize a significant step-up relative to our dual-motor, which can be a really excessive efficiency. However the tri actually is — join with shoppers, and we’re seeing the next take fee on our tri-motor than what we anticipated. With that, we’re launching a particular model of our tri-motor which we simply introduced, which is our Dune Version, and we’re actually enthusiastic about that. You recognize, linked to that, the product — you understand, creating a transparent imaginative and prescient across the product and the kinds of merchandise we launch is the model that we’re constructing.

And, you understand, the primary merchandise we launched, the R1T, the R1S, their objective was to actually act as a handshake with the world to determine who we’re as a model. And what we see at the moment is a model that has prospects which are actually excited for what we’re constructing. And there is a vary of various third-party evaluation that take a look at model power and buyer happiness and buyer satisfaction. For the second yr in a row, we have come out because the highest-rated model by way of buyer satisfaction and probability of repurchase on one of many main buyer satisfaction and model surveys that is finished yearly.

And there is numerous causes our prospects love our merchandise, however one of the vital essential to us is security. And it is one thing we put, you understand, on the very core of the automobile improvement course of. We make selections, you understand, round trade-offs for content material, for construction, for even the design of the automobile to ensure that these are the most secure automobiles of their respective segments. And talking to that, the Insurance coverage Institute for Freeway Security assessments our automobiles.

And their highest security ranking, which is TOP SAFETY PICK+, has been awarded to each our SUV R1S and to our truck. And within the case of the R1T, we’re the one electrical pickup to attain this TOP SAFETY PICK+ ranking. And within the case of the R1S, we’re the one giant SUV throughout each inside combustion and electrical to attain this ranking. And so, we’re actually happy with that end result, and we see it manifest in how shoppers are beginning to see our model as, after all, we’re thrilling, after all, we’ve loads of enjoyable embedded within the merchandise, however these are additionally extremely secure merchandise.

Now, the work that we have finished on R1 by way of persevering with to progress our know-how stack, that is our software program structure, our topology of computer systems and ECUs throughout the automobile, the sensor set that is within the automobile, the related compute platform that is used for our self-driving options, that is continued to progress with R1, after all, with the launch of Gen 2. But it surely’s actually laid the muse for us and what we’re launching with R2 and likewise served as a giant a part of the muse for what we established with Volkswagen with our three way partnership. Now, as regards to R2, we could not be extra enthusiastic about this program. It is — you understand, by way of the product and the attributes and the options that go into it, it is actually the results of so many learnings which have occurred with R1 the place we have simplified the product from design viewpoint.

We have been in a position to optimize round value in a means that we weren’t in a position to on R1. And we’re in a position to ship a function set that basically speaks to the — to our model and to our values by way of product attributes. That is simply outstanding. And we’re on monitor for launching this automobile within the first half of 2026.

The event work related to that’s properly underway. After all, numerous components are being tooled, numerous gear is being constructed. We’re within the means of constructing the growth in Regular. It is a properly in extra of 1 million square-foot growth, the place we’ve the foundations are in, the partitions are going up.

And over the course of the following a number of months, we’ll see the completion of that constructing growth and the start of the set up of apparatus, which is able to all lead into by the top of the yr launching our manufacturing validation builds in that expanded portion of the ability. Now, after all, the issues we see by way of growing our product and the buildout of the growth to our plant, these are very seen to somebody driving by in Regular or to see our take a look at automobiles out on the highway. However we have additionally sourced 95% of the invoice of supplies. And the invoice of supplies in R2 is predicted to be roughly half of what we’ve in R1.

And the opposite nonbill of fabric COGS targets are considerably lower than what we’ve in R1. Really, considerably lower than half of what we’ve in R1. And so, the general value construction that we’re planning for in R2 is a night-and-day enchancment relative to what we launched with and what we’ve at the moment on our R1. Now, with all that mentioned, one of many issues that has all of us very excited is simply the response to the R2 product.

Now we have inbound — you understand, many, many inbound requests each day asking us if we will speed up it or if prospects can take supply sooner, and we love that. We love the anticipation of the product and what’s to launch. Now, I need to discuss a bit of bit about our know-how, and I will focus first on autonomy. With the Gen 2 platform on R1, we used that as actually a reset to how we have approached our autonomy platform, what we name the Rivian autonomy platform.

And that is 55 megapixels of cameras across the automobile. Now we have four-corner radars and a front-imaging radar, so for a complete of 5 radars. These feed right into a a lot larger compute platform, about 10x the compute ranges of what we had in Gen 1. And that structure is designed absolutely considering the power to make use of AI to assist prepare our self-driving capabilities.

And we’re utilizing an end-to-end strategy the place the Rivian-owned, you understand, digital camera feeds and notion stack feed into our automobile. We’re in a position to establish distinctive occasions, prepare our mannequin, our self-driving basis mannequin offline, and use a distilled model that on the onboard automobile and within the inference platform to actually drive — you will see a rising set of options. And the headroom that we’ve for the function set on our R1 automobiles and, due to that, with our R2 automobiles as properly is phenomenal. So, we’re very bullish on that.

And I’ve talked a bit about this prior to now already, however we’ve a hands-off freeway function that we’ll be launching right here very quickly, you understand, throughout the subsequent a number of weeks. Now we have an eyes-off function that we’ll be launching for freeway performance in 2026. And the variety of roads and kinds of circumstances will enable our hands-off, eyes-off options to function. We’ll proceed to develop past that after we get that freeway eyes-off function launched.

Now, past autonomy, we’re additionally making progress on the mechanical points of our automobile and the mechanical points of our know-how. With R2, we’re utilizing giant high-pressure die casting to eradicate loads of components. In the event you had been to match the R2 physique construction with that of R1, we have taken out roughly 65 components. We have decreased the variety of joints within the physique by about 1,500.

And we’re doing that by half consolidation and half elimination. And that extends — that concentrate on half consolidation, half elimination, you understand, simplicity of meeting extends into each side of what you see within the R2 automobile. So, the way in which {the electrical} compute platforms go into the automobile, the way in which these connect to the harness, the connectors on the harness, the attachment factors for the harness to the physique, the inside trim parts stepping into, how they’re loaded, how they’re fixed, all of that is been optimized in a extremely significant strategy to obtain, as I talked about it earlier than, this vital discount in prices on our invoice of supplies, which I mentioned, once more, is about half of the place we had been — the place we’re on R1 and a big more-than-half discount on our nonbill of fabric value of products offered. Now, after all, there’s loads of dialogue proper now across the general regulatory setting that we’re working in.

And I first need to say, we’re very aligned with the administration within the significance of making U.S. jobs in driving know-how innovation right here in america. And in an space that we predict is critically essential for our nation in the long run round taking a look at know-how, round electrification, software program, electronics, these core areas that we’ll see be important to the long-term well being of our transportation trade are as we have actually centered on. And so they’ve enabled us to create merchandise which are each extremely compelling, they usually’ve enabled us to create components of our enterprise the place we will leverage that know-how as evidenced by our three way partnership with the Volkswagen Group.

With that, we’re additionally working towards our new Georgia facility, which is able to construct each the R2 and the R3 product strains. And together with our facility in Regular, Illinois will actually type a core basis for constructing the R1 product line, the R2, and the R3 merchandise right here in america. With all that, I might prefer to thank our staff, our prospects, our companions and suppliers, our communities and, after all, our shareholders for the help and the joy for what we’re constructing. You recognize, we, inside to Rivian, had been — could not be extra enthusiastic about what’s to come back with R2.

It’s a point of interest for us as a enterprise, and it represents so many learnings that we have had throughout the R1 product line and our industrial van product line which are being fed into the launch and the event of that product. With this, I will move the decision to Claire.

Claire McDonough — Chief Govt Officer

Thanks, RJ. I need to thank our group for an incredible quarter. At first of 2024, we communicated our objective of reaching optimistic gross revenue for the fourth quarter because of the enhancements we had been focusing on in our materials, conversion, and depreciation prices per automobile, in addition to a rise within the sale of regulatory credit and software program and providers income. We’re happy to have the ability to stroll you thru how this essential milestone was executed.

As RJ talked about, on a year-over-year foundation, we decreased our automotive value of products offered by $31,000 per automobile delivered within the fourth quarter whereas growing our automotive income per unit, excluding regulatory credit score income to $86,000, This was the results of larger R1 common promoting costs from the introduction of our tri-motor providing, which was partially offset by the next combine of economic van gross sales. We additionally earned income from the sale of almost $300 million of regulatory credit within the fourth quarter. We’re pleased with the progress we made by engineering-driven design modifications that made the second-generation R1 larger efficiency, decrease value, and simpler to fabricate and repair. We additionally delivered significant provider industrial value reductions, in addition to uncooked materials value advantages, which we count on to proceed into 2025.

As Tim famous, we reported new phase disclosures to offer visibility into the core drivers of the automotive and software program and providers segments of our enterprise. The automotive phase consists of the sale of latest client and industrial automobiles, in addition to regulatory credit. We produced 12,727 automobiles and delivered 14,183 automobiles within the fourth quarter of 2024, which was the first driver of the $1.5 billion of income within the automotive phase, which included the regulatory credit score gross sales I simply talked about. Our phase degree automotive gross revenue was $110 million, reflecting a 7% gross margin for the fourth quarter of 2024.

We consolidated the monetary outcomes of the Rivian and Volkswagen Group three way partnership into Rivian’s financials. Car electrical structure and software program improvement providers paid for by the Volkswagen Group at the moment are mirrored in Rivian’s income and value of products offered within the software program and providers phase, with Rivian’s share of the event providers mirrored as R&D bills, which is in line with prior observe. Incremental to ongoing revenues generated by the three way partnership, Rivian expects to acknowledge roughly $2 billion of consideration from the Volkswagen Group as income because the three way partnership delivers in opposition to its improvement roadmap over the following 4 years. This consists of the money obtained from Volkswagen Group for licensing of the background mental property, in addition to fairness premiums and noncash advantages.

Past the automobile electrical structure and software program improvement providers I simply walked by, the software program and providers phase consists of remarketing, automobile restore and upkeep providers, charging, software program subscriptions, and different providers, together with financing and insurance coverage. The $214 million of software program and providers income within the fourth quarter of 2024 was primarily pushed by remarketing gross sales, automobile electrical structure and software program improvement providers, and restore and upkeep providers. Our software program and providers phase degree gross revenue was $60 million, reflecting a gross margin of 28% for the fourth quarter of 2024. Now we have strategically centered on driving effectivity into each component of our value construction.

This work has enabled funding for our know-how roadmap, in addition to our investments in gross sales and repair to boost the client expertise and improve model consciousness. We made these investments whereas additionally decreasing our complete working bills by 15% within the fourth quarter of 2024 as in comparison with the identical interval in 2023. The mix of our optimistic gross revenue milestone, coupled with our working expense administration, enabled an enchancment of $729 million in adjusted EBITDA for the fourth quarter of 2024 as in comparison with the fourth quarter of 2023. Our adjusted EBITDA losses for the fourth quarter had been $277 million, which is one of the best efficiency we have had for the reason that begin of manufacturing.

Total money, money equivalents, and short-term investments elevated to $7.7 billion as in comparison with $6.7 billion within the prior quarter. This consists of $1.3 billion obtained in November together with the closing of our three way partnership with the Volkswagen Group. We’re additionally starting to comprehend a number of the working capital advantages we mentioned on prior earnings calls. Stock ranges at year-end had been $372 million decrease as in comparison with the top of 2023.

This was primarily pushed by decreasing our uncooked supplies and completed items stock. We count on to generate money from working capital in 2025 as we scale back our stock ranges by year-end. Throughout 2024, we strengthened Rivian’s long-term monetary flexibility. We obtained $2.3 billion of the anticipated $5.8 billion of funding from the three way partnership transaction with Volkswagen Group.

We additionally introduced the closing of an as much as $6.6 billion Division of Vitality mortgage, which, along with the remaining proceeds from the Volkswagen Group, is predicted to fund an incremental $10.1 billion of potential capital on prime of the $7.7 billion of capital we had readily available as of December thirty first, 2024. This capital is predicted to fund Rivian’s operations by the ramp of R2 in Regular, in addition to R2 and R3 in Georgia, enabling a path to optimistic free money move and significant scale. In contemplating our 2025 outlook, we acknowledge the fluid nature of the present coverage, regulatory, and demand setting. There are exterior components exterior of our management that would affect this outlook, particularly, modifications to the rules or insurance policies which can affect market dynamics, provide chains, incentives, and the marketplace for regulatory credit.

Our steerage represents administration’s present view on potential changes to incentives, rules, and tariff constructions. Importantly, it is early within the yr, and a few of these components might change. As talked about on earlier earnings calls, we count on to close down each the patron and industrial manufacturing strains in our Regular plant for roughly one month within the second half of 2025 to organize for the launch of R2 in Regular within the first half of 2026. We count on to ship between 46,000 and 51,000 automobiles in 2025.

As a reminder, on account of a provide scarcity of a part in our Enduro motor system, we produced and delivered extra tri-motor R1s and industrial vans within the fourth quarter of 2024 as in comparison with our preliminary expectations. These incremental industrial automobiles delivered within the fourth quarter are anticipated to end in decrease industrial deliveries in 2025 and better completed items stock within the first quarter of 2025. As well as, we count on to ship fewer client automobiles within the first quarter as in comparison with the prior quarter. These decrease anticipated volumes are on account of seasonality coupled with a difficult demand setting, partially pushed by the affect of the fires in Los Angeles, which has traditionally been certainly one of our largest markets.

Attributable to these dynamics, we anticipate deliveries to be roughly 8,000 automobiles in Q1. We additionally count on manufacturing ranges to be roughly 14,000 automobiles in Q1 as we give attention to constructing stock to assist mitigate the impacts of our deliberate shutdown within the second half of the yr, in addition to allow larger industrial deliveries within the second quarter. We count on to attain modest gross revenue for the total yr of 2025, supported by sturdy earnings from our software program and providers phase. This optimistic gross revenue is predicted to result in a big enchancment in our adjusted EBITDA, which we count on to be between $1.7 billion and $1.9 billion of loss for 2025.

We count on capital expenditures to vary from $1.6 billion to $1.7 billion in 2025, largely pushed by spending associated to our manufacturing facility growth in Regular and provider tooling for R2, in addition to our continued development in our go-to-market infrastructure, together with service facilities, experiential areas, and the Rivian Journey Community. Because of the beginning of building on our manufacturing facility in Georgia, we count on to have a year-over-year improve in capital expenditures from 2025 to 2026. Wanting ahead to 2026, we’re excited to launch R2 within the first half of the yr. That is the primary line of manufacturing for our new mid-size platform.

And consequently, we intend to steadily ramp the R2 line and function on a single shift to manufacturing for almost all of operations in 2026. We need to thank our group for delivering an ideal quarter. We stay steadfast in our perception that R2 will probably be really transformative for our development and profitability. I might like to show the decision again over to the operator to open the road for Q&A.

Questions & Solutions:

Operator

[Operator instructions] Our first query will come from the road of Dan Levy with Barclays. Your line is now open. Please be at liberty to unmute and ask your query.

Dan Levy — Analyst

Hello, Good night. Thanks for taking the questions. First, I wished to start out with a query in your assumptions for coverage. You mentioned you are embedding right here your finest guess on what the coverage shift is.

Might you simply define what precisely you might be assuming on tariffs, credit, and so on.?

Claire McDonough — Chief Govt Officer

Certain, Dan. As I discussed in my ready remarks, our outlook displays our present view on potential changes, and that features issues like incentives, rules, tariff constructions. And I am not going to get into any particulars or specifics on every distinctive driver. Nevertheless, as we take a look at the affect in mixture, our steerage does replicate tons of of thousands and thousands of {dollars} of affect to Rivian’s EBITDA, inclusive of potential demand impacts.

And once more, as I mentioned, that is primarily based on administration’s, you understand, present outlook and present view, however we acknowledge that it is a very fluid setting. However we felt it was essential to offer steerage that mirrored our present evaluation of the coverage outlook.

Dan Levy — Analyst

OK, thanks, uh. Second, second query is on COGS trajectory. And actually, two components right here. One is perhaps you could possibly simply define what trajectory of R1 COGS we should always count on over the course of the yr.

Can we count on by the top of the yr COGS per unit to be roughly equal to ASP per unit? And the way a lot of this must be a sign that you’ve the road of sight to attain the BOM that you simply want and the COGS that you simply want on R2, which I feel, RJ, you talked about you are at 95% sourcing. So, any coloration on the COGS trajectory and the way this provides you line of sight on R2, please? Thanks.

RJ Scaringe — Chief Govt Officer

Thanks, Dan. We have spent loads of time speaking about simply the historical past of our value of products offered on R1. And, after all, we launched manufacturing. We had the challenges related to being a first-time producer and actually carrying a burden of a premium or paying with a variety of our suppliers.

And once we introduced in Gen 2, we resourced greater than half of the invoice of supplies on the automobile. And together with that, you are now seeing the advantages of it. We took a considerable quantity of value out of our invoice of supplies. We additionally, in resourcing, you understand, roughly half of the invoice of supplies — or over half of the invoice of supplies, we had been in a position to implement new designs that allowed for each higher effectivity and manufacturing of these components going into the automobile, however importantly, how the automobile itself comes collectively.

And with all that progress we have made on R1. We have, after all, recognized a variety of alternatives throughout the automobile and throughout the availability chain for additional enchancment. And we’re seeing all these learnings actually be captured in what is going on on with R2. And within the case of R2, I spoke to it already, however the invoice of supplies in R2 is — we’re projecting that to be about half of what R1 is at the moment on a like-for-like foundation or on a, if you’ll, apples-to-apples foundation on a automobile.

After which, on the nonbill of fabric, value of products offered, greater than 50% discount. And so, an enormous quantity of effort has gone into persevering with to drive the progress by way of how we take into consideration engineering and design of the automobile, in addition to the sourcing. And one of many issues we’re so enthusiastic about with R2 is it is not only a lower cost product. They will open up a way more mass marketplace for us.

However the associated fee construction to attain that a lot lower cost could be very sturdy. And with that, I might like to ask Javier simply to talk to a number of the components of this. And, after all, he and I and the remainder of the management group have been driving this value focus throughout each side of the enterprise, however particularly, a heavy give attention to our provide chain and on our operations.

Javier Varela — Chief Working Officer

Yeah, certainly, with Technology 2 of R1, we’ve taken a giant step in value discount. And we proceed working in all the associated fee components, be it with our suppliers, collaborating in analyzing flows and full provide chains, and internally in our plant. We’re tackling all the weather of the non-BOM value. The road balancing, automation and robotics, operator effectivity, we’re engaged on the logistics compacting and compressing the availability chains, decreasing the stock ranges, after which the house that we’re utilizing, implementing full methods, decreasing downtime and upkeep value, logistic and provide chain optimization, as I mentioned, even on the degree of packaging the place we’re optimizing our packaging and decreasing the cubics we’re transporting to get the fabric from suppliers to our vegetation.

So, these are components of the enhancements. However I’d say that a very powerful one and I am extra pleased with is folks. I imply, it is how we’ve engaged all of our folks within the plant and the — in cross-functionally within the different features to scale back value and acquire the next effectivity. Now we have a — I name it empowering the store.

It is simply involving our group members, involving our frontline managers find alternatives that individuals which are day-after-day, each minute near the place the motion occurs. They’ve implausible concepts, and it has been an actual engine for locating extra financial savings and enhancements in R1 and, after all, for R2. R2 will profit on prime of what RJ mentioned of an easier product, much less parts, an ideal design for manufacturing actions finished within the very early phases combining the completely different features of the corporate. So, nice assemblability, to illustrate, however we will profit as properly of all our learnings in compacting and bettering the processes that we’re doing in R1.

All these learnings will probably be completely applied in our new line in Regular, in physique store, in meeting, and all the brand new processes we’re implementing there.

Dan Levy — Analyst

Thanks. That is actually useful coloration.

Operator

Our subsequent query will come from the road of Adam Jonas with Morgan Stanley. Your line is open. Please go forward.

Adam Jonas — Analyst

Hi there, everyone. Hello. I wished to ask in regards to the Rivian autonomy platform, the place you actually have a reasonably main change of technique transferring to end-to-end, 10 instances the compute, the improved sensor suite as properly. So, I am simply curious, in these strikes, are you able to inform us how a lot you are spending on the compute and coaching? What are you doing in-house? How a lot are you doing with companions? And I am curious how a lot of the ahead R&D or opex and capex is allotted towards AI infrastructure and coaching as you utilize your proprietary information and plus your management there?

RJ Scaringe — Chief Govt Officer

Yeah. Thanks, Adam for the query. That is such a essential focus for us as a enterprise and one thing we’re actually enthusiastic about as we take a look at the, you understand, months and years forward simply how a lot this house is evolving and altering. However to your query, I imply, we actually must wind the clock again about three years once we began the event on what launched into the Gen 2 platform.

And the choice we took then was actually constructed across the view that self-driving methods are going to be very a lot AI-centric, and there is going to be giant information flywheels and platforms for coaching a basis mannequin. And in an effort to do that basically properly and, in reality, I might say, in an effort to do this in any respect, it is crucial that you’ve uncooked alerts coming from the cameras and another components of the notion stack; in our case, it is cameras and 5 extra radars. And people uncooked feeds must feed right into a compute platform that has in-vehicle sufficient compute — and as you mentioned, you understand 10x what we had in Gen 1 — sufficient compute at an inference degree to have the ability to do the real-time decisioning to function the automobile. After which, that information flywheel, after all, is feeding our offline mannequin that we’re persevering with to coach each by information and thru simulations that we constructed from that information.

And so, there’s value components related to all of this. After all, we made the choice to architect the digital camera platform and the compute platform within the automobile. So, we’ve an impressive {hardware} group that is finished all of the design work and engineering work on that. After which, there’s a considerable amount of work to construct the software program platform that is working on that {hardware} platform.

And people groups we have constructed out throughout the firm, and I am actually pleased with the work that we’re doing. However as you famous, the actually form of much less seen, however actually essential component of that is that the platform has loads of headroom, and it’ll proceed to enhance. And I feel it is difficult on this house to have a look at a function set on a single day and never take into consideration what the second by-product, if you’ll, of the curve is, like how briskly is progress accelerating. And with the shift to an end-to-end strategy and the shift to with the ability to prepare with these giant information pipelines, it actually modifications essentially how we take into consideration autonomy, and it modifications essentially how we take into consideration development and options.

So, step one of what I’d contemplate to be significant, you understand, notable progress on our platform is the transfer to hands-free, which we’re launching right here shortly. As I mentioned in feedback earlier, we have a hands-free, eyes-off function for particular working circumstances that we’ll be launching subsequent yr. After which, we’ll be rising the variety of circumstances for which that function will probably be out there. You recognize, after all, within the final finish state, which we will debate when that’s, however in the end the top state, we predict hands-free, eyes-off will probably be — must be out there primarily in all places.

And so, on the — on — as we monitor towards that, we’ll first choose what we predict are essentially the most helpful and achievable components of delivering that hands-free, eyes-off function in 2026. And loads of coaching horsepower is required. And so, the GPUs obligatory to coach. As you place it, these are costly.

And I do assume there’s usually confusion considerably surprisingly across the nature of how we entry GPUs. So, it is actually a enterprise degree determination as as to whether it is capex, whether or not you are shopping for the GPUs and constructing an AI coaching infrastructure, or whether or not you are renting them, or whether or not you are creating distinctive off steadiness sheet methods to finance it and also you successfully have that present up as R&D or opex. And we’re able at the moment the place the world has acknowledged the necessity to construct much more AI coaching functionality. And there is a wide range of actually inventive methods we will entry a considerable quantity of GPUs with out having to deploy the capex ourselves.

And people are the constructions that we’re working actually arduous to attain. And with out saying extra element round what these deal constructions seem like, I feel you may most likely think about there’s numerous methods and we’re seeing numerous firms reveal methods to entry, you understand, tens of hundreds of GPUs to do any such coaching.

Adam Jonas — Analyst

I admire that. I feel folks on this name will probably be listening very rigorously to the Nvidia GTC classes as properly. Simply as a follow-up query on the software program and providers phase, that is actually useful that you simply break it out, and, maybe, you may — alternatives to observe up. However, Claire, are you able to affirm whether or not, to illustrate, relative to the 300 million or so that you simply acknowledge in 2024, whether or not you could have, first, should you included any in your assumptions for 2025? Or might you inform us, is it related or larger or decrease? After which the three way partnership revenues from {the electrical} structure, I do know it follows a sort of a scale, a spooling up as you move by time of the two billion.

I do not know should you might give us any particulars to how a lot was included within the fourth quarter and sort of how that scales up over the course of the yr. Thanks. Inside that phase. Recognize it.

Claire McDonough — Chief Govt Officer

So, one clarifying query. The query on the 300 million that was regulatory credit score associated?

Adam Jonas — Analyst

Right.

Claire McDonough — Chief Govt Officer

OK.

Adam Jonas — Analyst

Sure, thanks.

Claire McDonough — Chief Govt Officer

So, on the regulatory credit score outlook, we do nonetheless count on that we’ll have roughly about 300 million of reg credit, which is embedded inside our outlook for 2025 as an entire. And as I discussed, there’s, you understand, outcomes during which that worth might be, you understand, larger. There are definitely coverage impacts that would, you understand, be barely decrease however wished to only present that, you understand, guardrail as you consider what’s embedded throughout the outlook, which is a comparatively flat outlook from a regulatory credit score standpoint yr over yr. As we take a look at the JV-related revenues, we had 214 million of software program and providers income.

That was relative to roughly 100 million of baseline income within the prior quarter. Nearly all of the expansion was from the introduction of the three way partnership, and the JV was actually solely on-line for about half of the quarter in addition to you consider contextualizing the relative dimension. We’re not going to get into particular numbers there on the JV however wished to only present that relative, you understand, view as we take into consideration the expansion from roughly 100 million to 200 million, though we did have, you understand, underlying development in our non-JV-related software program and providers over that very same time-frame, as properly pushed by vital development in our remarketing efforts particularly centered round used Rivian automobiles. As we take a look at the broader outlook for 2025, I’d directionally information you to a spot of, you understand, north of about $1 billion of general income from the software program and providers phase in mixture and the JV taking part in —

Adam Jonas — Analyst

OK.

Claire McDonough — Chief Govt Officer

You recognize, a big position in that development yr over yr.

Adam Jonas — Analyst

Yeah. Thanks, Claire. Thanks, RJ.

RJ Scaringe — Chief Govt Officer

Thanks, Adam.

Operator

Our subsequent query will come from Mark Delaney with Goldman Sachs. Your line is open. Please go forward.

Mark Delaney — Analyst

Sure. Good afternoon. Thanks for taking the questions. I observe up on the Rivian autonomy platform, and nice to see the earnings the corporate is now producing from — are you able to hear me?

Operator

Now we will, however you dropped.

Claire McDonough — Chief Govt Officer

Hello, Mark. Please go forward.

Mark Delaney — Analyst

OK. Thanks a lot for taking the query. I had a follow-up tied to the autonomy platform. And very nice to see the software program and providers earnings coming by and study extra about all reviewing with AI to additional enhance the options going ahead.

I do need to double-click on the economics of that. It has been a reasonably topical merchandise throughout the monetary group. And I wished to get your newest views round to what extent you assume Rivian can cost for these merchandise going ahead? And we have see seen in China, a number of the hands-free merchandise are being offered on automobiles at fairly low costs. And, you understand, what’s your view about your capacity to monetize this, and particularly as you get to Degree 3 and hopefully get folks time again? Do you assume that may turn into a significant enterprise driver for Rivian?

RJ Scaringe — Chief Govt Officer

Yeah. Thanks, Mark. It is a query we internally spend loads of time on as properly. And I feel we have to separate the quick to medium time period from the very long run.

And within the quick to medium time period, the place we imagine there’s going to be relative benefits that we’ll must others. There will probably be extra of a chance to cost that into the Degree 3 options that we really consider it extra as a hands-free, eyes-off function and given the SE designations of Degree 2, Degree 3 turns into so complicated and blurry. However on a hands-free, eyes-off function, we do see a chance for that to be a priced function. However over time, it should rely so much, as you identified, on the aggressive panorama and what others are charging for these options.

And whether or not it is a function that you simply pay for as a check-the-box improve, or whether or not it is embedded into the automobile pricing, that is actually going to stay to be seen. However I feel the macro actually essential level right here is that whether or not it is in automobile pricing or whether or not it is as a paid separate check-the-box function we imagine that it’s going to create financial worth for us as a enterprise. And that is actually why we have invested so closely and proceed to take a position so closely on this space of the enterprise. And it is one of many areas we’re, you understand, most enthusiastic about that we predict, as we begin to see the progress, that nonlinear progress I talked about by way of the compounding advantages of a vertically built-in stack will actually begin to play out out there for shoppers after which for remainder of the enterprise.

Mark Delaney — Analyst

Very useful, RJ. My second query was a follow-up across the 1.96 billion of proceeds from the JV that you’re going to be recognizing over about 4 years. Are you able to assist us higher perceive the gross revenue implications of that incremental income because it flows by?

Claire McDonough — Chief Govt Officer

So, you may take into consideration that as, you understand, pure revenue because the as we undergo the flow-through of that deferred income stream over the course of the following 4 years. It is very important observe that it is not going to be successfully straight lined over the course of these 4 years. It is going to be distributed primarily based on the continued improvement of the three way partnership as an entire. So, extra, you understand, back-end weighted as we take into consideration the popularity as an entire.

Mark Delaney — Analyst

Thanks.

Operator

Our subsequent query will come from George Gianarikas with Canaccord Genuity. Please go forward.

George Gianarikas — Analyst

Hello, everybody. Thanks for taking my questions. Perhaps I might like to grasp a bit of bit extra in regards to the quarterly cadence you count on round deliveries in 2025. You talked about the primary quarter could be about 8,000.

Any coloration as to what precisely you propose to deliver down the strains? Is it Q3 or This fall? And the way ought to we count on the yr to progress? Thanks.

RJ Scaringe — Chief Govt Officer

Thanks, George. We’re with — Javier spoke to it a bit of bit earlier, however we’re within the means of constructing a big growth to our plant that can home common meeting within the physique store for R2. And actually, there is a image in our This fall shareholder letter. That is perhaps just a few days outdated, nevertheless it’s quickly being constructed out.

I am actually excited with the progress we’re seeing there. However there’s different points of the plant in Illinois that we’ll be sharing between R1, R2 and our industrial vans and essentially the most essential of these is our paint store. And so, we’ll be shutting down the general plant to combine the R2 line into the paint store and, to a lesser diploma, into the stamping operation for the plant. And people are the shared areas, which importantly are actually excessive funding areas as properly.

So, we’re in a position to share and leverage the paint store and in a position to share and leverage our stamping operation. And so, that one month roughly shutdown has been mirrored in our numbers within the steerage that we’re offering. And as we have finished earlier than with the Gen 2 launch, we need to be actually clear as early as attainable in order that that does not shock anybody, so we all know that, that is coming. It is intentional, it is deliberate.

The manufacturing volumes you are going to be seeing from us in Q1 and Q2 replicate and ponder that shutdown in order that we’ve ample suppliers, ample stock automobiles to help the total yr.

George Gianarikas — Analyst

Thanks. And perhaps as a follow-up, any touch upon the DOE mortgage and the uncertainty in Washington round these funds doubtlessly being dispersed? Thanks.

Claire McDonough — Chief Govt Officer

Thanks, George. We’re actually trying ahead to working with the brand new administration and Division of Vitality on our mortgage. And we share within the president’s want to deliver jobs again to the U.S. Our mortgage would allow 7,500 new manufacturing jobs along with the greater than 10,000 jobs that we, as Rivian, have created throughout the enterprise over the course of the final three years.

And as you simply heard from, you understand, RJ, we’re additionally serving to to advance American innovation across the transportation sector, which we imagine is strategically essential as a worldwide trade as an entire and preserve that alignment with the administration on this plan of action as an entire. And the mortgage will proceed to offer essential capital, you understand, for us as we glance to scale the enterprise and take Rivian from, you understand, the 215,000 items of capability in regular to including a further 400,000 items of capability over time.

RJ Scaringe — Chief Govt Officer

Yeah, the opposite factor to bear in mind, you understand, within the context of simply U.S. management and innovation round transportation and vitality methods is the size of change that we’re seeing throughout the planet as we electrify. So, that is the Europe electrifies, China electrifies, remainder of world electrifies. The size of that requires a mosaic of various firms to be producing extremely compelling merchandise and merchandise that give prospects decisions as they begin to consider electrification.

And we actually imagine and we’re very aligned with the administration on this that the U.S. appears to proceed to be a world chief on this regard. And our funding into electronics into software program, into autonomy, and AI, these are actually key areas for us as a rustic to proceed to train the management place in. And it is essential that we, as a rustic, even have many various firms which are profitable in coming into in these areas and are profitable and complementary towards each other.

Operator

Our subsequent query will come from John Murphy with Financial institution of America. Your line is open. Please go forward.

John Murphy — Analyst

Good night, guys. Claire, I simply wished to — only one fast query on the gross revenue year-over-year. I simply need to attempt to perceive appropriately and if there are another items within the constructing blocks, however beginning for about 1.2 billion unfavourable in 2024. You bought volumes, you understand, flat to down on a year-over-year foundation.

So, assuming it is not an excessive amount of of an affect, perhaps barely unfavourable there. It sounds just like the software program and providers income goes up by about 800 million yr over yr. So, the 28% gross margin, that is a bump of two.24%. So, that leaves, you understand, horseshoes and hand grenades about $1 billion.

You recognize, it feels like it will likely be acquire from a decrease BOM and form of the associated fee financial savings there. Is that the place the majority of that different $1 billion is coming from? Or are there another components that we must be contemplating?

Claire McDonough — Chief Govt Officer

Certain. So, as you consider the baseline for 2024, and that does embody, you understand, some degree of three way partnership in it however we had about $484 million of software program and providers income in mixture, or should you look, you understand, at extra of what was the prior run fee, about $100 million 1 / 4, give or take, as an entire. So, that offers you a bit of little bit of a framework to assume by the general outlook. As we take into consideration the composition of the general gross revenue, we are going to see a big profit from the continued gross revenue of the software program and providers enterprise.

As I discussed beforehand, we count on this to be north of $1 billion. And in line with what you noticed from us with the 28% gross margin in This fall for software program and providers. We anticipate with the ability to obtain, you understand, a gross revenue margin within the 30% space for the software program and providers aspect of the enterprise. And so, you heard from RJ and Javier are on all the value effectivity drivers that we’re working by inside our manufacturing facility with our suppliers.

Now we have ongoing commodity tailwinds, and that can notice over the course of the yr. However there are some, you understand, offsets to that as we take into consideration a number of the potential policy-related impacts or demand impacts that is embedded inside our steerage after which the truth that we are going to now not have significant LCNRV-related advantages in 2025, given the enhancements that we have made in our underlying value construction, which has dwindled that LCNRV steadiness as we attain, you understand, This fall of 2024 as an entire. So, with all of these places and takes, we do have a unfavourable automotive gross revenue outlook from a GAAP foundation, however we do anticipate that we’ll be being profitable should you regulate that for a number of the noncash gadgets, together with our depreciation expense or stock-based compensation expense as an entire. And that collectively is what is going on to be driving and enabling the roughly $800 million to $1 billion of enchancment in adjusted EBITDA since we can have some underlying development of our R&D expense, our SG&A expense as we proceed to spend money on our autonomy platform as we proceed to spend money on the expansion of our service and gross sales infrastructure as properly.

So, hopefully, that offers you a bit of little bit of a taste of a few of these completely different places and takes to get us to the modest mixture gross revenue outlook.

John Murphy — Analyst

OK. That is useful. After which, simply the second query. It is robust for us to inform, you understand, externally, however we’ll be taking a look at a yr in 2025 the place volumes are, you understand, flat to down.

Quite a lot of that looks as if it should be pushed, to some extent, from capability constraints and changeovers. However as you consider 2026, is there any cause to assume that, you understand, R1 and the industrial van cannot develop quantity? Or I imply, how are you pondering — I do know it is a bit of bit form of presumptuous to ask about ’26 already. However I imply, taking a look at that flat yr, I feel some skeptics may say, hey, pay attention, the R1 and the industrial banner are at their run fee ranges and any development goes to come back from R2, you understand, R3 over time, and these merchandise are the place they’re. You recognize, however an optimist would say, pay attention, you understand, as volumes ramps up, you may be capable of take pricing down over time and provide, you understand, even higher worth to the patron that the volumes might go up considerably.

I imply, which finish of the spectrum do you assume is correct, or is it sort of down the center?

RJ Scaringe — Chief Govt Officer

Thanks, John, for the query. Once we made the choice to launch R2 in Regular. Quite a lot of the main focus on the time was on the capex effectivity and the working effectivity of, you understand, one management group that is working one plant throughout three completely different merchandise. As I spoke about earlier at the moment, the sharing of the paint store, exhibiting of stamping and, subsequently, the discount in capex per unit launched with R2.

One of many areas that we did not spend sufficient time speaking about, and it is good you requested this query so we will actually go deeper right here, is that by having R1, R2, and our industrial van all in the identical plant. And the way in which that we have designed the plan is there’s flexibility between the completely different product strains. And essential to notice is that R1 is our flagship product. And once we take into consideration extra price-sensitive prospects and the mass market buyer, that is the aim of R2 after which subsequent R2, after all, however R2 goes to actually open up the marketplace for and herald shoppers at the moment that will love the model.

They love our merchandise however simply cannot make this step to, you understand, automobiles with ASPs which are over $90,000 and as a substitute are going to be taking a look at one thing that is, you understand, about half that with a beginning worth of $45,000 with R2. And so, that flexibility is absolutely an enormous benefit for us as we take into consideration the Regular operation, the Regular, Illinois operation in that we do not have to be overly exact on precisely what R1 does or R2. And the plain query of, is there cannibalization danger between R2 and R1, we’ve a degree of resilience round whether or not it is R2 sale or R1 sale. And that is by design.

That is how we have architected the plant, and it is also what’s constructed into our plan. And so, simply to restate a number of the issues that Claire and I spoke about earlier, the associated fee construction in R2 represents such a big enchancment even over the already improved R1 that we’re very blissful to have prospects determine in as a substitute of R1 automobile, I’ll buy an R2. The non invoice of fabric COGS is properly beneath half of what R1 is. And the invoice of supplies, as we have mentioned a few instances right here, with 95% of the automobile sourced, we’re projecting that to be about 50%, about half of what the R1 invoice of supplies is.

John Murphy — Analyst

Very useful. Thanks very a lot.

Operator

Our subsequent query will come from the road of Shreyas Patil with Wolfe Analysis. Your line is open. Please go forward.

Shreyas Patil — Wolfe Analysis — Analyst

Hey. Thanks a lot for taking my query. I admire the incremental coloration. You offered on the software program and providers a part of the enterprise.

And perhaps if we will simply put apart the BW settlement, I used to be questioning, RJ, should you may give us a way of the way you’re serious about the income alternative there. Any insights you may present on the sort of take charges you are seeing on Join+, the way you see adoption of the ADAS platform over the following few years for the providers market alternative? And perhaps, Claire, should you can simply remind us what the long-term gross margin potential right here is?

RJ Scaringe — Chief Govt Officer

Thanks, Shreyas. We made the choice a very long time in the past to verdict clinic fee the digital stack throughout the automobile. So, that is all of the — what you may classically name the ECUs within the automobile. And that allowed us, as we have proven with Gen 2, to actually consolidate the variety of compute platforms throughout the automobile to a a lot, a lot smaller quantity than what you’d discover in a standard automobile.

And together with that, we have additionally vertically built-in the software program stack that is working throughout these drastically decreased variety of compute platforms throughout the automobile. And what that is finished for us is just a few issues. One is it is created — it has been a giant contributor to what’s helped create a extremely fascinating model the place our prospects are — get pleasure from understanding that the automobile is getting higher month over month. With each over-the-air replace that we do, we’re including new options.

We’re responding to suggestions. We’re reflecting shifts in know-how topology. So, as you consider issues like generative AI and the way that performs right into a person interface or person expertise in a automobile, with the ability to reply to those modifications has been actually highly effective. But it surely additionally, after all, unlocked one other enterprise for us, which is what’s been launched with the three way partnership.

And the $5.8 billion three way partnership and related know-how licensing that we’re seeing actually validates the power of the platform that we have constructed. And it is — in some ways, it is similar to how we have additionally approached self-driving, the place it takes an incredible quantity of labor to construct the platform, that is the {hardware}. So, notion stack, the compute stack, after which constructing all of the infrastructure to drive this huge coaching flywheel, this large information flywheel, that enables us to get higher and higher and higher and compound these enhancements, as I mentioned earlier. And so, these options, whether or not it is Join+ within the automobile the place we will add extra options, add connectivity.

After which, as we talked about earlier, the power to hyperlink self-driving and growing ranges of functionality on our self-driving platform, to paid options is one thing that we predict could be very actual within the close to to medium time period, over time, you understand, we’ll watch and see how the market performs out, whether or not these options get embedded into the automobile as a part of the general automobile worth, or whether or not these are, as I put it earlier than, check-the-box options. However actually essential right here is that these are applied sciences that we management, applied sciences we’re growing, and applied sciences that get measurably higher, notably higher, each single month. And that has created a dynamic the place, you understand, within the case of auto software program. Our head of software program, Wassym, is well-known within the Reddit types as a result of he is continually on their partaking with our prospects.

And that is superior. It is nice to have prospects which are anticipating and excited to see their asset, their automobile get higher month over month.

Claire McDonough — Chief Govt Officer

And, Shreyas, as we take a look at the long-term trajectory from a margin standpoint, it is a bit of bit arduous, given all the completely different places and takes by way of the relative mixture of line gadgets that compose the software program and providers enterprise and a number of the extra vital unlocks as you consider extra improvement licensing alternatives for the long run as an entire. So, I’d extra guard you towards a number of the near-term impacts, which might situate inside that 30% margin ZIP code as we take into consideration the pretty completely different margin profiles of issues like remarketing or automobile upkeep and restore providers relative to a number of the higher-margin subscription-related income streams which are additionally embedded inside this phase as an entire. However we do see this as a giant alternative for Rivian over the long run, and we’re excited to now have the chance to have this be a dimension and scale that we will break it out individually and supply extra visibility into the go-forward operations of our software program and providers phase.

Shreyas Patil — Wolfe Analysis — Analyst

OK. Nice. And perhaps only one follow-up. Fascinated about the 2027 targets that had been offered on the analyst day, primary, simply wished to verify these numbers didn’t embody any profit from the Volkswagen deal.

So, in principle, that may be incremental. After which, additionally, how to consider we do see an IRA repeal. You recognize, was the advantage of the $7,500 credit score embedded in your sort of pricing assumptions round R2?

RJ Scaringe — Chief Govt Officer

You recognize, as regards to IRA and R2, we have — I might say, really, typically, the way in which we have designed the enterprise, that is the R1 product line, the R2 product line, R3 product line, we have thought of these components of the enterprise and the final word underlying value construction unbiased of IRA. Now, that is to not say {that a} $7,000 tax credit score is a useful tailwind, it definitely is. However we have architected the enterprise and we have inbuilt loads of flexibility by way of automobile configuration and, subsequently, pricing related to completely different fashions or variants that contemplates each a world with the $7,500 credit score and a world with out the $7,500 credit score. And since it applies equally to all, it does not current a relative benefit or drawback to any of us, together with ourselves.

It simply signifies that we would have liked to be very contemplative of that as we design the automobile structure.

Claire McDonough — Chief Govt Officer

After which, on the ’27 goal itself, as you rightfully referred to as out, we’ve loads of positives because it pertains to the introduction and consolidation related to the three way partnership and profitability related to that. However we even have some detractors because it pertains to the broader coverage outlook as an entire. In mixture, we nonetheless see a path to EBITDA optimistic in 2027, however that does require the advantages that we’ll see from the, you understand, JV and software program and providers to ship to that very same goal.

Shreyas Patil — Wolfe Analysis — Analyst

OK. Nice. Thanks.

Operator

This concludes the Q&A piece of the decision. I’d now like to show the decision again to RJ Scaringe for closing remarks.

RJ Scaringe — Chief Govt Officer

Thanks, everybody, for becoming a member of us at the moment on the decision. Hopefully, as you heard, we’re actually pleased with the work the group has finished to drive the sturdy efficiency you noticed in This fall. As I mentioned in my opening feedback, the $31,000 in value discount per automobile displays a considerable amount of work and efforts by all of our groups throughout operations, product improvement and, after all, the remainder of the enterprise. However as we’re trying ahead right here, we’re ecstatic across the alternative with R2.

We predict it is actually essential to offer to the market and to shoppers a selection that is extremely compelling at a worth level that addresses a big, giant proportion of patrons right here in america and, for that matter, in Europe as properly, however importantly, is addressing these prospects with a product that is each, you understand, priced accordingly, but additionally has a a lot, a lot decrease value construction. And so, we’re laser-focused as a group on delivering on that value construction, guaranteeing a clean and sturdy launch and guaranteeing that we construct out the remainder of the enterprise to help the dramatic step-up in scale that R2 will deliver with it. So, that is all of our go-to-market features. The service infrastructure, the supply infrastructure, and, after all, the methods that allow all of that.

And also you’re seeing us drive effectivity into how we run our enterprise. As Claire talked about earlier than, even with all the expansion that we have skilled over the course of final yr, we have been in a position to scale back our opex throughout that very same time-frame. And so, it displays including scale whereas concurrently driving effectivity into the enterprise and eradicating prices from the enterprise. And we’ll proceed these efforts by the launch of R2.

And we’re excited, and I definitely cannot wait to see R2s entering into buyer palms and seeing them rolling off the road in Regular. So, thanks, everybody, for the decision, and we’ll sit up for the following one.

Period: 0 minutes

Name individuals:

Tim Bei — Vice President, Investor Relations

RJ Scaringe — Chief Govt Officer

Claire McDonough — Chief Govt Officer

Dan Levy — Analyst

Javier Varela — Chief Working Officer

Adam Jonas — Analyst

Mark Delaney — Analyst

George Gianarikas — Analyst

John Murphy — Analyst

Shreyas Patil — Wolfe Analysis — Analyst

Extra RIVN evaluation

All earnings name transcripts