Rivian CEO Won't Reveal Order Numbers for the R2

The main question I got from our audience for you is update us on the R two reservation number. I think you haven't really given us one since that initial March reaction. So what's the latest with R2 in the reservation backlog? Yeah, the excitement around R2 and you know, just the product and what it represents for us in terms of expansion, the brand has been outstanding different than what we did on R1. We've taken the decision to not disclose where we are in terms of reservations. It causes a lot of churn and noise from a customer point of view, really. And we've taken a view of we want to be customer centric and how we look at this with the lot, with how we managed our pre-order process with R1. But, but there's a tremendous level of excitement and we're working as hard as we can to get R2 to market. And one, if you could give us just a little bit more detail here. I know the like you said, you've learned from the R1 experience, but are we talking about thousands, tens of thousands? Any more color you could provide there? We gave on the on the day of the launch, we gave a number of of 60,000. Now we we've obviously grown a lot from there. But the challenge with this number is it's a false metric and it just causes it just caused a lot of noise. And so we'd like to rather focus on the product out. We're two years out from from launch and our goal is to be ramping production as quickly as possible so that people don't have to wait as long as they had to wait in the case of our R1 products. RJ Something I noticed interesting in your filings is the proportion of the R one generation that at least versus bought seems to be going up. Could you give us that proportion? And is it a good thing for Rivian right now in this environment where you're between the two growth phases, if more one generations at least? Yeah, yeah. We don't disclose the split between sales on lease. We now we've expanded lease to offer that on R1 as, as well and we've added a number of states that we offer leasing. I believe it's about 32 states now. The key to to recognize is leasing does have an advantage for electric vehicles in that any lease qualifies for the 7500 or tax credit. And so that that leads to a disproportionately large number of leases relative to an internal combustion engine vehicle, given the benefits of that of that credit. And I do want to talk a little bit about what's going on with the factories, because you shut down some of the assembly lines to make component upgrades. If you could just walk us through the math and sort of the path forward on how that gets you to positive gross profit by the fourth quarter, that would be helpful. Yeah, we. We started production in late 2021, and this is the first time I, you know, walking through the plant that there had been no vehicles on the lines. At the start of April, the plant was really empty. We drained out everything that we were producing with the, you know, largely original supply chain and component design made a large number of changes to the plant, and that also had a number of new suppliers come on board, replacing existing suppliers to be part designs and component designs. And that's going to lead to a step change improvement in our cost structure, both at the building materials level but importantly also at the what we call the conversion cost level, allowing the plant to run more efficiently. And we did a similar shutdown with our EDV program, and that was something we did at the beginning of 2023. We took about 35% below material cost out of the vehicle. With that shutdown and the scale of change we've made with our one here is very similar to that. RJ The criticism and the skepticism and the worry from some of the investor base and the R one generation owners, future two generation owners is that the gross profit plan is based on technology and cost efficiency, cost saving, not on scale. And so they don't understand the middle pathway, right? So you shut down the assembly lines, the component upgrades are in, and then gross profit, modest growth profit happens in in four. Q How can you be confident with that? Yeah, well, one of the big things that I think often isn't fully appreciated in the cost structure of the vehicle is how much of that cost structure or links to supplier source components. So everything from seats to tires to brake systems that are coming from suppliers and the vast majority of our building materials that were that have been in our vehicles are from suppliers with contracts renegotiated, negotiated in 2018, 2019 and in some parts into 2020. And so the supplier leverage that we had and the negotiating leverage we had, you know, as a company before we launched, before that been demonstrated, customer demand is vastly different than what we have today, where we have the bestselling SUV in California, over 70,000 cars, electric or gasoline. Either way, it's the bestselling SUV in the premium segment with a bestselling EV over $70,000. The brand's resonating 5 to 5% market share overall in terms of EVs on a high ASP flagship product. So we've seen that really positive reaction to the product, and it's allowed us to renegotiate very significant reductions in our cost structure. And these are not things that we hope will happen. These are contracts that are in place. And so with the implementation, all of these parts, we're now going to start to see the these contracts flow into the build materials flow into our cost structure. And it's why, you know, you've heard from Claire and I continually state with confidence that will be gross margin positive in Q4. And, you know, I think the other thing, as you look at our numbers now, there's a lot of elements that make it hard to read. There were some parts associated with the shutdown over 9000, about $9,003 with a cost on a per vehicle basis with the shutdown and changeover that we won't see as we go to the end of the year. We're accelerating a significant amount of depreciation. So those are $15,000 per vehicle of depreciation, which will reduce dramatically as we look at the end of the year. And then above and beyond those those types of costs that are that are that we're not going to see the end of the year, the improvements in our material costs, the improvements in the operating efficiency, the plant, you know, where the line rates increased by 2%, we'll see that allow us to achieve this positive gross margin and then, of course, grow from there and continue to drive towards our 25% gross margin target. RJ You've had a lot of executive changes. Franklin is leaving review and you have a new CEO, formerly of Volvo, and you've done headcount reduction. One of the questions the audience has is about the team is, is it now settled for the R2 project that's to come? Yeah. Yeah, we're you know, one of the things about building a company like this that's growing and scaling is the needs of the business evolve and change as we grow. And perhaps the most important part of my job is to make sure we have the right team in place, the right leadership structure, and the skill sets necessary for the growth that sits in front of us and, you know, the climb that's in front of us. And so we're really excited to have Javier join to take on all of our operations. And, you know, his experience in building out cost efficient, scaled global production is going to be really valuable for us as we think about our two. And with that, we've built a really robust product development team and process the team that run the plant. Our plant manager, Tim Fallon, the teams that run the different shops within the plant, it's a very robust team and it was a big part of what drove us to make the decision to launch our two in our normal Illinois facility. We wanted to leverage the strong organization and teams that we built there to risk for the launch of that product and our trade. We don't have much time left, but I do want to talk about the commercial side of the business because some eagle eyes on Twitter or X spotted that there were d, d, h l signage spotted outside one of your plants. Is there any update you can give us on the status and the pipeline when it comes to your new customers? Yeah, we've we've not made other announcements. You know, the, the sort of funny part I guess you will, if you will in the commercial customers is once they're out there and these pilots that we're running, it's pretty hard to hide them. They're big vans and they have logos in the side. But you know we're, we're running a number of pilots as we've got as we've said before, these pilots will take really the course of this year to not only just get customers familiar with running an electric vehicle in their fleet, but importantly, how to integrate charging, how to integrate our our service, where we go on site to provide service for these for the vast majority of customers, such that we'll see the really the beginning of the increase meaningfully in demand from non Amazon customers for the band in 2025.